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Author: traderhub8   |   Latest post: Fri, 16 Apr 2021, 10:21 AM

 

Phillip Capital Morning Note - 5 Mar 2021

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Federal Reserve Chair Jerome Powell sounded a gentle word of caution to the bond market on Thursday that he’s watching the jump higher in long-term interest rates, but stopped well short of trying to rein them in. Ten-year Treasuries extended losses and U.S. stocks sold off after he spoke, and futures in Asia were in the red. Bond yields have climbed in recent weeks; trading has been turbulent at times and higher yields have also unsettled the stock market. Powell reassured markets that the Fed was nowhere close to pulling back on its massive support for the economy. “We will be patient,” he said. “We’re still a long way from our goals.”

Saudi Arabia and its OPEC+ allies shocked the oil market with a decision to keep supply in check, sending prices surging and adding inflationary pressure to the global economy as it emerges from the pandemic. One year on from the outbreak of a bitter price war that sent crude below zero, the kingdom showed that its priority is preserving the hard-won oil recovery rather than worrying about tightening the market too much. Meanwhile China’s fuel demand is going from strength to strength, leaving the capital blanketed in smog despite concerns a virus resurgence prior to Lunar New Year would derail the robust rebound.

SG

The mandatory offer for Penguin International has turned unconditional, as valid acceptances and the total shares owned, controlled or agreed to be acquired by the offeror and its concert parties amounted to 50.29 per cent of total shares as at 6pm on Thursday. Having turned unconditional, the offer will now remain open for acceptance until 5.30pm on March 24 or a later date that may be announced. This is to comply with the rule that requires the offer remain open for not less than 14 days after the date on which it would otherwise have closed, which was March 10. On Jan 21, Penguin's executive chairman Jeffrey Hing and managing director James Tham announced that they were forming a consortium called Emet Grace with a Dymon Asia fund to take the company private, offering S$0.65 per share.

There are no changes to the constituents of the Straits Times Index (STI) following the March 2021 quarterly review. The STI reserve list, comprising the five highest-ranking non-constituents of the STI by market capitalisation, will be Frasers Logistics & Commercial Trust, Frasers Centrepoint Trust, Suntec Reit, Keppel Reit and NetLink NBN Trust. Stocks on the reserve list will replace any constituents that become ineligible as a result of corporate actions before the next review.

The Guoco Group unit looking to take GL Ltd private has extended the closing date for its voluntary conditional cash offer by two weeks to 5.30 pm on March 18. The offer had been set to close at 5.30 pm on March 4. As at 6pm on March 3, GuocoLeisure Holdings held about 83.18 per cent of the total number of shares in GL. This comprised about 130 million valid acceptances, or about 9.5 per cent of the total number of shares, and the roughly 1 billion shares held by another of Guoco Group's wholly owned units, GuocoLeisure Assets Ltd. The offer is conditional upon the offeror obtaining at least 90 per cent of GL's shares. GuocoLeisure Holdings is offering S$0.70 per share in cash to take GL private. GL's independent directors have recommended that minority shareholders accept the offer, even though its independent financial adviser deemed it "not fair but reasonable".

Aztech Global, the technology unit of Aztech Group, on Thursday lodged its final prospectus, offering 68.12 million shares priced at S$1.28 each in its initial public offering (IPO). Of this, 64.62 million are placement shares, while 3.5 million shares fall under the public offer. Alongside the sale of 163.88 million cornerstone shares, the IPO will raise gross proceeds of S$297 million. Net proceeds thus stands at S$283.7 million; of which S$188.6 million will go to the company. The remaining S$95.1 million, meanwhile, will go to Aztech Group. Upon its mainboard listing on the Singapore Exchange (SGX), the company will have a theoretical market capitalisation of S$990.4 million, about 21 times its net profit of S$47.2 million for FY2019. This is also following the post-invitation share capital of 773.72 million shares. The listing comes just less than five years after Michael Mun, executive chairman and chief executive of the company, took Aztech Group private.

Adopt US SPAC rules - but with tweaks for Singapore, say observers. The Singapore Exchange (SGX) should model its regime for special-purpose acquisition companies (SPACs) after what is being done in the United States, perhaps with small adjustments to improve it, industry players have told The Business Times. In January, SGX Regulation (SGX RegCo) announced plans to consult on SPACs as early as Q1; the Singapore Exchange (SGX) is reportedly hoping to admit SPACs for listing as early as this year. There is clear interest in SPACs, with a record US$78 billion raised in the US via such vehicles last year. Close to US$60 billion was raised in the first two months this year alone, Bloomberg data indicates. Investors buying into a SPAC initial public offering (IPO) receive a share and a warrant in exchange for their cash, which is then kept in safe assets such as US treasuries.

