Weekly recap: Higher for longer interest rates send stocks tumbling

Investors were focused on the higher US government bond yields this week, after the latest Federal Reserve meeting minutes indicated that interest rates may stay higher for longer. 

In addition, stock markets were unnerved by the escalating property crisis in China, after property developer Evergrande filed for bankruptcy. 

However, the surge in US government bond yield did not translate to a higher yield on the Singapore 6-month T-bill, as the cut-off yield in the latest auction fell to 3.73%. 

We also saw a sell-off in Singapore REITs with higher bond yields. Following the declines, we analyse if it might be worthwhile looking at Lendlease REIT, which reported strong occupancy at its Singapore retail mails. 

Lastly, if you are a CapitaLand Ascott Trust holder, here's what you need to know about the preferential offering which closes on 24th August.

📈 HIGHER FOR LONGER

What happened? 

The US 10-year government bond yield climbed to 4.3%, close to the highest levels since 2007. 

What does this mean?

The surge in bond yields came after the latest Fed meeting minutes indicated that there could be more rate hikes in the future to bring down inflation. 

This has led investors to increasingly expect that the Fed has to keep interest rates ‘higher for longer.’ 

As a result, most of the increase in global bond yields we have seen in recent days have been for longer maturity bonds, such as the 10-year government bond yield. 

Why should I care? 

Higher interest rates are generally seen as being negative for stocks especially for companies with high levels of debt. 

As a result, we saw US and Singapore stock indices falling this week with the highest 10-year bond yields. 

This is especially so for REITs, which make use of borrowings to fund the acquisition of real estate assets. 

Read our analysis on how higher US bond yields may affect T-bills, stocks and REITs here. 

💡 THE BIG IMPORTANT STORY

CapitaLand Ascott Trust Preferential Offering: What should unitholders do?

The CapitaLand Ascott Trust (CLAS) preferential offering will offer entitled unitholders the right to buy 29 new units at S$1.025 each for every 1,000 units held.

🚗 WHAT'S MOVING

• Manulife US REIT has halted its distributions for the first half of 2023 as the REIT has breached a financial covenant in some of its financing documents, after its portfolio valuation fell by 14.6% and aggregate gearing ratio rose to 56.7%.

• Sea Limited fell to the lowest levels since November 2022 after the company reported revenue that missed investor estimates. Sales growth at Shopee slowed and the company indicated it plans to increase investments in e-commerce, which may lead to losses in the future.

• ComfortDelgro reported earnings of $78.5 million in the first half of 2023. Its profit in the second quarter was up 39% from the first quarter due to improved public transport performance in Singapore, Australia and the UK. The company declared an interim dividend of 2.90 cents per share, representing a payout ratio of 80%. 
• SATS reported a loss of $29.9 million for the quarter ending 30 June, dragged by one-off integration costs from its acquisition of Worldwide Flight Services (WFS). Excluding the one-off expenses, SATS reported an underlying loss of $17.4 million. The company noted that growth momentum in the aviation industry continues, but the air-cargo market has been slowing down. 

Source: Bloomberg, CNBC, Financial Times, Business Times, Edge Singapore

🤝 A MESSAGE FROM OUR PARTNER

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🤓 WHAT WE’RE LOOKING OUT FOR THIS WEEK

• Sunday, 20 August: Singapore National Day Rally
• Monday, 21 August: Zoom earnings
• Wednesday, 23 August: SGX Academy Webinar: Fundamental valuation for equities, Grab, Nvidia earnings
• Thursday, 24 August: Day 1 of Jackson Hole Economic Policy Symposium 2023, CapitaLand Ascott Trust preferential offering close
• Friday, 25 August: Day 2 of Jackson Hole Economic Policy Symposium 2023

Source: Bloomberg, SGX