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NikkoAM ETFs product update

As Singapore gradually re-opens, its economy has also begun to pick up momentum. Here is what Nikko AM has to say about Singapore's growth this year as it provides updates on a few of its ETFs.

Nikko Asset Management
Nikko Asset Management25 Aug 2021 2827 Views
NikkoAM ETFs product update

Macro market review

2Q GDP grew strongly but below expectations
Singapore’s 2Q GDP grew 14.3% YoY, mostly due to base effects and the partial re-opening. Growth contracted on a sequential QoQ basis, as targeted restrictions to combat the COVID-19 Delta variant took its toll on the retail and F&B sub-sectors. All three major growth drivers shrank against the previous quarter, with construction dropping the most at -11% QoQ. The first quarter demonstrated the potential of catch-up domestic growth, and together with the continued strength of exports, analysts upgraded their estimates for full-year GDP growth to come in above the government’s 6% upper range.

Non-oil domestic exports spiked up further; industrial production growth topped out
Singapore’s key exports unexpectedly re-accelerated to 15.9% YoY growth in June, extending the growth trend to seven months and exceeding forecasts of 8.0%. Electronic exports reflected topline momentum, up 25.5% YoY, while more volatile shipments of pharmaceutical products reversed to a gain of 8.1%. By destination, stronger demand in the US, Europe and parts of ASEAN continued to offset falling momentum for exports China. Manufacturing output maintained strong growth in June rising 27.5% YoY, though some momentum was lost on a MoM basis. Most clusters continued to grow YoY though the volatile consumer electronics sub-segment shrank. Overall, the key biomedical, electronics and chemicals clusters continued to show accelerating YoY growth.

Fund specific news/market analysis

1. Nikko AM Singapore STI ETF

The Straits Times Index rose 1.19% in July 
Singapore stocks turned in gains for July, supported by the accelerating rollout of COVID-19 vaccines and expansion of testing capabilities. Sentiment was slightly dented, however, by renewed activity restrictions following the spread of the more transmissible COVID-19 Delta variant. Nonetheless, Singapore's Finance Minister reaffirmed that the reversion to phase two (heightened alert) was unlikely to derail Singapore's economic recovery. 

For the month, the Straits Times Index (STI) rose 1.19% on a total return (TR) basis in SGD terms. In terms of sectors, real estate and financials were the best performers, climbing 3.19% and 2.52% respectively on a month-on-month (MoM) TR basis. At the other end of the spectrum, consumer staples and consumer discretionary were the worst performers, returning -4.18% and -3.31% respectively (on a TR basis) for the month. 

Of the 30 component stocks in the index, CapitaLand, Singapore Exchange and Keppel DC REIT were the three best performers in July with MoM TR gains of 8.63%, 6.26% and 6.02% respectively. Conversely, Dairy Farm International, Jardine Matheson Holdings and City Developments were July's worst performing STI stocks, with MoM TR losses of 10.67%, 6.32% and 6.04% respectively. 

City Developments to limit further exposure to cash-strapped China unit
In a bourse filing on 8 July, Singapore-listed property developer City Developments Limited (CDL) announced that it was aware of the bankruptcy claim filed by Beijing Yi He Mercury Investment against Chongqing-based Sincere Property Group, in which CDL owns a 51% stake. This could result in a court-led restructuring or liquidation of Sincere Property should a settlement fail to materialise. CDL also reiterated that “the group will continue to strenuously protect its position and limit further exposure” to the troubled China unit. The property giant has previously written down 93% of its entire investment in Sincere Property, totalling to SGD 1.78 billion, causing a record annual loss last year. City Developments was one of the worst performing STI-component stocks in July.

2. Nikko AM SGD Investment Grade Corporate Bond ETF

3. ABF Singapore Bond Index Fund

Singapore Investment Grade Corporate Bonds rose in July
The iBoxx SGD Non-Sovereigns Large Cap Investment Grade Index returned 0.70% in July, mainly from lower benchmark government yields, with credit spreads widening by about 8 bps. At month-end, overall spread was at 105 bps (vs government benchmark). Meanwhile, the overall index yield declined by 8 bps to 2.24%.

The UST yield curve flattened at a faster rate in July, as the rally in long-dated bonds picked up momentum. July opened with lower initial jobless claims and higher-than-expected nonfarm employment which increased by 850,000, making up for the previous month’s shortfall. Yields surprisingly dropped further despite the strong labour market. Investors instead looked at a weakening in the services purchasing managers’ index and high Job Openings and Labour Turnover Survey (JOLTS) job openings, as signs of weakness as companies were unable to hire to meet re-opening demand. The US headline consumer price index accelerated to 5.4% YoY in June, and the core index rose 4.5%, both still seen as driven by re-opening and temporary supply shortages. Mid-month, the June retail sales data showed strong month-on-month (MoM) growth of 0.6%, outpacing expectations and the previous month. The bipartisan Senate group continued to plod on with drafting the infrastructure spending package, only finalising the text as the end of July. Overall, the benchmark 2-year and 10-year yields ended the month at 0.19% and 1.22% respectively, about 6.4 bps and 24.5 bps lower respectively  compared to end-June.

