NikkoAM ETFs product update

Fund specific news/market analysis

1. Nikko AM Singapore STI ETF

Highlights

In Singapore dollar (SGD) terms, the Nikko AM Singapore STI ETF returned -4.05% in June and recorded an annualised gain of 8.03% since inception.

For the month, the Straits Times Index (STI) declined 4.03% on a total return (TR) basis in SGD terms. In terms of sectors, real estate and utilities were the best performers in June, while consumer discretionary and information technology were the worst performers.

Of the 30 component stocks in the index, DFI Retail Group Holdings, Hongkong Land, Mapletree Industrial Trust and Mapletree Commercial Trust were the best performers in June. Conversely, United Overseas Bank, SATS and Jardine Matheson were June’s worst performing STI stocks.

Mapletree Commercial Trust announces satisfaction of preferential offering conditions

Previously, Mapletree Commercial Trust (MCT), a Singapore-focused commercial REIT, has proposed to make a preferential offering to its unitholders, which will see MCT’s units being issued at SGD 2.0039 each. This was to fund the additional cash-only consideration for Mapletree North Asia Commercial Trust (MNACT) unitholders in view of the proposed merger with MCT. On 30 June, the manager of MCT has announced the conclusion of the election period by MNACT unitholders for the different forms of the scheme consideration. The elections for the scheme consideration have resulted in the cash component payable by MCT exceeding SGD 417.3 million in aggregate. Accordingly, all of the preferential offering conditions have been satisfied and the preferential offering will proceed. Other key dates in the latest indicative timetable include 12 July, when MCT’s preferential offering will commence; 28 July, when the units will begin trading; and 3 August, when MNACT will be delisted. Mapletree Commercial Trust was among the best performing STI-component stocks in June.

UOB prices SGD 400 million worth of perpetual capital securities with 4.25% coupon

Singapore’s third-largest lender United Overseas Bank (UOB) has priced SGD 400 million worth of perpetual capital securities, as part of the USD 30 billion global medium-term note programme. The SGD-denominated capital securities will be first callable in 2027. Holders will receive distributions semi-annually in arrear at a fixed rate of 4.25% per annum, subject to a reset every 5 years thereafter from the first reset date on 4 October 2027. The capital securities are expected to be rated Baa1 by Moody’s Investors Service, BBB- by Standard & Poor’s Rating Services and BBB+ by Fitch Ratings. UOB was one of the worst performing STI-component stock in June.

2. Nikko AM-StraitsTrading Asia ex Japan REIT ETF

Highlights

In Singapore dollar (SGD) terms, the NikkoAM-StraitsTrading Asia ex Japan REIT ETF returned -2.18% in June and recorded an annualised gain of 4.86% since inception.

Fears of a probable recession and a four-decade high US inflation number rippled through various economies. The US Federal Reserve (Fed) reacted by raising interest rates by 0.75%, and expectations for further interest rate increases are escalating. Asian REITs fell in line with global equity markets, with the FTSE EPRA Nareit Asia ex Japan REITs 10% Capped Index returning -2.07% in SGD terms for the month.

At the sector level, industrial, and hotel and resorts REITs were the best performers in June, while specialised and office REITs were the worst performers. At the individual REIT level, Mapletree Industrial Trust, Mapletree Commercial Trust and Mapletree Logistics Trust were the best performers in June. Conversely, ESR Kendall Square REIT, AREIT Inc and LOTTE REIT were the worst performers during the month.

Mapletree Commercial Trust announces satisfaction of preferential offering conditions

Previously, Mapletree Commercial Trust (MCT), a Singapore-focused commercial REIT, has proposed to make a preferential offering to its unitholders, which will see MCT’s units being issued at SGD 2.0039 each. This was to fund the additional cash-only consideration for Mapletree North Asia Commercial Trust (MNACT) unitholders in view of the proposed merger with MCT. On 30 June, the manager of MCT has announced the conclusion of the election period by MNACT unitholders for the different forms of the scheme consideration. The elections for the scheme consideration have resulted in the cash component payable by MCT exceeding SGD 417.3 million in aggregate. Accordingly, all of the preferential offering conditions have been satisfied and the preferential offering will proceed. Other key dates in the latest indicative timetable for the preferential offering include 12 July, when MCT’s preferential offering will commence; 28 July, when the units will begin trading; and 3 August, when MNACT will be delisted. Mapletree Commercial Trust was among the best performing Asian REITs in June.