Singapore-listed tech manufacturers will stand to benefit from the global chip shortage though tighter supply capacity might hinder potential gains, according to analysts and industry players. Shares of chip makers in Asia have soared as they scramble to keep up with the rush of orders from the electronics and automotive industries due to the emergence of pandemic-driven trends such as remote working. Taiwan Semiconductor Manufacturing Co (TSMC), for instance, surged 13.4 per cent year to date while South Korea's Samsung Electronics gained 1.7 per cent this year. They are up about 87.5 per cent and 43.6 per cent respectively from a year ago. While Singapore is not home to any major chip makers, there are counters on the local bourse with significant exposure to the semiconductor space that will be able to ride the upswing. Precision engineering, which produces semiconductor equipment and other machinery, saw output climbing 15.3 per cent year on year in January. The electronics cluster also expanded 19.8 per cent, according to Economic Development Board (EDB) figures. DBS analyst Ling Lee Keng told The Business Times that equipment and component makers such as UMS Holdings and companies with customers in the semiconductor space such as Frencken Group are among key beneficiaries.

The Housing Board resale market continued to perform strongly in February as 23 million-dollar flats changed hands - a new monthly record - and prices rose for the eighth straight month. Resale prices climbed 1.4 per cent last month compared with January 2021, according to flash data from real estate portal SRX released on Thursday. Year on year, resale prices are up 8.3 per cent from February 2020, though they are still 5.7 per cent lower than their peak in April 2013.

US

Shares of GameStop jumped again on Thursday and were halted several times as heavily shorted stocks favored by Reddit traders look set for a resurgence. Investors had also piled into the brick-and-mortar video game retailer on Wednesday following the reported ousting of Chief Financial Officer Jim Bell, sending the stock soaring 103.9 percent before trading was halted. The company announced Tuesday that Bell would resign on March 26, with reports suggesting that Ryan Cohen — a GameStop investor and the co-founder of online pet food retailer Chewy — and the board forced the move in order to accelerate its transition online.

The U.S. Senate is considering including in a new bill to boost competitiveness against China. $30 billion in funding for previously-approved measures to supercharge the country’s chipmaking industry, a congressional source said on Thursday. Lawmakers aim to bring the package, which would include other elements to boost the U.S. tech sector, to a full vote in April, the person said, declining to be named because the legislation has not been finalized. The source, who is involved in the effort, said that the Schumer-led package is likely to have provisions curbing China’s access to U.S. capital markets, a focus of the Trump administration’s crackdown on Beijing.

Shares of Broadcom Inc fell on Thursday after the company reported chip sales slightly below Wall Street estimates, joining a growing list of chip industry peers hit by the global semiconductor shortage. Broadcom reported semiconductor solutions revenue of $4.90 billion for its fiscal first quarter ended Jan. 31, slightly below analyst estimates of $4.95 billion, according to IBES data from Refinitiv. Shares of the chip company, which is a major supplier to iPhone maker Apple Inc, were down 1.36% at $437.54 in extended trading. Kinngai Chan, analyst at Summit Insights Group, said an industry-wide shortage of substrates - the raw silicon discs used to make chips - has hit Broadcom harder than others because some of its chips are physically large, especially in the data center space. That meant the company’s chip revenue fell short of expectations despite strong smartphone sales from Apple.

Costco Wholesale Corp missed analysts’ estimates for second-quarter profit on Thursday, as the warehouse club operator spent more on employee benefits who worked through the COVID-19 pandemic and sanitizing its stores. Millions of dollars in pandemic-related charges have further hurt profit margins of retailers, who have already been investing heavily in their supply chains to cut delivery time as online demand surges due to the health crisis. Costco offered a premium pay to workers at the onset of the pandemic outbreak and from March raised the minimum wage for its hourly staff to $16, a dollar over what its competitors Amazon.com Inc and Target Corp pay per hour. The warehouse retail chain, which brings in only a fraction of sales from its online channels and relies largely on the treasure hunt shopping experience, has been focusing on growing its online sales over the past year. Overall online sales jumped 75.8% in the second quarter from a year earlier.

The United States on Thursday unveiled new measures to punish Myanmar's army for its Feb 1 coup, adding the country's ministries of defence and home affairs and its top military conglomerates to a trade blacklist. Washington has also subjected Myanmar to 'military end use' export control restrictions, requiring its US suppliers to seek difficult-to-obtain US licences to ship it certain items. The two companies blacklisted - Myanmar Economic Corporation and Myanmar Economic Holdings - are among the top conglomerates of Myanmar's military which controls vast swathes of Myanmar's economy through the holding firms and their subsidiaries, with interests ranging from beer and cigarettes to telecom, tires, mining and real estate.

The number of Americans filing new claims for unemployment benefits rose last week, likely boosted by brutal winter storms in the densely populated South in mid-February, though the labour market outlook is improving amid declining new Covid-19 cases. Initial claims for state unemployment benefits totaled a seasonally adjusted 745,000 for the week ended Feb 27, compared to 736,000 in the prior week, the Labor Department said on Thursday. Economists polled by Reuters had forecast 750,000 applications in the latest week. Stormy weather in the South left large parts of Texas without power or water for days. The deep freeze shut oil production and refineries in Texas, the biggest producer of natural gas and oil in the United States. The labour market has lagged the acceleration in overall economic activity, which has been driven by nearly US$900 billion in additional pandemic relief provided by the government in late December. Consumer spending rebounded strongly in January as daily coronavirus cases and hospitalisations dropped sharply.

Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, PSR

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