21th July, 2022 – Morning Brief
(This is generally a good brief write up, notwithstanding issues of sentence construction, idea articulation and grammatical mistakes. The positives are clarity of thoughts as a whole, the efforts at substantiation, and the systematic structure of the write up.)
Market Brief
| Index | As at 19 Jul | As at 20 Jul | Change (%) | Change (%) |
| DJIA | 31,827.05 | 31,874.84 | 47.79 | 0.15% |
| NASDAQ | 11,713.15 | 11,897.65 | 184.50 | 1.58% |
| S&P 500 | 3,936.69 | 3,959.90 | 23.21 | 0.59% |
| FTSE 100 | 7,296.28 | 7,264.31 | -31.97 | -0.44% |
| DAX | 23.59 | 23.54 | -0.05 | -0.21% |
| STOXX50E | 3,587.44 | 3,585.24 | -2.20 | -0.06% |
| Nikkei 225 | 26,961.68 | 27,680.26 | 718.58 | 2.67% |
| Hang Seng Index | 20,661.06 | 20,890.22 | 229.16 | 1.11% |
| SSE Composite Index | 3,279.43 | 3,304.72 | 25.29 | 0.77% |
| Shenzhen Component | 12,494.77 | 12,573.12 | 78.35 | 0.63% |
| FTSE 100 Index | 7,296.28 | 7,264.31 | -31.97 | -0.44% |
| Strait Times Index | 3,117.79 | 3,170.29 | 52.50 | 1.68% |
| KLSE | 1,428.76 | 1,436.98 | 8.22 | 0.58% |
| JKSE | 6,736.09 | 6,874.74 | 138.65 | 2.06% |
US: Market rallies as better-than expected earnings continues to reassures the market (Good!)
DJIA, NASDAQ and S&P 500 saw a gains by of 0.15%, 1.58% and 0.59% respectively. The rally was driven by the better-than expected earnings in the Q2, especially following positive outlooks shown by for Netflix and Hasbro the previous day. In the session the market gain was primarily driven by the technology sector which lead to saw the technology heavy NASDAQ gaining the most for the day.
However, this rally is expected to be short-lived as inflation and interest rate are still continuing to rise. The shortages of energy supply and resources would also pose a problem. further increasing the cost of companies slowing their growth. (Good efforts at commentary!) With rising cost, growth would be slower for most companies.
Europe: Market shows resilience as despite situation remaining negative
The European indices are at a flat line were flat at close yesterday today as with the overall market is showing marginal losses given the situation. The FTSE 100 was down by 31.97 or 0.44%, while DAX and STOXX50E dipped down by 0.05 or 0.21% and STOXX50E is down by 2.20 or 0.06% respectively.
On Tuesday, Putin, Russian President said that it Russia would “fulfill its obligations in full” in supplying gas to Europe provided that the turbine is received. If not, the gas supplies would decrease by 20%. Hence, the EU is now unveiling its emergency measure to conserve gas in fear that Russia might drastically cut the flow of gas supply. The plan is targeted at reducing the energy consumption of businesses and public buildings. which This, unfortunately, would drive down the productivity of its economy.
With Britain’s inflation rate reaching 9.4 percent, 0.1 percent above general consensus, ECB is now pressured to raise the interest rates for the first time in 11 years in order to pull inflation back to its target of 2 percent . However, the increase in interest rate must be done managed carefully as the it may crash the economy that is already suffering from the Russia-Ukraine war. They must take into consideration their debt-heavy member nations, such as Italy or Spain. The ECB is expected to carry implement a series of interest rate hikes with the first expected to be by 25 or 50 basis points.
Furthermore, Italy is facing an internal political crisis as Mario Draghi, Prime Minister of Italy had his resignation rejected by the head-of-state. Drahgi had earlier failed to unite the parliament and had urged the Senate that now was this is not the time for uncertainty, amid a myriad of challenges, from a struggling economy to the Ukraine war. He called for “courage, selflessness, credibility” from parliamentarians, asking them: “Are you ready?” The political mess in Italy could be a political and economic drag on the EU.
