Unlike the US markets, the Straits Times Index (STI) may struggle in early February as its largest stocks, the banks, come to terms with a less hawkish Federal Reserve. Our yield on 10-year Singapore Government Securities (SGS) — often viewed as our risk-free rate — has been somewhat volatile, moving to as low as 2.79% as at Jan 26 before rebounding to 2.97% as at Jan 31.
The 10-year SGS yield stood at 2.94% as at Feb 1 versus the two-year SGS yield at 3.1%. The yield curve has been inverted since September 2022, when the yield on two-year SGS rose above the 10-year SGS. If the yield curve turns around for Singapore and the US, both economies may sidestep a recession. On the other hand, a slowdown in economic growth appears inevitable if inflation continues to fall.
Still, the Year of the Rabbit got off to a good start on Jan 25, with the STI breaking above a five-times tested resistance at 3,306, indicating an upside of around 3,600. Technically, breakouts are usually followed by retreats, and this is what has happened with the STI. The current retreat should find support at the breakout level.
Unlike the more diversified US and Hong Kong market indices, the STI has a preponderance of banks and REITs. This may not be a bad thing. Both are interest-rate-sensitive entities on opposite sides of prevailing interest rate trends. Operationally, both are proxies for various segments of the economy. To offset cycles, investors may want some exposure to both.
In terms of risk-free rates, lower risk-free rates are likely to lower the weighted average cost of capital eventually, and some of this would feed into stock prices.
See also: STI’s upside from breakout remains valid as risk-free rates fade, but stay watchful for FOMC
As of Feb 2, Sabana Industrial REIT’s unit price has not moved to $0.465. This price represents the announced partial offer for 10% of Sabana REIT’s units from Volare Group, a Swiss entity, on Jan 20. The partial offer excludes the 5.4% that Volare Group says it holds.
In the third offer announcement made by RHT Capital — there were three because of an erratum— note 2.3e says: “If the settlement date in respect of the offer units accepted pursuant to the partial offer falls after the Books Closure Date, the offeror will reduce the offer price by the amount of the dividend”.
Sabana REIT’s unitholders who decide to accept the partial offer will receive $0.465 less than the REIT’s distribution. On Jan 30, Sabana REIT announced a distribution of $0.0146 per unit.
See also: Continued steps towards a Chinese New Year rally
Interestingly, Sabana REIT’s manager announced that a distribution reinvestment plan (DRP) would apply to the distribution. The dates to note are Feb 3, the last date for Sabana REIT’s units traded on a cum-basis, with the ex-date on Feb 6.
The success of Volare Group’s partial offer is subject to the offeror receiving “not less than 109,612,132 units, representing 10% of the units in the issue of the offeree”.
In note 3.1b(ii) and (iii), there are two no material transaction conditions which include “any issue of units or securities which carry voting rights in the offeree”; and “a recommendation, declaration or payment by any member of the Offeree Group or any Offeree Affiliate of dividends or other distributions (including, without limitation, interim dividends)”.
It is up to investors to interpret the announcement as they see fit. A “formal announcement” will be made not earlier than 14 days and not later than 21 days from Jan 20.
