Investors gravitate to value shares

The ongoing tug of war is between monetary policy and the trade war
Chief Investment Office11 Sep 2019
    Photo credit: AFP Photo


    For a second straight day, 2019’s biggest winners across assets are getting hammered as investors reassessed expectations for global economic growth. The Treasury market set the tone, with a 10-month rally grinding to a halt Friday (6 September) after data on America’s consumer and labour market signalled a recession is far from imminent.

    Yields jumped, spurring the worst momentum unwind in US equities this decade on Monday (9 September). Stocks coveted for their defensive characteristics – REITs and utilities – got pummelled at the expense of banks beaten down during the Treasury rally.

    On Tuesday, US stocks erased losses in the final moments of trading as investors continued to gravitate to value shares. Treasury yields rose for a fifth day.

    The Dow Jones Industrial Average closed positive, rising 0.28% to 26,909.43, while the S&P 500 Index was little changed at 2,979.39. The Nasdaq Composite Index ended in negative territory, slipping 0.04% to 8,084.16. The Dow had briefly turned up midday following a report that China is ready to buy more US agricultural products.

    “That’s the tug of war that’s going on right now,” said an equity strategist. “It’s between monetary policy and the trade war.”

    Areas of the market that were previously this year’s best performers fell the most. The opposite was true, too, with energy stocks gaining and small caps outperforming for a second day. Bloomberg News.



    Germany is sticking to a balanced budget but is ready to act with “many billions” should its economy and that of Europe head into recession, Finance Minister Olaf Scholz said.

    In a speech to parliament Tuesday (10 September), Scholz confirmed Germany’s long-standing zero-deficit policy would stand for next year’s budget and allow already high investments to increase further.

    Yet, Scholz also said the government will act if the current slowdown morphs into a genuine crisis and that Germany’s solid finances have given the nation a sizable breathing space.

    “It’s central that we’re in a position, with the financial fundamentals we have, to respond with many, many billions, if indeed an economic crisis erupts in Germany and Europe,” Scholz told parliament. “And we will do it. That’s Keynesian economics come alive, if you will.”

    The yield on 10-year German bonds was little changed at -0.58% after the statement, while the euro was stable at USD1.1041.

    His spending plans were approved in cabinet in June and face a vote in parliament in November.

    Pressure is mounting on Chancellor Angela Merkel’s ruling coalition to loosen the purse strings as Europe’s biggest economy flirts with a first recession in almost seven years. Export-dependent Germany is suffering the effects of a global slowdown, exacerbated by trade disputes, uncertainty over Brexit, and turmoil in the Middle East.

    Later in the day, Merkel repeated her promise to stand by a balanced budget, while prioritising potential tax cuts and reducing debt. The chancellor drew applause in a speech to a taxpayer association when she pledged to abolish, in the long run, the country’s post-reunification solidarity tax. She also said Germany must continue to reduce its public debt as a proportion of economic output to below 60%. – Bloomberg News.

    The Stoxx Europe 600 Index traded 0.10% higher to 386.44 on Tuesday (10 September).



    The resignation of Hiroto Saikawa, chief executive of Nissan Motor Co Ltd gives the embattled Japanese carmaker a much needed opportunity to clean decks and move on.

    Ever since the shock arrest of the company’s chairman Carlos Ghosn almost a year ago, the Japanese auto giant has been in permanent crisis mode and ties with its French alliance partner Renault SA have frayed. To steer it through that period, Nissan needed a leader with deft political skills who embodied a clean break with the Ghosn era. Saikawa – a Ghosn appointee – was not it.

    The report that Nissan published concurrently on Monday (9 September), detailing allegations of financial misconduct by Ghosn, makes for grim reading (Ghosn denies wrongdoing). Yet, Saikawa could never distance himself fully from an era during which Nissan paid lip service to principles of good corporate governance.

    Revelations that Saikawa too was overpaid improperly were an unacceptable reminder of the allegations that led to Ghosn’s downfall, even if the amounts were smaller and Saikawa says he was unaware of the payments. He is not accused of misconduct.