The SGS yield curve resumed rallying in July, with yields ending lower and flatter across the curve. The outperformance to USTs was a reversal from recent trends, after a quiet month for new supply and a recovering SGD. The 2-year and 10-year SGS yields ended the month at 0.35% and 1.29% respectively, about 5.9 bps and 27.1 bps lower compared to the prior month. Government bonds underperformed sub-sovereign securities, with the Markit iBoxx ABF Singapore Govt Total Return (TR) Index returning at 1.60%, compared to the 2.11% monthly returns for the Markit iBoxx ABF Singapore Sub-Sovereigns TR Index. Meanwhile, there were two major issues in the month—the SGD 750 million 12-year issue from Housing & Development Board and SGD 500 million 5-year issue from Eastern Air Overseas Hong Kong.

4. NikkoAM-StraitsTrading Asia ex Japan REIT ETF

Asian REITs rose in July
Asian stocks suffered heavy losses in July, weighed down by the brutal selloff in Chinese equities amid Beijing’s regulatory crackdown on several sectors. A resurgence of COVID-19 cases across the region due to the highly infectious Delta variant and lingering concern about inflation also dampened sentiment for Asian stocks. Regional REITs, however, demonstrated their defensiveness, with the FTSE EPRA Nareit Asia ex Japan REITs 10% Capped Index returning 2.23% in SGD terms for the month. The FTSE ST Real Estate Investment Trusts Index rose 3.29% in SGD terms, while the Hang Seng REIT Index Total Return gained 0.25% in Hong Kong dollar (HKD) terms. In comparison, general equities in Asia slumped 7.50% in US dollar terms in July, according to the MSCI AC Asia ex Japan index. For the month, both the US 10-year Treasury yield and the Singapore 10-year government bond yield compressed.

At the sector level, specialised, industrial and office REITs were the best performers in June, while diversified and retail REITs were the laggards. At the individual REIT level, Keppel DC REIT, Mapletree Industrial Trust and Ascendas REIT were the best performers in July. Conversely, IGB REIT, Manulife US REIT and Mapletree North Asia Commercial Trust were the worst performers for the month.

Keppel DC REIT acquires first Chinese data centre
Keppel DC REIT—Asia’s first pure-play data centre REIT—announced on 26 July that it has entered into an agreement with Guangdong Bluesea Data Development (Bluesea) to acquire its first data centre in China for approximately SGD 132 million. Bluesea will be leasing back the fully-fitted facility for 15 years on a triple net lease basis. The acquisition of Guangdong Data Centre will bring the REIT's overall portfolio occupancy rate to 98.2%, and the weighted average lease expiry will lengthen to 7.3 years. In a separate media release, Keppel DC REIT posted a 12.4% year-on-year (YoY) growth in distributable income to SGD 84.3 million for its first half ended 30 June 2021. Furthermore, gross revenue for the half went up 9.0% YoY to SGD 135.1 million, while net property income jumped 8.4% to SGD 123.9 million. Keppel DC REIT was one of the best performing STI-component stocks in July.

Net property income for Mapletree North Asia Commercial Trust grew in 1Q
Net property income (NPI) of Singapore-listed Mapletree North Asia Commercial Trust (MNACT) rose 14.3% YoY to SGD 78.3 million for its first quarter (1Q) ended 30 June 2021. The higher NPI was primarily a result of lower rental assistance granted to eligible retail tenants at Hong Kong’s Festival Walk as well as improved average occupancy from Tokyo’s IXINAL Monzen-nakacho Building. MNACT also benefited from the maiden revenue contribution of Hewlett-Packard Japan Headquarters, which was acquired in June this year. Correspondingly, gross revenue was up by 10.0% to SGD 103.0 million, from SGD 93.7 million in the same quarter last year. The REIT’s committed portfolio occupancy remained healthy at 97.4% as at end-June. However, weaker outlooks for Festival Walk and Beijing’s Gateway Plaza may have dampened sentiment as MNACT was among the worst performing Asian REITs in July.

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In this article

SGX: A35

ABF Singapore Bond Index Fd

SGX: G3B

Amova Singapore STI ETF SGD (DIst) Class
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