ESR Kendall Square REIT finished 520,000 square metres of South Korean warehouse space in 1H22

In a news release on 27 June, ESR Kendall Square REIT—South Korea’s first publicly listed logistics-focused REIT—has announced the completion of approximately 520,000 square metres of Class A logistics warehouse space during the first half of 2022 (1H22). The newly completed space comprises of seven warehouses, spanning across the greater Seoul metropolitan area. They have been fully pre-leased to reputable tenants which are heavyweights in their own industries, though the names were not disclosed. The newly completed properties will further solidify the REIT’s presence in Yongin and Incheon, which serve as major logistics hubs in Seoul. Thomas Nam, CEO of ESR Kendall Square added that “customer and investor demand for Class A logistics warehouse space continues to surge on the back of continued e-commerce adoption.” However, ESR Kendall Square REIT remained among the worst performing Asian REITs in June.

3. ABF Singapore Bond Index Fund

Highlights

The Fund returned -1.91% in Singapore dollar (SGD) terms, while its benchmark returned -1.90% in SGD terms. The Fund's portfolio characteristics remained close to its benchmark as at end- June.

Singapore Government Securities (SGS) yields surged higher alongside with that of the US Treasuries (USTs). While the long end (30-year) remained anchored due to end account demand, the rest of the yield curve moved higher alongside most sovereign bonds. The benchmark 2-year SGS yield was up 53.2 basis points (bps) to 2.658%, and the benchmark 10-year SGS yield was up 26.6 bps to 2.967%. Government bonds outperformed sub-government securities.

This month, the government published a framework of green bonds to be issued by public sector agencies under the Significant Infrastructure Government Loan Act (SINGA). Proceeds from these bonds would be used to fund infrastructure projects supporting the country’s transition to a low-carbon economy. To counter rising inflation, Singapore government unveiled a SGD 1.5 billion support package to assist businesses and households to cope. Singapore’s headline consumer price index (CPI) inflation for May rose to 5.6% year-on-year (YoY). Its core inflation accelerated to 3.6% YoY in May from 3.3% in the previous month, with the increase driven mainly by higher food prices.

In June, non-oil domestic exports (NODX) growth, overall purchasing managers’ index (PMI), retail sales and industrial production (IP) growth all saw a significant improvement.

Yields of Singapore Government Securities (SGS) surge along with US Treasuries (USTs) in June

UST yields moved significantly higher in June, with the yield curve ending flatter as front-end yields (refer to that of bonds whose maturities are 3 years and shorter and they tend to be influenced by expectations for the U.S. Fed policy) underperformed. The US reported a considerably stronger than expected 8.6% US headline CPI for May, triggering fears that the US Federal Reserve (Fed) could tighten monetary policy more swiftly. Simultaneously, the European Central Bank (ECB) announced it would conclude asset purchases and commence raising rates in July. These developments prompted a significant repricing in global bond yields. Mid-month, the Fed delivered the largest rate hike since 1994, raising interest rates by 75 bps. UST yields retraced part of the earlier rise after Fed Chairperson Jerome Powell recalibrated expectations on future hikes, declaring that “either a 50 or 75 bps increase seems most likely at our next meeting”. Subsequently, soft economic data from the US and other developed markets sparked fears of a potential recession in key economies, prompting some easing in global bond yields. At the end of the period, the benchmark 2-year and 10-year UST yields were at 2.957% and 3.016% respectively, 39.9 bps and 16.9 bps higher compared to end-May.

Similar to the moves in USTs, fears about faster monetary policy tightening by global central banks led front-end SGS to underperform, prompting the SGS yield curve to end flatter in June. This month, the government published a framework of green bonds to be issued by public sector agencies under the Significant Infrastructure Government Loan Act (SINGA). The inaugural Green SGS (Infrastructure) bond would be issued in the coming months, with details to be provided closer to the issuance date. Proceeds from these bonds would be used to fund infrastructure projects supporting the country’s transition to a low-carbon economy.

At the end of June, the benchmark 2-year SGS yield was up 53.2 bps to 2.658%, and the benchmark 10-year SGS yield was up 26.6 bps to 2.967%. Government bonds outperformed sub-sovereign securities, with the Markit iBoxx ABF Singapore Govt Total Return (TR) Index returning at -1.81%, compared to -2.12% monthly returns for the Markit iBoxx ABF Singapore Sub-Sovereigns TR Index.

Government unveils an additional fiscal support package to counter rising inflation

Singapore’s government announced a SGD 1.5 billion support package to help businesses and households cope with rising costs, which would be funded from the better-than-expected budget surplus from Fiscal Year 2021. Key measures for businesses include an increase in the government’s co-funding share under the Progressive Wage Credit Scheme, the extension of the Jobs Growth Incentive for another six months, and grants for local small-to-medium enterprises (SMEs) in select sectors to invest in more energy-efficient equipment. For individuals and households, the government would be extending utilities credit and goods and services vouchers.

