Nonetheless, Astrea bonds, which are backed by private equity and managed by an indirect subsidiary of Temasek, are investment grade. Both Astrea 7A 4.125% and Astrea 8A 4.35% are A+-rated.
For those further up the risk curve, REITs such as CapitaLand Integrated Commercial Trust (CICT) and Frasers Centrepoint Trust (FCT) offer stable returns for relatively lower volatility than pure equity. Both REITs have re mained relatively resilient, outperforming the Straits Times Index’s (STI) other components (see “STI components’ dividends & gearing”).
We’ve added dividends, dividend cover, gearing and net gearing ratios to the table of STI components. Dividend cover or dividend coverage ratio measures a company’s ability to pay dividends by dividing the amount of dividends paid by its net profit. Dividend cover should be at least 1 time for companies, and mildly lower for REITs as they are required to pay out at least 90% of their distributable in come for tax transparency purposes. The higher the dividend cover, the better. The best gauge is the banks’ dividend cover, which ranges between 1.67 times for Oversea-Chinese Banking Corp to 1.98 times for United Overseas Bank .
See also: SGX stocks to ride out the trade war
No STI component is the ideal shelter at a time when Asian economies are staring at a sharp slowdown (or recession). Nonetheless, Singapore banks have committed to pay out at least 50% of their net profit, and they are also committed to capital management through ei ther share buybacks or a capital payout. They are also well capitalised, well regulated and well managed. Would their generous dividends offset the banks’ volatile share price performance since Trump’s so-called Liberation Day? That is a decision investors must make for themselves.
Notably, analysts have turned negative on Singapore banks. The standout share price performer this year is Singapore Technologies Engineering . Its dividend yield is more modest than the banks, equivalent to the risk-free rate for the yield of 10-year Singapore government securities (SGS), but its gearing looks elevated. During times of volatility, investors tend to gravitate towards quality, and the STI stocks are likely to be the highest-rated stocks locally.
See also: NetLink NBN Trust replaces ComfortDelGro in STI reserve list
Risk-free investment haven is stressed
Typically, US treasuries are the ultimate haven. But not this time.
“The failure of long-end US Treasuries (USTs) to perform during times of stress is glar ing. Despite risk aversion, longer-tenor yields continued to push higher with 10-year yields, which rose to 4.42% on April 9 before retreating to 4.277% on April 10. We suspect that a combination of market dislocation and investors keen to look for alternatives to USTs may be the key reasons why USTs have not been performing,” say the economists and strategists at DBS Group Research in a recent update. Market watchers suggest that European sovereigns (EGB) could be attracting inflows.
The underwhelming auction on April 8 has raised the spectre of China either staying away from future auctions or worse, selling their treasuries.
A handful of US market commentators have articulated that the Trump administration is playing four-dimensional chess to force the Federal Reserve to lower rates by causing a recession. No such luck.
On April 8, during a webinar, Taimur Baig, DBS Group Holdings’ chief economist, ex plained that US debt has two elements: US government debt (US treasuries) and corporate debt. The latter has a big wall of maturity of 2025 and 2026.
“This is not the way to fight a yield war because [during a recession] you have nega tive GDP and your denominator in the debt to GDP ratio goes down. You cannot play a game where you have a big crisis to get lower yields because that would mean people would not want to hold US assets. I would be careful about what one wants, where you hope to get low er yields for the wrong reasons,” Baig warns.
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As it turned out, a surge in the 10-year UST yields have unnerved investors. From 3.9% on April 7, the yield surged to 4.42% on April 9 in Asian market trading because of a weak Treasury auction on April 8.
“Amidst elevated volatility over the past few trading sessions, we note that the bond swap spreads (Sofr OIS less UST yield) have tight ened (turned more negative). [Sofr OIS stands for secured overnight financing rate overnight index swap]. This is likely to be a function of investors having much less appetite to deploy cash and is a reflection of extreme stress. Fun damentally, investors may also be looking at EGBs (where yields have risen sharply over the past few months) as alternatives to USTs,” the economists and strategists at DBS Group Re search suggest in their April 9 update.
In Asia, there is little or no shelter from the storm in their export-oriented trade-depend ent economies. Asia developed largely from the slogan “trade, not aid”, to the extent that economies in developed Asia are among the richest in the world. These Asian economies with their surpluses and reserves could have the ability to withstand a global economic slowdown better than most.
Chris Kushlis, chief emerging markets mac ro strategist at T. Rowe Price, says the tariffs are likely to be disinflationary for these surplus countries through negative growth effects. Although their central banks have room to implement easier monetary policies, Kushlis reckons that fiscal support will play a more important role in the policymaker toolkit for Asian economies. Institutional and accredited investors may opt for quality credits.
“We would expect issuers in financials, utilities, and infrastructure sectors to remain insulated. We take comfort from the generally conservative behaviour and hedging policies that we witness in Asian cor porate funding profiles. We take some comfort also on the solid starting point in corporate fundamentals and balance sheets across the region’s issuers, as well as ample access to funding sources,” Kushlis says.
WMUS: World minus US
In Baig’s view, the US is doing a Brexit of sorts. He has a term — WMUS or “the world minus the US”, for this new phenomenon. “WMUS comprises 71% of global GDP and 86% of global trade. Although countries like Cambodia and Vietnam are reliant on the US, there are many parts of the world that they can sell their products to. Their Nike shoes will adorn the feet of people in the rest of the world. The world is a very big place,” he says.
For instance, Vietnam, which benefitted from China +1, faces a high levy. But businesses may not move out of Vietnam because Vietnam has certain advantages such as a high-quality workforce, low costs and free trade agreements that could serve other mar kets beyond the US. Although Trump loves talking about deals, Baig is in the camp that believes the US will not do deals because deals will not bring man ufacturing jobs back to the US.
Bear markets, the 200-day moving average, recessions
Is the US in a bear market? This is academic as trillions have been wiped off from the US indices. From Jan 1 to April 8, the Dow Jones Industrial Average (Dow) is down 11.5% year-to-date; the Nasdaq Composite has lost 20.9% and the S&P 500 is down 15%. A 20% decline in the index is one of the signs of a bear market.
All three are below their 200-day moving averages. Technical analysis’ general theo ry of moving averages views a move below the 200-day moving average as the start of a bear market. The S&P 500 fell below its 200-day moving average on March 10, and Nasdaq on March 7. The Dow, which was the most resilient of the indices, fell below its 200-day moving average just after Liberation Day.
Despite a spectacular rebound on April 9, the three US indices remain below their 200-day moving averages. On average, for the US since World War II, bear markets last around 12–13 months from peak to trough. The main comfort from the markets’ past behaviour is that bull markets last many times longer than bear markets.
Charles Dow, after whom the Dow is named, had a Dow Theory. One of its tenets was that markets move ahead of fundamentals by around six months. If so, then the break below the 200 day moving average by the US indices points to an economic slowdown and/or stagflation or re cession later this year
