Singapore stocks up 3% in January on expectations of peaking interest rates

REAL estate investment trusts (Reits) and the manufacturing sector drew strong investor interest on the anticipation of smaller interest rate hikes by central banks.

Across the broader market, Singapore stocks’ market capitalisation rose 3 per cent in January to S$852.4 billion.

DBS, OCBC and Nio were the top three gainers, with DBS rising by S$4.8 billion to S$92.4 billion.

Within the different sectors, Reits and technology manufacturers gained particular attention in the markets, gaining by 6.3 per cent and 2.8 per cent, respectively.

Maybank Securities Singapore head of research Thilan Wickramasinghe attributed investors’ rising optimism in Reits to expectations that central banks would be “more sanguine” on tightening in the near term.

“For Reits, this is important as it gives clarity on their dividend yield spreads, which have been tightening since the rate hikes began,” he said.

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Still, he remained cautious as inflation levels remain elevated, and central banks’ rate guidances are “not necessarily benign”.

Phillip Securities Research head of research Paul Chew also noted that while results have been resilient as Reits post stable dividends and property valuations, weaker overseas currencies have been a drag on rental income.

Notably, four of the top five performers on the Straits Times Index (STI) were Reits, which gained between 8.6 and 15.3 per cent. The biggest gainer was Keppel DC Reit.

As for technology manufacturers, Chew pointed out that manufacturing has been a beneficiary of a seemingly softer economic downturn in Europe as well as China’s reopening.

Similarly, Singapore Exchange market strategist Geoff Howie said that the sector booked the most net fund flows in January, after topping net fund outflows in 2022.

Howie added that investors will be paying attention to the US Federal Reserve’s interest rate hikes on Feb 2.

The markets appear to have priced in a hike of 25 basis points (bps) instead of 50 bps.

“Looking ahead, key ongoing risks include further reduction of corporate confidence amid the outlook for decelerating growth and trade with persistent inflation, the escalation of the Ukraine crisis and emergence of a more severe variant of Covid-19,” he said.

The banks, which represent some 47 per cent of the STI’s market capitalisation, will begin reporting results from Feb 13.

DBS equity market strategist Yeo Kee Yan also expects reopening beneficiaries such as the tourism sector, hospitality and retail Reits to post strong results in February.