4. Nikko AM SGD Investment Grade Corporate Bond ETF

Highlights

The Fund returned -1.46% in Singapore dollar (SGD) terms in June. The Fund's portfolio characteristics remained close to its benchmark as at end- June.

The iBoxx SGD Non-Sovereigns Large Cap Investment Grade Index returned -1.46% in June despite creditspreads tightening by 1 basis point (bps) as benchmark yields rose.

Singapore Government Securities (SGS) yields surged higher alongside with that of the US Treasuries (USTs). While the long end (30-year) remained anchored due to end account demand, the rest of the yield curve moved higher alongside most sovereign bonds. This month, the government published a framework of green bonds to be issued by public sector agencies under the Significant Infrastructure Government Loan Act (SINGA). Proceeds from these bonds would be used to fund infrastructure projects supporting the country’s transition to a low-carbon economy.

At the end of June, the benchmark 2-year SGS yield was up 53.2 bps to 2.658%, and the benchmark 10-year SGS yield was up 26.6 bps to 2.967%. There were five major issues in the month – the SGD 900million issue from HSBC Holdings PLC, SGD 750 million issue from ABN Amro Bank, SGD 450 PERP from Barclays PLC, SGD 400 PERP from United Overseas Bank, and SGD 350 million issue from China Construction Bank/SG.

To counter rising inflation, Singapore government unveiled a SGD 1.5 billion support package to assist businesses and households to cope. Singapore’s headline consumer price index (CPI) inflation for May rose to 5.6% year-on-year (YoY). Its core inflation accelerated to 3.6% YoY in May from 3.3% in the previous month, with the increase driven mainly by higher food prices.

Singapore Investment Grade Corporate Bonds fall in June

The iBoxx SGD Non-Sovereigns Large Cap Investment Grade Index returned -1.46% in June despite credit spreads tightening by 1 basis point (bp) as benchmark yields rose. At month-end, overall spreads was at 87 bps (vs government benchmark), and the overall index yield rose to 3.81%.

UST yields moved significantly higher in June, with the yield curve ending flatter as front-end yields (refer to that of bonds whose maturities are 3 years and shorter and they tend to be influenced by expectations for the U.S. Fed policy) underperformed. The US reported a considerably stronger than expected 8.6% US headline consumer price index (CPI) for May, triggering fears that the US Federal Reserve (Fed) could tighten monetary policy more swiftly. Simultaneously, the European Central Bank (ECB) announced it would conclude asset purchases and commence raising rates in July. These developments prompted a significant repricing in global bond yields. Mid-month, the Fed delivered the largest rate hike since 1994, raising interest rates by 75 basis points (bps). UST yields retraced part of the earlier rise after Fed Chairperson Jerome Powell recalibrated expectations on future hikes, declaring that “either a 50 or 75 bps increase seems most likely at our next meeting”. Subsequently, soft economic data from the US and other developed markets sparked fears of a potential recession in key economies, prompting some easing in global bond yields. At the end of the period, the benchmark 2-year and 10-year UST yields were at 2.957% and 3.016% respectively, 39.9 bps and 16.9 bps higher compared to end-May.

At the end of June, the benchmark 2-year SGS yield was up 53.2 bps to 2.658%, and the benchmark 10-year SGS yield was up 26.6 bps to 2.967%. Meanwhile, there were five major issues in the month – the SGD 900 million issue from HSBC Holdings PLC, SGD 750 million issue from ABN Amro Bank, SGD 500 million perpetual capital securities (PERP) from OCBC, SGD 450 million PERP from Barclays PLC, SGD 400 million PERP from United Overseas Bank, and SGD 350 million issue from China Construction Bank/SG.

Core CPI picks up anew in May

Headline CPI inflation for May rose to 5.6% YoY, on the back of increases in both accommodation and private road transport inflation. Meanwhile, the Monetary Authority of Singapore’s (MAS) preferred core inflation measure, which excludes private transport and accommodation inflation, accelerated to 3.6% YoY in May from 3.3% YoY in April, rising above the MAS’ full-year forecast range of 2.5-3.5%. The increase in core CPI was driven largely by a pick-up in food inflation. Policymakers reiterated that core inflation is expected to pick up further in the coming months, before moderating later in the year.

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Fund specific news/market analysis

1. Nikko AM Singapore STI ETF

2. Nikko AM-StraitsTrading Asia ex Japan REIT ETF

3. ABF Singapore Bond Index Fund

4. Nikko AM SGD Investment Grade Corporate Bond ETF

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