Weekly Commentary: 05 June 2023 – 11 June 2023
Markets across the Asia-Pacific region are primarily showing a positive trend after U.S. President Joe Biden enacted a law to raise the debt ceiling, thus preventing the United States from failing to meet its financial commitments over the weekend. The debt ceiling bill, a result of bipartisan compromise, was approved in the Senate with a 63-36 vote on Thursday evening, garnering enough support from both sides to surpass the 60-vote requirement to prevent a filibuster. On Wednesday, it cleared the House after approximately 72 hours, with a voting margin of 314–117.
In Japan, the Nikkei 225 index made further gains, outperforming other global indexes for the month of May with a rise of 0.97%, while the Topix index started 1.16% higher. Investors will be closely watching for the Nikkei 225 to reach the 32,644 mark, which would represent its highest level since July 1990.
The South Korean Kospi index slightly increased by 0.44%, while the Kosdaq index showed a minor decline. The Australian S&P/ASX 200 index was 0.99% higher, with investors keenly awaiting the upcoming central bank rate decision.
Oil futures saw a significant increase following the decision by Saudi Arabia, a leading member of the Organization of the Petroleum Exporting Countries (OPEC), to further reduce oil production by one million barrels per day. Brent crude oil prices increased by 2.35% to $77.94, while West Texas Intermediate oil prices rose by 2.43% to $72.48.
In the U.S. on the past Friday, all three primary indices increased by more than 1%. The Dow Jones Industrial Average experienced a substantial leap of 2.12%, marking its best day since January. The S&P 500 saw a growth of 1.45%, and the Nasdaq Composite went up by 1.07%, achieving its highest level since April 2022 during the trading session. As for notable upcoming financial events, the next FOMC meeting is set for June 13-14.
Stock returns were mixed over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (-0.97%), S&P 500 Index (+0.35%), NASDAQ Composite Index (+2.52%). Other key market indices that generated positives returns consist of STI Index (+1.27%) only. 3 S&P 500 sectors registered positive returns last week – Information Technology (+5.12%), Consumer Discretionary (+0.37%) and Communication Services (+1.20%). Main underperformers for the week were from subsectors such as Consumer Staples (-3.21%), Health Care (-2.86%) and Materials (-3.06%). For 2022 as a whole, index returns were negative for the Dow Jones Industrial Average (-8.78%), S&P 500 (-19.44%) and the NASDAQ Composite (-33.10%).
The yield-curve remains inverted as the 10Y-2Y US Treasury spread widened to -0.82%. driven by U.S 2-year and 10-year Treasury yields falling 2bps to 4.54% and falling 8bps to 3.72% respectively. Market sentiment also became more risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 19 bps to 2.90% while the CBOE Volatility Index (VIX) has fallen 335 bps to 14.60%.
This coming week, there will be an update about China’s inflation status, final GDP revisions from the EU and Japan.
The global REIT market’s return was varied across the numerous benchmarks Thailand Property Fund & REITs Index (-0.19%) and Hang Seng REIT Index (-1.20%) were the notable REITs that generated negative returns over the past week. Closer to home, the iEdge S-REIT Index (+0.03%) and all of its subsectors generated positive weekly returns with Retail (+0.15%), the notable sector that outperformed the rest last week. REITs generally have been affected by decreasing yield spread as interest rates surged and investors price in the possibility of reduced distributions stemming from higher financing costs. However, we do expect inflows to return to the sector given the existing attractive valuations on offer and resilience offered by the REIT asset class in light of the waning global growth outlook.
Globally, REIT is also the best inflation-adjusted asset classes for the past 20 years. US-REIT dividend growth have outpaced annual inflation rate as measured by the Consumer Price Index except in 2002 and 2009 (shortly after the GFC). In Singapore, the iEdge S-REIT Index has returned 4.51% annualized for the past ten years in contrast to the average core inflation rate of 1.51%, and outperforming the STI’s 3.66%.
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