October market cap suffers biggest dive in 3 years

Singapore

SINGAPORE stocks shed S$53.2 billion or 5.7 per cent of their value in October, the steepest monthly decline in three years amid heightened geopolitical tensions and turbulence on Wall Street that has erased all of the S&P 500's year-to-date gains.

The last time there was a greater decline was in August 2015 when the market lost 8.8 per cent of its combined value in a month.

Factors that contributed to the latest battering in markets include continued Sino-US trade tensions, global growth concerns, prospects of higher US interest rates, uncertainty over Brexit negotiations and the standoff over Italy's budget.

After the whiplash, Singapore-listed companies ended up collectively valued at S$878.7 billion as at Oct 31, 2018. The Straits Times Index (STI) market cap itself shed S$37.3 billion or 6.6 per cent to finish at S$528.8 billion as at end-October.

Andrew Chow, head of research at UOB Kay Hian, described October's decline in market cap as "pretty sharp" and "not a very normal occurence", adding that many people are now looking at markets "with fear and trepidation".

The STI made a strong rebound of 1.8 per cent to finish back above the 3,000 psychological support level on Wednesday, but Mr Chow said that prior to this, market watchers had already been watching for it to drop to the next key support of 2,950.

The index has been on a rapid decline since climbing to 3,600 points on April 30 and May 2.

In all, there were 426 losers versus 121 gainers in October, or about four stocks down for every one up in the listed universe.

All three local banks featured among the biggest losers in value terms, along with Jardine Matheson, Jardine Strategic, Genting Singapore, Hongkong Land, Keppel Corp, Thai Beverage and IHH. Mr Chow said this likely had to do with money being withdrawn from portfolios and passive investments such as exchange-traded funds.

"The fact is that Singapore's market is very concentrated into some of these big-cap stocks through funds and passives. In the case of banks, the added fear is the pressure on their net interest margins."

United Overseas Bank last week reported a third-quarter net profit of S$1.04 billion, but analysts noted that its net interest margin (NIM) has fallen two straight quarters, which has led to speculation that DBS Bank and OCBC Bank's quarterly results may reveal similar pressures when they are announced.

Janice Chua, head of research, equities, at DBS Bank, said: "Although UOB met earnings expectations, investors were disappointed with its NIM, which declined largely on the back of a larger increase in cost of funds, compared to increase in loan yields for two consecutive quarters.

"On a brighter note, UOB posted strong quarter-on-quarter loans growth. General weakness in banking stocks were due to worries that the NIM decline will be seen across the sector especially as short-term deposit rates in Singapore rise."

Of the three banks, DBS shed the most in absolute value, at S$6.7 billion, followed by UOB's S$4.5 billion and OCBC's S$2.3 billion.

Ms Chua added that Genting Singapore shares also lost ground as investors priced in a potential slowdown of gaming revenue, due to slowdown in arrival of Chinese VIP guests.

Segregated by industry, the property sector was one of the biggest losers, shedding 9.7 per cent of its value, or S$105.7 billion, from September.

Analysts say this could be due to the revision of guidelines on average unit sizes and the maximum number of units allowed in new private flat and condominium developments, which could affect the prices of new launches. Since last Friday, shares of City Developments, for instance, have fallen through its S$8 support; on Wednesday they added 0.9 per cent to end at S$7.91.

Going into the last two months of the year, OCBC Investment Research head Carmen Lee expects the quantum of decline to moderate. She said: "As we head into the earnings season, we expect the defensive sectors and names that we have highlighted to demonstrate bottom-line resilience, which should give investors some relief."

Among the big caps, she still prefers banks such as DBS and UOB. But she said that given that volatility could remain high in this stage of the cycle, investors should position their portfolios with some defensiveness while waiting for the stormy macro conditions to abate.

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