• With the exception of China, partial recoveries of global stock benchmarks over the first 7 weeks of 2H22, were led by the Technology and Consumer Cyclical sectors, 2 of the 3 laggard sectors of 1H22. While this has helped global stocks broadly recoup half of their 1H22 losses, the Real Estate (excluding REITs) sector has continued to lag.

• Contributing close to half the day-to-day turnover of Singapore’s stock market this year, the 10 most traded stocks represented the comparatively more defensive sectors of Financial Services, Telecommunications, REITs, Consumer Non-Cyclicals and Industrials. The 10 have generated 2022 year-to-date total returns ranging from 1% to 18%.

• Global decelerating growth amid structurally-driven inflation, coupled with downside risks priced in to varying degrees each week, have provided a dynamic scope of stock market drivers in 2H22. With the uneven global growth outlooks extending to sectors & industries, the frequency of sector rotations may also intensify with the comparatively heavier slate of economic data points ahead.

Following the broad downtrend that gripped global stocks in 1H22, most benchmarks have posted partial recoveries over the first 7 weeks of 2H22. After declining 17% (in SGD terms) in 1H22, global stocks, which have been broadly supported by earnings growth, have added 9% in 2H22. However, the uneven global growth outlook has seen China stocks (as gauged by the FTSE China A50 Index) further decline by 10%, following the 6% decline in 1H22.

The uneven growth outlooks have also extended to sectors and industries. Across the globe, the Technology and Consumer Cyclical sectors have led the stock market over the past seven weeks, however remain among the three weakest sectors for the 2022 year-to-date. The partial rebound has not extended to the global Real Estate (excluding REITs) sector which remains the third weakest sector in the 2022 year-to-date, and the weakest of the major sectors over the past 7 weeks. These three sectors were expected to be sensitive to the current bout of inflation, as consumers ‘tighten their belts’. Thus, moves have continued to be measured into 2H22, largely driven by the current macroeconomic themes of decelerating global growth amid structurally-driven global inflation. It also means that the recent global stock market rebound has been a partial rebound and the key market concerns of 1H22 have remained on the radar.

Not representing either of these 3 sectors, Singapore’s 10 most traded stocks this year, as tabled below, were comparatively defensive in the 2022 year-to-date. Together the 10 stocks averaged 2% total returns in 1H22, with the 10 stocks averaging 6% total returns over the past seven weeks coinciding with the majority, but not all the 10 stocks, reporting earnings. With the combined net institutional inflows of S$393 million since the end of June, the combined performances of the 10 stocks have played a key role in the STI’s 7.6% total return through to 19 August.

Source: SGX, Refinitiv, Bloomberg (Data as of 19 August 2022)

Growth, inflation, and the inflationary impact on growth has carried an uneven impact on global economic sectors and by extension sectors and industries in 1H22. While the heavy slate of global economic data ahead will confirm the trajectory of global growth and inflation, stocks would be expected to also take cues from key central bank observations and policy maker concerns.

From the perspective of Singapore, decelerating global growth amid structurally-driven global inflation continue to rank as the key concerns, with the MTI recently maintaining global downside risks currently include:

• Further escalations in the Russia-Ukraine conflict worsening global supply disruptions and exacerbating inflationary pressures;
• Geopolitical tensions in the region escalating and leading to further disruptions in supply chains;
• Financial stability risks intensifying if there are disorderly market adjustments to monetary policy tightening in the advanced economies; and
• The trajectory of the COVID‐19 pandemic remaining a risk, given the potential emergence of more virulent strains of the virus.

Overall, the Singapore economy is currently expected to grow by 3.0% to 4.0% in 2022 on domestic re-opening momentum. This is not unlike the IMF’s current 3.2% expectation for global growth.

The above risks have seen both uneven economic and stock sector impacts, and along with the growth and inflation outlook, remain highly fluid, thus providing potential for frequent rotations across the stock market. For some educative examples of how such developments have impacted various sectors:

• Soaring Crude Palm Oil prices exacerbated by the Russia-Ukraine conflict saw Golden Agri-Resources (SGX:E5H), First Resources (SGX:EB5) and Bumitama Agri (SGX:P8Z) average 31% total returns over the first 5 months of 2022.

• Soaring energy prices in 1Q22 saw Rex International (SGX:5WH), RH PetroGas (SGX:T13), Geo Energy Resources (SGX:RE4) and Golden Energy & Resources (SGX:AUE) average 50% total returns over that quarter.

• AEM (SGX:AWX), UMS (SGX:558) and Frencken (SGX:E28) averaged a 29% decline in total return in 1H22 and a 9% total return over the first 7 weeks of 2H22, in-line with the global technology stocks which partially rebounded on earnings, as well as an element of expectations that US inflation may have peaked.

• The case for more gradual market adjustments to monetary policy for much of 1Q22 saw DBS (SGX:D05), OCBC (SGX:O39) and UOB (SGX:U11) average 12% returns for that quarter. Then, between 31 March and 19 August, expectations for the US Fed Funds Rate to be at least 3.0% by the end of 2022 increased from 0% to 100% which coincided with the trio generating a 6.0% decline in total return.

• Regional re-opening momentum in 1H22 saw CDL Hospitality Trusts (SGX:J85), Ascott Residence Trust (SGX:HMN), Frasers Hospitality Trust (SGX:ACV) and Far East Hospitality Trust (SGX:Q5T) average 22% total returns in 1H22, while ARA US Hospitality Trust (SGX:XZL) generated a 16% total return in SGD terms during 2021, as the US led COVID-19 re-openings.