Weekly Commentary: 14 March 2022 – 20 March 2022
Negative returns from all major stock market indices for two consecutive weeks, fuelled by lack of positive developments in the Ukraine-Russia conflict. Growth stocks as loosely represented by the NASDAQ Composite (-3.51%) fared worst again, while the S&P 500 (-2.84%) trailed closely behind. The DJIA (-1.91%) held up relatively the better in comparison. The S&P 500 sectors also saw mostly negative returns, with the bottom three sectors being Consumer Staples (-5.77%), InfoTech (-3.79%), and Communication Services (-3.13%). In the other hand, Energy (+1.98%), Utilities (-0.69%), and Materials (-1.46%) held up the best. Energy outperformed last week due to the U.S. immediate ban on Russian oil and other energy imports in retaliation to the conflict while the U.K. has also stated that it is phasing out imports by the end this year. Closer to home, the STI (+0.71%) edged out the Hang Seng (-5.87%) that continued to experience significant decline for three consecutive weeks, the worst loss that the Hong Kong market has experienced since 2008. The correction was largely propagated by rate hikes fear, current domestic outbreaks that prompted a city-wide lockdown, and China’s lowest growth target in three decades.
The Consumer Price Index published monthly by the U.S. Bureau of Labor Statistics (BLS) had indicated that the U.S. inflation rate by the end of February had increased by 0.9% MoM to reach 7.9%. This is the highest we have seen since 1982’s 8.4% and is expected to remain in the high range due to the current surge in energy prices. Strong consumer demand, shortages of supplies such as semiconductors, and supply-chain constraints caused by the sporadic pandemic outbreaks had also elevated inflation for the past year. The high inflation has been the main driver for an increase in interest rate, which has been suppressed to stimulate economic growth during the pandemic for the past two years. Investors have been pricing in the upcoming rate-hikes and the aftermath from the Russia-Ukraine conflict, resulting in a punishing correction and high volatility in the stock market for the past few weeks.
The yield-curve is unchanged as the 10Y-2Y US Treasury yield spread remained at 0.25%. Both the U.S. 2-year and 10-year Treasury yields had increased by 30 bp to reach 1.78% and 2.03% respectively. The stock market sentiment remained weak and volatile as the global HY-IG spread expanded slightly by 2 bp to 2.48% while the CBOE Volatility Index (VIX) fell by 123 bp to 30.75%. Both are well over to their 50-day exponential moving average of 2.3% and 26.81%.
As can be seen below, weekly performance from the global REIT markets were mixed although the overall 12-month yield spreads remained positive and still favorable towards REIT’s forward total return. Back at home, the iEdge S-REIT Index (+1.81%) and all of the S-REIT sectors reported positive returns overall. The two S-REIT sectors that had performed the best were Office (+2.94%) and Hospitality (+2.12%). The lagging sectors in the other hand, were Healthcare (+0.71%) and Industrial (+1.21%).
In the positive side, the 7-day moving average of total COVID-19 cases fell slightly to around 16 thousand cases. Overall, there is also no change in the COVID policy stance from the Singapore government that is in favour of reopening. Last week it had announced that the streamlined COVID-19 measures will be implemented on 15th March, after previously being postponed for 2 weeks. However, further development will need to be closely observed in order to identify the right time for a recovery play as Omicron is delaying the pace. The supporting indicators are currently still weak. For example, 57 thousand inbound arrivals to the country in January is still significantly below pre-COVID range of 1.5-1.8 million visitors per month. Furthermore, a new variant called the Deltacron has been identified in France. If the Deltacron carries both the same transmissibility of Omicron and deadliness of Delta, we might see further retightening of travel and gathering restrictions in the future. How Singapore’s healthcare capacity will hold up in the upcoming waves will also be an important factor as Hong Kong had already shown us how quickly the situation will turn with an ill-prepared healthcare system, even with its zero-COVID approach.
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