In conclusion, we would not be seeing an immediate rebound in the European market trend until there are improvements to the current situation.
Asia: Despite mixed news, the broad market closed higher
The Asian market closed significantly better than the previous day (20th July 2022??) with Hang Seng increasing by 1.11% to 229.16, SSE composite increasing by 0.77% to 25.29 and Shenzhen component by 0.63% to 78.35.
Evergrande with its expanded very aggressively by borrowing aggressive expansion underpinned by more than $300 billion borrowings and is now struggling to pay its with interest payments (or is it loans servicing?). Some suppliers to the property development company are choosing to not pay their loan obligations as they claim they are unable to do so due to failure of repayment from Evergrande. Other borrowers are also defaulting their loans as they fear another repeat of Evergrande housing debacle. Officials are now looking into letting people halt pause their mortgage payments on properties that are unfinished in an attempt to gain some stability over the situation.
There are Speculations are abound on whether the Evergrande group is ‘too big to fail’. If the government chooses to bail Evergrande out, it might influence other lenders to stop repaying their debt obligations. On the other hand, if Evergrande is left on their own, consumers who bought Evergrande’s properties will lose their money and there will be social unrest. Officials are urging banks to inject money to provide additional liquidity into Evergrande projects as well so that construction can be finish completed before they deal with the debt restructuring.
The Chinese government has to find a solution to rally all parties together and focus on completing unfinished properties before it gets too expensive to do so. Till then Until that is done, the social unrest issues in China will not be resolved.
Singapore: STI rallies together with SEA region
The Straits Times Index (STI) rallied following the US market rally on the previous day, closing by 1.68 percent higher at 3,170.29. The main driver of the rally was attributed the banking industry sector, which is attributed to the saw strong performances of UOB and DBS. which Their shares gained by 3.44% and 3.01% respectively.
There were 288 gainers and versus 183 losers in the broader market, with 982 million shares worth S$1.05 billion traded.
Overall, the other markets in the region also performed well with Jakarta Composite Index (JKSE) and Bursa Malaysia (KLSE) trending up following the uptrend as well.
Economic Brief
US: US existing home sales and mortgage demand on a decline
US existing home sales fell for a fifth straight month in June to the lowest level in two years as high prices and interest rates make buying a home too expensive. Home resales, which account for nearly 90% of US home sales, dropped 14.2% on a year-on-year basis.
This price hike is due to the lack of housing supply in the market. It may seem like increasing rent and house prices provide an incentive for builders to build more houses, but builders are facing their own problems with materials and labour becoming too expensive due to the rising inflation. (Unless you can provide the statistics, it is difficult to buy into this supply argument at this present moment. In fact, the price hike is a dated news, which admittedly, was induced by a momentarily supply shortage and the exuberance of bank lending and consumers’ overspending. The latest stats coming forth shows sellers are fast reducing their price tags as the cannot sell because the demand is dwindling. The concern going forward is new houses coming into the market in the short to medium term. Housing bubble in the making? Possibly. Likely to be aggravated by margin calls.)
The decrease in homesale also means that there are fewer mortgage applications as it has declined for three weeks in a row sitting at the lowest since 2000. The Mortgage Bankers Association (MBA) commented that the volume of loan applications decreased by 6.3% last week. (The loans decrease serves to confirm my assertions above. The current problem is essentially a slack in demand for housing.)
The weakening economic outlook, high inflation, and persistent affordability challenges will continue to curb the demand for housing in the US.
UK: UK home rental prices jump at sharpest rate since 2016
UK home rental prices rose by 3 percent from a year ago which is the steepest increase since 2016. This is due to the rise in property prices as there is a lack of supplies for housing. (Do support the argument by quoting stats or make reference to the source of information. Very much like the US situation, the over printing of money and pumping them into the economy have been instrumental in inflating property prices boosted by a very low interest rate environment.)
UK house prices surged 12.8 percent in the year to May, up from 11.9 percent in April. As of May, the average cost for a home is now £283,000, or about £32,000 more than a year ago.
