On Wednesday, 18th September 2024, the Fed announced the jumbo rate cut of 50 bps. Despite a stock market rally on Thursday, the Straits Times Index (STI) ended 0.23% lower on Friday. With the exception of Dow Jones closing 0.09% higher, NASDAQ and S&P 500 closed 0.36% and 0.19% lower.
With the stock market rally on Thursday, I was expecting a significant increase in value of my Singapore stock portfolio. However, it went the opposite direction due to the decline of Singapore stock market on Friday. This is because multiple stocks I held were also a constituent of the Straits Time Index.
What is the Straits Times Index (STI)?
The Straits Times Index (STI) is a market capitalisation weighted index that tracks the performance of the top 30 companies listed on Singapore Stock Exchange (SGX). The 30 companies are:
- Mapletree Pan Asia Commercial Trust
- CapitaLand Invest
- Mapletree Industrial Trust
- Frasers Centrepoint Trust
- CapitaLand Ascendas REIT
- City Development
- CapitaLand Integrated Commercial Trust
- UOL
- Frasers Logistics and Commercial Trust
- Mapletree Logistics Trust
- ST Engineering
- JMH USD
- Wilmar International
- Hong Kong Land USD
- SGX
- Jardine Cycle and Carriage
- Venture
- Genting Singapore
- Keppel
- Sembcorp Industries
- SIA
- Thai Beverage
- Seatrium Ltd
- OCBC Bank
- SATS
- Yangzijiang Shipping
- Singtel
- UOB
- DFI Retail Group
- DBS
It seems to me that REITs led the decline on Friday. Mapletree Pan Asia Commercial Trust fell the most at 3.97% lower. Frasers Centrepoint Trust decline 3.40%. CapitaLand Integrated Commercial Trust (CICT) fell 2.78%. Frasers Logistics and Commercial Trust and Mapletree Logistics Trust fell 2.54 and 2.04% respectively. Profit taking after Thursday’s mini rally? I am not sure.
The Fed Jumbo Rate Cut should benefit Singapore REITs
The recent Federal Reserve (Fed) jumbo rate cut of 50 bps should have a positive impact on Singapore Real Estate Investment Trusts (REITs). Lower interest rates typically lead to decreased borrowing costs for REITs, making it more affordable for them to finance new acquisitions and projects. Additionally, lower rates can also attract more investors to the REIT market in search of higher-yielding assets, driving up demand and potentially increasing the value of REITs.
Overall, the Fed rate cut is good news for Singapore REITs, as it provides them with opportunities for growth and expansion in the current economic environment.
What About The Fed Jumbo Rate Cut Impact on Singapore Banks?
The recent Federal Reserve (Fed) jumbo rate cut is expected to have both positive and negative effects on Singapore banks. On one hand, the lower interest rates could reduce the cost of borrowing for the banks, potentially leading to increased lending activity and higher profits. However, the rate cut may also compress net interest margins for banks, as lower interest rates could decrease the returns on their deposits and other interest-earning assets.
Overall, the impact of the Fed rate cut on Singapore banks will depend on how well they are able to manage their interest rate risk and adapt to the changing economic environment.