    That the Nissan CEO seemed to revel in Ghosn’s ousting – so much so that it sparked claims of a palace coup – made it much harder to restore a basis of trust with Renault. In fairness, Renault did not help by pushing subsequently for a full-blown merger with Nissan that was unwanted by the Japanese, and then secretly discussed a tie-up with Italy’s Fiat Chrysler Automobiles NV.

    Meanwhile, Nissan’s recent financial performance under Saikawa has been nothing short of disastrous. Profit is in free fall, the company has lost ground in the vital US market, and it has been forced to slash production and jobs.

    His departure will spark hopes that Nissan can finally mend ties with Renault and do something about the destruction of shareholder value at both companies in recent months. In time, perhaps the French will be able to revive merger talks with Fiat; that deal has strategic and financial merit even if it remains dicey politically. Renault agreeing to cut its 43% Nissan stake might be a good place to start. Nissan holds only 15% of Renault, an imbalance that has fuelled the tensions between them.

    At a time of unprecedented upheaval in the car industry, Nissan cannot afford to be distracted by in-house politics. If change at the top lets executives focus on the business of making and selling cars, so much the better. – Bloomberg News.

    The Nikkei 225 Index rose 0.38% to 21,472.56 early-Wednesday (11 September) morning following a late rally in US equities. It climbed 0.35% to 21,392.10 in the previous session.

    The information published by DBS Bank Ltd. (company registration no.: 196800306E) (“DBS”) is for information only. It is based on information or opinions obtained from sources believed to be reliable (but which have not been independently verified by DBS, its related companies and affiliates (“DBS Group”)) and to the maximum extent permitted by law, DBS Group does not make any representation or warranty (express or implied) as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions and estimates are subject to change without notice. The publication and distribution of the information does not constitute nor does it imply any form of endorsement by DBS Group of any person, entity, services or products described or appearing in the information. Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment or securities. Foreign exchange transactions involve risks. You should note that fluctuations in foreign exchange rates may result in losses. You may wish to seek your own independent financial, tax, or legal advice or make such independent investigations as you consider necessary or appropriate.

    The information published is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction; nor is it calculated to invite, nor does it permit the making of offers to the public to subscribe to or enter into any transaction in any jurisdiction or country in which such offer, recommendation, invitation or solicitation is not authorised or to any person to whom it is unlawful to make such offer, recommendation, invitation or solicitation or where such offer, recommendation, invitation or solicitation would be contrary to law or regulation or which would subject DBS Group to any registration requirement within such jurisdiction or country, and should not be viewed as such. Without prejudice to the generality of the foregoing, the information, services or products described or appearing in the information are not specifically intended for or specifically targeted at the public in any specific jurisdiction.

    The information is the property of DBS and is protected by applicable intellectual property laws. No reproduction, transmission, sale, distribution, publication, broadcast, circulation, modification, dissemination, or commercial exploitation such information in any manner (including electronic, print or other media now known or hereafter developed) is permitted.

    DBS Group and its respective directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned and may also perform or seek to perform broking, investment banking and other banking or financial services to any persons or entities mentioned.

    To the maximum extent permitted by law, DBS Group accepts no liability for any losses or damages (including direct, special, indirect, consequential, incidental or loss of profits) of any kind arising from or in connection with any reliance and/or use of the information (including any error, omission or misstatement, negligent or otherwise) or further communication, even if DBS Group has been advised of the possibility thereof.

    The information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. The information is distributed (a) in Singapore, by DBS Bank Ltd.; (b) in China, by DBS Bank (China) Ltd; (c) in Hong Kong, by DBS Bank (Hong Kong) Limited; (d) in Taiwan, by DBS Bank (Taiwan) Ltd; (e) in Indonesia, by PT DBS Indonesia; and (f) in India, by DBS Bank Ltd, Mumbai Branch.