As inflation rates and rents continue to rise, the UK will see an increase in the homeless.
Europe: Ukraine Seeks to Delay Debt Payments
Ukraine has requested for their debts of more than $20 billion in face value to be pushed back by two years (August 2024) (presumably you mean pushing back debt repayment?). This could save them an estimated 6.3 billion in interest (How so? Any debt restructuring involving postponement of principal repayment will end up paying more interest ultimately. And it is certain to get worse as interest rates are on the rise.) as the country faced a drop of 35 to 45 percent in its GDP during the war.
The delay was backed by major Western government such as the US and UK. On top of that, Ukraine’s finance minister, Sergii Marchenko, said in a statement that the plan had also received “explicit indications of support” from some of the world’s biggest investment funds including BlackRock, Fidelity, Amia Capital and Gemsstock. This request is made as Ukraine needed the funds to buy natural gas. One of the bonds due on 19 July 2022 has yet to be repaid. Ukraine might would be heading towards a default if these requests are not approved.
The increased demands on government resources due to the war has led to liquidity pressures and debt servicing difficulties in the country as the cost of the war has a 5 billion a month fiscal shortfall. The cost of war only increases day by day and an estimated amount of $100 billion is needed to rebuild Ukraine’s bombed infrastructure.
Asia
China: China Uses Tanks To Protect Crisis-Hit Banks (Not sure what purpose does this title serve as an advisory statement to the investors? The investment implications are not discernible here. This titling is fine when writing a political report.)
The accounts at Yuzhou Xinminsheng Village Bank, Shangcai Huimin County Bank, Zhecheng Huanghuai Community Bank and New Oriental Country Bank of Kaifeng in Henan province and Guzhen Xinhuaihe Village Bank in the Anhui province have been frozen since April 18, according to South China Morning Post. Citizens have been gathering outside the bank to protest (please elucidate on the reason as to why were their accounts were frozen.). The Chinese Communist Party sent tanks on Wednesday to scare Henan bank protestors amid large-scale protests in the province by bank depositors over the release of frozen funds.
With the social unrest caused by the closure of numerous companies and the large number of unemployed citizens, especially fresh graduates, it would seem like stability is of utmost importance (Company closures and unemployment does not automatically resulting in instability; otherwise, all other countries in the current global debacle can be said to be in similar boat. That conjecture is over stretched. Conflating too many issues.). This is on top of the debt crisis that is worsening by the day (Is this the Evergrande issue? Or across China? Need to be clear, otherwise, it ends up merely a sweeping statement.). However, despite promises that depositors in China’s Henan villages will get their frozen money back in batches with the first due on July 15, only a handful of depositors have received the payments. It seems like the banks of China are running into liquidity problems and they really do not have enough money to repay back the citizens (It is not liquidity problem per se as in the case of a mismanagement of funding or liquidity risk within a bank; the present problem stems from the usual fractional banking problem faced by the banking system as a whole coping with with an unexpected deposit withdrawals at one go. So we don’t normally associate fractional banking problem as a liquidity problem but rather the problem of bank run. Otherwise, all the banks in the world suffers from an inherent ‘liquidity’ problem) . The deployment of tanks to scare the protestors may be an attempt to prevent a bank run, which might start a chain reaction and cause China’s economy to plummet.
Industry/Sector Brief
Automobile: COE prices rise across the board, with Open category reaching new high of S$114,001
COE premiums rose higher in all categories, notably with the open category setting a new high for the second time in a row. The premium for the Open category COE, which tends to be used for larger cars, ended at S$114,001, a 3.1 per cent increase from last round’s S$110,524.
However, car ownership in Singapore has gone up. The number of registered vehicles reported in May 2022 was 847,950 units. Although this increase seems negligible, with the previous month reported at 846,935 units, the number in May 2022 is the at all-time high as compared to Jan 1995, which is the all-time low at 488,126 units. Singaporeans’ demand for cars is still there persists amidst the rising inflation and this is a good opportunity for EV companies in China trying to establish their presence in Southeast Asia to step in.
