THE Straits Times Index (STI) finished Q1 2021 with an 11.3 per cent price gain, with dividends boosting the total return to 11.8 per cent. This was the STI's strongest first quarter of a calendar year since 2012.

Among 18 global stock benchmarks, the STI was the second best performer, closely following the Taiwan Stock Exchange Weighted Index (TAIEX) which generated an 11.8 per cent gain (in Singapore dollar terms).

Banks led the world

The key driver for the STI's performance was the simple fact that banks made up the strongest sector across the globe in Q1 2021. This very same sector makes up approximately 40 per cent of the STI, through DBS, OCBC and UOB.

The median gain of the top quartile of globally listed banks was 14.9 per cent over the three months, coinciding with the US two-year and 10-year note yield curve doubling from 80 basis points to near 160 basis points.

While the Federal Reserve, and for that matter, most central banks, remain focused on seeing out the Covid-19 crisis, market participants have increasingly priced into the US yield curve and the global stock market the eventual return to policy normalisation and new multilateral norms.

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Underpinning this, daily data from a now go-to website on multilateral efforts to overcome Covid-19, ourworldindata.org, show that during the first quarter, confirmed Covid-19 cases increased from 84 million to 128 million, while on the positive side, close to 580 million vaccine doses were administered.

The trio of DBS, OCBC and UOB continued to move in tandem with their global peers, averaging 15.4 per cent gains while being recipient to S$1.02 billion of net institutional inflows in Q1 2021.

This followed on from the trio averaging 21.3 per cent gains in Q4 2020 on S$1.56 billion of net institutional inflows.

The three banks, which have now consistently reported more than S$5.0 billion in combined quarterly net interest income for the past three years, also detailed plans for the year ahead with their FY20 financials that included increased digitalisation, broadening wealth management services, and a continued focus on supply chains and growth markets.

Aside from its impact on the banks, the Q1 2021 yield curve steepening was a major differentiator when comparing the stock market's performance to Q4 2020.

The STI's three least performers in Q1 2021 comprised Mapletree Industrial Trust, Mapletree Logistics Trust and Keppel DC Reit - which all ranked among Singapore's five strongest S-Reits in 2020.

Meanwhile optimistic expectations for global tourism saw the world's biggest airline stocks generate a median gain of more than 20 per cent, with China Hotels also up 12 per cent, influencing the performance of Singapore Airlines and Hongkong Land. Singapore Airlines noted on March 15 that based on current schedules, the group's passenger capacity is expected to be around 26 per cent of pre-Covid levels by May.

As observed throughout most of 2020, Covid-19 has had a similar impact on large-cap stocks across the world, with the key distinguisher the sector and/or industry that the stock represents. This means sector exposure through index weights was a dominant driver of the STI in Q1 2021, just as it was in 2020.

Commodities, chips driving stock indices

Aside from global banks outperforming in Q1 2021, global commodity prices also held their 2020 gains as did semiconductor prices.

Demand for semiconductors accounted for the performance of the TAIEX Index, while also buoying the non-STI trio of AEM Holdings, UMS Holdings and Frencken Group, which averaged 19.7 per cent gains over the quarter.

On the commodity front, the S&P/Toronto Stock Exchange Composite Index gained 10.4 per cent in Singapore dollar terms and ranked third best performer across the 18 global stock benchmarks.

Higher commodity prices across the spectrum also saw Yangzijiang Shipbuilding Holdings and Wilmar International rank among the 11 STI stocks that posted double-digit gains in Q1 2021.

The two stocks saw a combined S$224 million of net institutional inflow, propelling the FTSE ST China Index to also produce its strongest start to a calendar year since 2012, quadrupling the return of the Hang Seng China Enterprises Index.

Role of 2 restructures in STI gains

Both Jardine Strategic Holdings and CapitaLand announced significant strategic restructures in Q1 2021.

Jardine Strategic Holdings ended the quarter as the STI's best performer in addition to being one of Singapore's top five traded stocks.

Prior to the March 8 open, Jardine Strategic Holdings announced that it had agreed to Jardine Matheson Holdings' proposal to acquire the 15 per cent of Jardine Strategic Holdings share capital that it does not already own.

Trading activity in the stock surged in subsequent sessions, with Jardine Strategic Holdings ranked a top 40 stock by turnover in the 2021 year through to March 5.

Despite the US$33.00 cash offer per share being priced 40.3 per cent above Jardine Strategic Holdings' volume weighted average closing price of US$23.53 over the six-month period ended March 5, there were some immediate market expectations that the offer price might be increased.

This saw the volume weighted average price of Jardine Strategic Holdings rise as high as US$33.51 between March 8 and 31, before the share price ended the first quarter at US$33.02.

The gradual convergence to the offer price coincided with The Business Times reporting on March 29 that the company did not intend to raise the offer price.

Between March 8 and 31, combined net institutional and net retail outflows for Jardine Strategic Holdings totalled S$212 million, while liquidity providers and market makers made up the difference, with S$212 million in net buying.

Unlike Jardine Matheson Holdings, which has added exposure to Jardine Motors and Jardine Pacific, Jardine Strategic Holdings' revenue exposures are all replicable through the other public listings of the group.

Jardine Strategic Holdings is currently scheduled for deletion from the STI effective April 13, should Jardine Matheson's cash acquisition of Jardine Strategic be approved at the April 12 Special General Meeting.

This means the stock of the STI Reserve List with the highest market capitalisation as of April 8 (which is currently Frasers Logistic & Commercial Trust) will join the STI.

CapitaLand is seeking to list the more capital efficient investment management business and privatising the more capital-intensive development business.

This is in line with its CapitaLand 3.0 objectives, and the stock finished the quarter as one of the 11 STI stocks that lodged double-digit gains.

Poised to create shareholder value, APAC-listed real estate managers trade on average at valuation multiples that are higher than real estate developers.

The scheme of arrangement will privatise CapitaLand in exchange for scrip in CapitaLand Investment Management and CICT, and a cash consideration.

For longer-term investors, the combined Assets under Management of the SPDR Straits Times Index ETF and the Nikko AM Singapore STI ETF ended Q1 2021 at S$2.28 billion, up from S$2.07 billion at the end of 2020.

Overall, the Singapore stock market saw net retail outflows of S$1.1 billion in Q1 2021, following on from net retail inflows of more than S$9.0 billion in 2020.

Despite the broader, FTSE ST All Share Index, closely tracking the Q1 2021 STI returns, with a 10.5 per cent gain, its median price-to-book ratio has increased 4 per cent from 0.98x to 1.02x, while the median price-to-book ratio of the STI constituents increased 10 per cent from 1.17x to 1.29x, in line with STI's returns of 11.3 per cent.

• The writer is the market strategist at Singapore Exchange (SGX). To read SGX's market research reports, visit sgx.com/research.