National Day Rally?
Will there be a National Day Rally?
This was an excerpt from OCBC's report today.
In another two days’ time, Singapore celebrates its 41st National Day. Is there going to be a National Day rally? Traditionally, most market players will be looking forward to a rally in the run-up to National Day, but unfortunately, it is rare if historical information is anything to go by.
We have tracked statistics over the past few years and found that since 1990, the market not only failed to stage a rally but in most cases, the benchmark Straits Times Index (STI) actually headed lower. In 12 out of the past 16 years, the STI actually eased down up to a month before the actual National Day. Post-National Day, the market typically opened lower the following day in 12 out of the past 16 National Days.
Why the fairly lacklustre performance? This could be due to several reasons, with one being that most investors use this period to take short regional vacation breaks. More importantly, the event to watch is the National Day Rally speech, which is the highlight in the month of August.Typically, this takes place about 2-3 weeks after National Day and provides insight into the government's direction for the local economy. Depending on the speech, this could bring some cheer to the local bourse, although not to the same extent as the Singapore Budget in terms of corporate incentives and measures.
Increasing, from the US side, we are also seeing signs that the US Federal Reserve has reached the end of its rate hikes. Is the US Fed finally taking a break after two consecutive years of interest rate hikes? Based on recent comments from policy makers, they are signalling that the US economy is slowing, and economists are now not expecting another 25bps hike at the next meeting scheduled for 8 Aug 2006. Based on the latest Bloomberg survey, about 56% of the economists polled are expecting rate to stay at the same level versus about 62% expecting another quarter-percentage point hike in rate to 5.5% in the early July 2006 survey. While a stay in rate hike is positive, a large part has already been priced in.
Traditionally, high interest rate tends to draw interest away from equities. Currently, the STI stocks are offering an average yield of only 3.6%. Previously, when interest rates were low, stocks were attractive for both potential capital gains as well as higher dividends versus deposit rates. In addition, high interest rates also led to higher borrowing costs.For companies that are highly geared or have high capital expenditures in the past few years that were funded by borrowings, higher interest expenses could dent profitability. One key area of concern is the impact of high interest rates on corporate earnings. Even with a pause in US Fed Fund rate, local interest rates have already moved up drastically in the past two years and together with higher oil prices, are factors that could potentially dent corporate earnings, especially for the SMEs.
Recently, we saw concern over high interest rate taking the shine off local property stocks. Singapore listed property stocks have done remarkably well these past few years with stellar multi-year gains. The SES Properties Index gained 38% in 2003, 18% in 2004, 39% in 2005 and at the recent peak this year was up 29%. Since hitting the high in May 2006, property stock prices have tumbled and the index is now up only 12% for the year.Nevertheless, it is still a remarkable 4-year uptrend for the property sector.
However, one trend worth noting is that since May and together with the most recent round of rate hike, property stocks also took the biggest hit, down about 18% from the high. In a high interest rate environment, property stocks are vulnerable as mortgage rates move higher and we are already seeing the early signs of this being reflected in lower property stock and REIT prices.
Besides property, other segments of the Singapore equity market are less affected. Oil-related companies have seen robust orders in the past 18 months and this more than mitigate the impact from high interest rates and these companies are still poised to enjoy strong corporate earnings growth.Banking stocks have benefited from growing Asian economies and are still seeing healthy loan demand. The surge in 3-month interbank rate is also likely to be positive for banks, especially DBS with its large deposit base. Banks are also growing non-interest income from other fee-based activities. We believe that the big-cap stocks are fairly cash-rich and less affected in a high interest rate environment. (Carmen Lee)
This was an excerpt from OCBC's report today.
In another two days’ time, Singapore celebrates its 41st National Day. Is there going to be a National Day rally? Traditionally, most market players will be looking forward to a rally in the run-up to National Day, but unfortunately, it is rare if historical information is anything to go by.
We have tracked statistics over the past few years and found that since 1990, the market not only failed to stage a rally but in most cases, the benchmark Straits Times Index (STI) actually headed lower. In 12 out of the past 16 years, the STI actually eased down up to a month before the actual National Day. Post-National Day, the market typically opened lower the following day in 12 out of the past 16 National Days.
Why the fairly lacklustre performance? This could be due to several reasons, with one being that most investors use this period to take short regional vacation breaks. More importantly, the event to watch is the National Day Rally speech, which is the highlight in the month of August.Typically, this takes place about 2-3 weeks after National Day and provides insight into the government's direction for the local economy. Depending on the speech, this could bring some cheer to the local bourse, although not to the same extent as the Singapore Budget in terms of corporate incentives and measures.
Increasing, from the US side, we are also seeing signs that the US Federal Reserve has reached the end of its rate hikes. Is the US Fed finally taking a break after two consecutive years of interest rate hikes? Based on recent comments from policy makers, they are signalling that the US economy is slowing, and economists are now not expecting another 25bps hike at the next meeting scheduled for 8 Aug 2006. Based on the latest Bloomberg survey, about 56% of the economists polled are expecting rate to stay at the same level versus about 62% expecting another quarter-percentage point hike in rate to 5.5% in the early July 2006 survey. While a stay in rate hike is positive, a large part has already been priced in.
Traditionally, high interest rate tends to draw interest away from equities. Currently, the STI stocks are offering an average yield of only 3.6%. Previously, when interest rates were low, stocks were attractive for both potential capital gains as well as higher dividends versus deposit rates. In addition, high interest rates also led to higher borrowing costs.For companies that are highly geared or have high capital expenditures in the past few years that were funded by borrowings, higher interest expenses could dent profitability. One key area of concern is the impact of high interest rates on corporate earnings. Even with a pause in US Fed Fund rate, local interest rates have already moved up drastically in the past two years and together with higher oil prices, are factors that could potentially dent corporate earnings, especially for the SMEs.
Recently, we saw concern over high interest rate taking the shine off local property stocks. Singapore listed property stocks have done remarkably well these past few years with stellar multi-year gains. The SES Properties Index gained 38% in 2003, 18% in 2004, 39% in 2005 and at the recent peak this year was up 29%. Since hitting the high in May 2006, property stock prices have tumbled and the index is now up only 12% for the year.Nevertheless, it is still a remarkable 4-year uptrend for the property sector.
However, one trend worth noting is that since May and together with the most recent round of rate hike, property stocks also took the biggest hit, down about 18% from the high. In a high interest rate environment, property stocks are vulnerable as mortgage rates move higher and we are already seeing the early signs of this being reflected in lower property stock and REIT prices.
Besides property, other segments of the Singapore equity market are less affected. Oil-related companies have seen robust orders in the past 18 months and this more than mitigate the impact from high interest rates and these companies are still poised to enjoy strong corporate earnings growth.Banking stocks have benefited from growing Asian economies and are still seeing healthy loan demand. The surge in 3-month interbank rate is also likely to be positive for banks, especially DBS with its large deposit base. Banks are also growing non-interest income from other fee-based activities. We believe that the big-cap stocks are fairly cash-rich and less affected in a high interest rate environment. (Carmen Lee)
posted by Ninja Trader at 8/07/2006 01:58:00 PM
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