Chinese electric vehicle BYD debuted its ATTO 3 vehicle in Singapore on Friday. BYD entered Singapore 10 years ago and has introduced vehicles like taxis and buses in Singapore. With Singapore being a major market in Southeast Asia, it provides BYD will use this as a stepping stone to enter the Southeast Asia market.
Chinese carmaker Great Wall Motor (GWM) will be setting up a subsidiary in Malaysia, reinforcing its presence in the region. A handful of other Chinese makers have stepped up as well, including electric vehicle start-up WM motor and Chery Automobile Co. (Hold) (The way this is written is skewed towards ‘Accumulation’ as there are no concerns raised over the impact of increased COE prices and inflation in possibly softening the motor vehicle industry in the immediate to short term.)
Tourism: Strong recovery at MBS props up Las Vegas Sands’ earnings in Q2
The easing of Covid-19 restrictions in Singapore has helped to accelerate the recovery at Marina Bay Sands (MBS), a bright spot in Las Vegas Sands’ financials for the second quarter ended Jun 30.
MBS contributed to most of Las Vegas Sands’ earnings with US$319 million, tripling last year’s earnings of US$112 million. This further solidifies the good outlook for the tourism industry in Singapore. The events Singapore has in store for the rest of the year will attract more tourists to Singapore which will definitely drive up the tourism industry even more. (Buy)
Utilities, Energy, Oil & Gas: Biden administration in discussion with Mexican government over energy policy
The Biden administration has requested a discussion with the Mexican government over energy policies between countries as the United States believes its current policies harm American companies and this may result in severe tariffs on Mexico if attempts to resolve this problem fails.
The two major Mexico state-owned energy companies: the Federal Electricity Commission (CFE) and Pemex. American energy companies suggest are accusing the Mexican government of giving favourable treatment to state-owned Mexico energy companies. The two major Mexico state-owned energy companies being the Federal Electricity Commission (CFE) and Pemex. This may help Mexico to become more self-sufficient and help establish its energy industry (? Where is this statement coming from?). However, it’s a zero-sum game for this situation as one benefits one loses (Meaning?). Therefore, this tug and pull will most likely end as the free trade agreement between the United States and Mexico is being violated (Not sure what is being asserted.). It is likely a resolution will be made without possible tariffs by the American government (How so? Trade sanctions seem to be the main source of punitive measure undertaken by the Biden administration at the moment.). (Investment call for the sector?)
Utilities, Energy, Oil & Gas: Russia to fulfill gas obligations
The Russian President has announced that it will remains in its fulfillment to its supply of natural gas to Europe but has cautioned that the flows of natural gas from the Nord Stream pipeline could reduce by 20% due to sanctions preventing(?).
This will hurt Europe’s energy supply and it will face more problems when winter comes as demand for electricity will rise during winter cold season. A prolonged reduction in energy supply could result in the government rationing energy. Further problem could be at hand. It is said that another turbine is up for delivery soon as there is more maintenance work on July 26. (Investment call for the sector?)
Utilities, Energy, Oil & Gas: Indonesia offers 6 oil and gas blocks for bidding
Indonesia is carrying out its first bidding round of this year, offering 5 exploration oil and gas working areas and one exploitation working area across the country.
A total potential resource of 3.94 billion barrels of oil and 14.08 trillion cubic feet of gas is expected to be tapped from these oil and gas blocks.
Tutuka Ariadji, the ministry’s director-general of oil and gas, said the government had improved the contractor’s split and offers flexibility in a production sharing scheme.
It had also lowered a shareable First Tranche Petroleum (FTP) to 10 percent from 20 percent to attract more bidders. (Investment call for the sector?)
