Top Stock Market Highlights for July 2024
Welcome back to The Smart Investor’s top stock market highlights for the month.
With this update, we officially enter the second half of 2024.
For this month, we will primarily focus on the Singapore Market, especially with the noteworthy change within the REIT sector.
Meanwhile, artificial intelligence (AI) continues to be a hot topic globally.
This was highlighted by the latest announcement from the Korean semiconductor supplier, SK Hynix (KRX: 000660), regarding its new AI initiatives.
As we wrap up July, investors are gearing up for August, a significant month where several of the largest US blue-chips companies are set to announce their earnings.
SK Hynix
SK Hynix, the semiconductor arm of the SK Group (KRX: 034730), plans to invest around KRW 103 trillion, or around S$101 billion, from now till 2028.
Around 80% of this amount will be spent on high-bandwidth memory chips, which are optimised for use with Nvidia’s (NASDAQ: NVDA) artificial intelligence (AI) accelerators.
Both SK Telecom (KRX: 017670) and SK Broadband, divisions of the SK parent, will commit to invest KRW 3.4 trillion in their data centre business as part of the group’s AI ambitions.
Executives from the SK Group deliberated long and hard on how to overhaul the group, which also has businesses in energy, chemicals, and batteries.
The plan is to generate KRW 80 trillion by 2026 from the overhaul of business operations and to generate KRW 30 trillion of free cash flow to ensure that its debt-to-equity ratio stays below 100%.
Aside from its investment plans, SK Hynix also announced other initiatives this year.
The semiconductor firm will build an advanced packaging plant and research centre for AI products in Indiana.
Closer to home, the company is spending US$14.6 billion to build a new memory chip complex.
CapitaLand Investment Limited (SGX: 9CI)
CapitaLand Investment Limited, or CLI, launched a research paper on 5 July titled “Asia Pacific Data Centre Investment Strategies in the Age of Digitalisation”.
The property giant owns a portfolio of 27 data centres with about US$4.5 billion in assets under management (AUM) along with more than 800 MW in gross power spread across eight countries.
The report also found that 97% of institutional investors planned to increase their data centre allocation, particularly in the Asia-Pacific region.
AI is the driving force for this demand, coupled with ongoing requirements for cloud computing and digitalisation.
Asia’s internet user base has soared sevenfold since 2005, compared with just 1.9 times in the US and 1.8 times in Europe.
Hyperscalers will continue to drive data centre demand and CLI estimates that the Asia-Pacific colocation market will double in size to US$52 billion by 2026.
The report also named the key data centre markets in APAC – Singapore, Tokyo, Osaka, Seoul, and Sydney.
Because of China’s huge population, both Beijing and Shanghai are also poised to become key data centre locations.
CLI also threw the spotlight on India as the next major hotspot for data centre investments.
Seven cities in the country – Mumbai, Bengaluru, Chennai, Hyderabad, Delhi, Pune and Kolkata, will be the focal points for new data centre developments.
Of the seven, Mumbai stands out as the hub, helping to host more than half of the country’s data centres.
With a lack of stabilised data centres available for sale in APAC, investors should find attractive opportunities to develop new data centres.
Singtel (SGX: Z74)
Singtel will support the amalgamation of Intouch Holdings (BKK: INTUCH) and Gulf Energy (SGX: TGED) to help simplify its shareholding in its Thai associate Advanced Info Services (AIS) (SGX: TADD).
Currently, Singtel and Gulf hold a 24.99% and 47.37% stake in Intouch, respectively, with Intouch owning a 40.44% stake in AIS.
An as-yet-unnamed company, NewCo, will result from this amalgamation and is expected to become one of the largest and most liquid listed companies in Thailand.
In exchange for its stake in Intouch, Singtel will receive an approximately 9% stake in NewCo.
The blue-chip telco will also book a gain of around S$400 million from this amalgamation.
After the transaction is completed, Singtel will evaluate its options for NewCo even as it continues to be a long-term investor in Thailand through its stake in AIS.
Arthur Lang, Singtel’s group CFO, mentioned that the telco will have the opportunity to increase its (now) direct 23.3% stake in AIS through this transaction.
This transaction should close by the second quarter of 2025 subject to the approval of the shareholders of both Intouch and Gulf.
MAS’ proposal for Singapore REITs
The Monetary Authority of Singapore (MAS) has published a consultation paper with a proposal for the Singapore REIT sector.
The proposal is for a minimum interest coverage ratio (ICR) of 1.5 times that will apply to all REITs.
Currently, there is a requirement of the ICR to be at least 2.5 times for REITs that intend to increase their aggregate leverage from 45% to 50%.
In addition, all REITs now have a single aggregate maximum leverage threshold of 50%.
This leverage limit of 50% should work together with the ICR requirement to ensure prudent borrowing practices by REITs.
To ensure that REITs provide sufficient information about how their credit profile may be impacted by changes in EBITDA (earnings before interest, taxes, depreciation, and amortisation) and interest rates, MAS has mandated that all REITs disclose a sensitivity analysis in their interim and annual reports.
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Disclosure: Aw Kai Rui does not own any of the stocks mentioned in this article.
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