STI hits 30-month high as net institutional buying of heavyweights soar

THE first trading session for the Chinese New Year saw the STI return to levels last seen in July 2019, ushering in more than S$200 million of net institutional buying, before ending the week at 3,331.41 with a 6.7 per cent gain for the first 5 weeks of 2022.

For the month of January, Singapore stocks reported S$803 million of net institutional buying, following on from more than S$200 million in net institutional selling in December 2021. During January, the STI gained 4.0 per cent, and ranked as Asia-Pacific' s most defensive stock benchmark for the month, as the FTSE Asia-Pacific Index declined 3.9 per cent in Singapore dollar terms.

The higher energy and food prices, supply chain constraints in addition to the Omicron variant, have seen multiple central banks begin withdrawing accommodative monetary policy, while the International Monetary Fund (IMF) has made a 0.5 per cent downward revision to its global growth forecast to 4.4 per cent in 2020.

Likewise, in Singapore, CPI inflation began 2021 with a 0.2 per cent year-on-year (yoy) gain in January and ended 2021 with a 4.0 per cent yoy gain in December 2021. The MAS raised the S$NEER policy slope slightly in January, with the off-cycle tightening attributed to the outlook for inflation on recovering global demand and persistent supply-side frictions.

Sector flow
Due to the nature of this current wave of inflation, the above-trend growth forecast for 2022 and the current juncture of central bank policies, the key market drivers have had varied impacts across stock sectors.

Within the STI, the bank sector, comprising DBS,  DBS: D05 +0.7%  OCBC  OCBC Bank: O39 +0.08%  and UOB,  UOB: U11 +0.97%  which maintain a combined 45 per cent weight in the STI, averaged 9.5 per cent gains in January on S$842 million of net institutional buying. The remaining stocks saw S$39 million of net institutional selling in January.

Banks
While global Reits and technology stocks saw some headwinds in January, sectors such as banking and energy saw tailwinds. During January, the CME FedWatch Tool expectations for a US interest rate hike at the Mar 16, 2022 FOMC increased from 50 per cent to 100 per cent, with expectations that rates would be increased to the 125-150bps target range by the Dec 14, 2022 FOMC, rising from 10 per cent to 34 per cent.

This coincided with the 2-year/10-year US Treasury Yield curve extending the 60bps upward shift seen in 2021, with a 30bps upward shift in so many days. The sooner rather than later outlook for the normalisation of interest rates saw global banks outpace global benchmarks and drive the performance of the 3 STI heavyweights in January.

The imminent US interest rate increases are seen to positively impact net interest margins (NIMs) of the banks. From Q4 2019 to Q3 2021, DBS' NIM declined more than 40bps from 1.86 per cent to 1.43 per cent, while OCBC' s NIM fell 25 bps from 1.77 per cent to 1.52 per cent and UOB' s NIM dipped 21 bps from 1.76 per cent to 1.55 per cent.

Other drivers of the bank sector to watch in 2022 other than loan growth, include the ongoing digitalisation of the industry, broadening of consumer and wealth management services, continued focus on supply chains and growth markets, and the ability to keep allowances low. On cue, UOB proposed to acquire Citi' s consumer business in Indonesia, Malaysia, Thailand, and Vietnam on Jan 14, while DBS announced that it was acquiring Citi' s consumer banking business in Taiwan on Jan 28.


 

 

DBS' s purchase of Citi' s Taiwan consumer seen as ' positive'

DBS TO ACQUIRE CITI&rsquo S CONSUMER BANKING BUSINESS IN TAIWAN
Acquisition combines growing and profitable DBS Taiwan business with prized
Citi franchise

Accelerates DBS Taiwan&rsquo s growth by at least 10 years material synergies to be realised from enlarged scale