Tourism: Recovery of Singapore tourism industry
Singapore is on track to hold its position as Asia-Pacific’s transition hub. Despite the current travel volume is still just 83 percent of pre-pandemics levels for the city-state, international air bookings recorded by the global air travel analytics company as at Jul 1 for travelling into Asia-Pacific in November and December showed Singapore tops the tally. Its transit passengers are in the rough proportion as rival hub Doha in the Middle East according to bookings data for year-end travel from ForwardKeys. Singapore is also one of the most popular destinations in the region for year-end travellers. This indicates that Singapore’s tourism industry as well as its airline industry is set to recover fast from the impact from in the post-covid-19 pandemic period. [BUY]
China Evergrande New Energy Vehicle Group Ltd: Evergrande receives pre-orders for more than 37,000 Hengchi EVs
The group has received more than 37,000 orders for its 1st model, Hengchi 5. The electric vehicle (EV) unit of Evergrande started to accept non-binding pre-orders 2 weeks ago, with buyers paying 1,000 yuan (S$206.2) as a deposit. The electric vehicle is priced from 179,000 yuan.
Evergrande Group is a property developer in China. However, their Chairman Hui Ka Yan vowed to shift the group’s business from real estate to automobiles in 10 years. (It would be helpful to share your thoughts on the change in business strategy of the problematic and discredited Evergrande, especially in struggling with their existing reputation impairment. (Neutral)
Cremer Sustainable foods Pte Ltd: Joints venture of Asia Sustainble Food and Cremer to produce plant-based protein
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Temasek, through its Asia Sustainable Foods Platform (ASF), has entered into a joint venture with Cremer, a German agri-food multinational company. They have jointly invested S$6 million to produce plant-based alternative proteins through Cremer Sustainable Foods, to provide contract manufacturing facilities to partners who require the use of its high-moisture extrusion (HME) technology. Through this, food tech companies will not need to establish their own facilities and can scale up their businesses while remaining asset-light. Its contract development and manufacturing operation facility, officially opened in Tuas on 20th Jul and is expected to produce up to 1,300 tonnes of plant-based products each year.
Minister of State for Trade and Industry Low Yen Ling, said that Cremer’s expertise will augment Singapore’s manufacturing capabilities and support businesses in the sector. Temasek’s ASF Platform provides a network of corporates and startups working together to bring alternative protein technologies to market even more quickly.
ASF and Cremer acknowledged the possibility of expansion both in the Singapore facility and in other Southeast Asian countries. However, they are first looking for demand to pick up before scaling up production and lowering prices. Ideally, potential expansions would come hand-in-hand with commitments from clients who want to have more products. (Buy)
Aviation: Cessation of the joint venture of Boeing and SIA
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The joint venture between Boeing Singapore and SIA Engineering, Boeing Asia Pacific Aviation Services Pte Ltd (BAPAS) has been announced to cease through SIA Engineering bourse filing on Tuesday, Jul 19. The Cessation of operations in August is not expected to have a material impact on SIAEC’s net tangible assets or earnings per share in FY 2022/2023.
BAPAS was incorporated in October 2015 to provide fleet management services for airline operators of the 737, 747, 777 and 787 in the region.
Opinion: With the cessation of BAPAS, it is likely that the airline operations in Singapore will not be looking to spike as this reflects a cost-cutting move by both Boeing Singapore and SIA Engineering. [HOLD] (How would you reconcile the investment call on the tourism-related industry?)
BioTech: Chinese biotech firms WuXi Biologics, WuXi AppTec to invest up to S$4b over 10 years in Singapore
WuXi Biologics, a contract research, development and manufacturing organisation, announced on Jul 19 that it will inject S$2 billion investment over 10 years to grow its presence in Singapore. It is looking to expand the company’s research, development and large-scale drug substance and drug product manufacturing capacity and capabilities, adding 120,000 litres of biomanufacturing capacity to WuXi Biologics’ global network by 2026. 1,500 employment opportunities in the field of biotechnology will be created once the site has been created.
When completed, the site will also strengthen Singapore’s position as a global biopharmaceutical hub and attractiveness tort biotech startups and innovators, enhancing Singapore’s potential.
This reflects a positive outlook over the biopharmaceutical hub in Singapore which will increase the likelihood of more global biopharmaceutical firms set up in Singapore. The 1,500 employment opportunities created will also enhance Singapores’ workforce capabilities in specialisation of biopharmaceutical production. [BUY]
