Consumer stocks led Singapore shares higher on Friday, as the city introduced the biggest stimulus in its history. The Straits Times index peaked with a gain of 3.0% shortly before midday. But like most Asian markets, investors lost their enthusiasm as the day wore on. The index closed up 1.7%.
Asian equities were generally in the green on Friday, reflecting gains from the day before on Wall Street and in Europe. Australia was the exception, the S&P/ASX 200 down 5.3%, erasing most of the week's gains to end this week up 0.5%.
Japanese stocks rose the most on Friday, with the Topix up 4.3%. Japanese investors have been buying on hopes of stimulus, as international investors sell. Passive funds also bought up stocks suddenly near the end of the day in preparation for the need to reinvest dividends at the end of the quarter.
Singapore has already confirmed the added impetus of the biggest spending package in the history of the city-state. Finance minister Heng Swee Keat has unveiled what he calls a "Resilience Budget," injecting a landmark S$48.4 billion ($33.8 billion) into the economy.
The spending is equivalent to 9.5% of the country's entire economy. It's also on top of a first S$6.4 billion ($4.5 billion) stimulus package introduced in mid-February, bringing total spending by the government to 11% of Gross Domestic Product.
Singaporeans listen to, trust and depend on their government more than any other citizens I know. They revere late founding father Lee Kwan Yew, who fought hard to establish Singapore as a separate nation after it was kicked out of Malaysia in 1965, following independence from the British.
So studying Singapore may show what kind of hope governments elsewhere have in terms of rebooting their economy after the coronavirus shutdown. If Singapore cannot do it, there's little hope elsewhere.
The Lion City's consumer-cyclical stocks felt the love on Friday, the sector leading the way with 5.4% gains. Genting Singapore (GIGNY) was the top performer by quite a stretch, up 8.1%, sentiment warming on its Resorts World casino resort and Universal Studios Singapore theme park. Supermarket and drug-store chain Dairy Farm International (DFIHY) rose 4.4%, and the beer-liquor-soda maker Thai Beverage (TBVPY) matched those gains before giving way to close up 2.5%.
The other big moves upwards came from S-REITs, Singapore's listed property trusts. Mall and office operator Mapletree Commercial Trust SG:N2IU was the biggest beneficiary, up 5.0%, while shopping-mall specialist CapitaLand Mall Trust SG:C38U climbed 4.5%. Ascendas Real Estate Investment (ACDSF) (which has a portfolio of office park and logistics space in Singapore, Australia and Britain) rose 4.1%.
Singapore Airlines (SINGY) was by far the biggest loser, down 6.5%, having dropped as much as 10.5% during the day. The country's flagship carrier, one of the best in the world, said on Friday it has secured up to S$19 billion ($13 billion) in funding to see it through the current crisis.
That's the biggest bailout package so far for any airline around the world. American Airlines (AAL) , which is much larger, says it qualifies for $12 billion out of the $58 billion that the U.S. government has pledged in loans and grants to the U.S. airline industry. The Singapore Airlines funding is also intended to allow it to expand immediately should the Covid-19 crisis end.
The Singapore airline's major shareholder, the government-owned investment company Temasek Holdings, said it would underwrite S$5.3 billion ($3.7 billion) in equity issuance and up to S$9.7 billion ($6.8 billion) in convertible bonds. Singapore's biggest bank, DBS Group DBSDY, has extended a S$4 billion ($2.8 billion) bridge loan. Since the rights issue is at S$3, 58% lower than its S$6.5 trading price at the time of the announcement, the dilutive effects are driving the share price down. Its shares closed at S$6.08.
Singapore Airlines has grounded almost its whole fleet and cut capacity by 96%. Singapore is not currently allowing anyone other than its own citizens and permanent residents to enter, whether visitors or in transit.
Such travel bans have an outsize impact on airlines such as Singapore Airlines and Hong Kong-based Cathay Pacific (CPCAY), which have no domestic flights to fall back on. Those dynamic cities depend on tourism, business travel and a hefty share of transit passengers. None of those are coming.
Singapore tapped its past reserves for the first and so far only time during the 2008-09 financial crisis, to the tune of S$4.9 billion. So Nomura notes that this package is far larger, the investment bank saying it provides a "significant backstop" to rising downside risk to the economy.
The Singaporean government is projecting a drop of between 1% and 4% in GDP for 2020. The bailout bolsters a job-support scheme, wage-credit scheme and introduces a scheme of cash transfers to support self-employed as well as newly jobless Singaporeans.
The government says it will create 10,000 jobs this year. It is also deferring income tax and a previously planned increase in some government fees. Commercial properties such as hotels that have been hard hit will pay no property taxes. The central Monetary Authority of Singapore is working with banks and insurers to figure out how to defer loan and insurance payments.
Jefferies says many sectors, such as property and banks, will likely trade sideways in Singapore, until the picture becomes a bit clearer as to which companies have liquidity and solvency.
Singapore has, comparatively, done a very good job of controlling the outbreak of Covid-19 in the city. But it reported its first two deaths last weekend, and saw a record 73 new infections on Wednesday thanks in large part to imported cases. It now has 683 cases in a city of 5.6 million.
Singapore equities remain consumed by "a lot of fear," Carmen Lee, the head of OCBC Investment Research, told a Q2 briefing on Singapore stocks. It is not realistic for the Straits Times to "find any stabilization soon," she said, according to The Business Times.
Singapore stocks took between 22 and 48 months to recover from past shocks such as Black Monday in 1987, the 9/11 attacks and the 2008-09 financial crisis, Lee notes. Although the Straits Times is trading at 10.4 times earnings, well below its historical averages, Lee pointed out that many companies are going to be slashing earnings, which would drive that average higher.