Singapore Market Focus - Navigating Between Recession Fears & Slower Rate Hikes
- Against the backdrop of edging recession concerns and slower rate hikes, we see STI near-term support at 2,923 with the rebound cap at 3,090. We see potential for rebound trade or bottom fishing for “rate hike casualties”.
- DBS Economics research sees the Fed Funds Rate hitting 4.5% this year and peaking at 5% in 1Q23, which is in line with the consensus view. The upcoming 2 Nov FOMC meeting will likely mark the last 75bps hike in the series. Singapore’s 2023 GDP growth is cut to 2.2% (previously 3%).
5 recession-resilient S-REITs to accumulate.
- The S-REITs Sector is now trading at an attractive 7.1% FY23F yield with downside contained, even under a bear case scenario. But with the shadow of a global recession looming, we prefer resilience over absolute yield. Our picks are
- Keppel REIT (SGX:K71U) (favourable demand-supply dynamics),
- Frasers Centrepoint Trust (SGX:J69U) (sub-urban resilience),
- CDL Hospitality Trusts (SGX:J85) (travel recovery growth),
- CapitaLand Ascendas REIT (SGX:A17U) (structural tailwinds in new economy assets/sectors), and
- Mapletree Logistics Trust (SGX:M44U) (fast-growing Asian e-commerce space).
3 SGX listed non-REITs for possible rebound trade.
- UOL Group (SGX:U14) rides on Singapore’s resilient residential property market, while its hospitality and retail segments benefit from reopening. The stock trades at close to its GFC low of 0.5x P/B and net debt/equity is a low 0.2x.
- ComfortDelGro (SGX:C52)’s huge mismatch between its share price performance and improving fundamentals is an opportunity. EPS growth is at double digits y-o-y, at 27% and 35% for FY22F and FY23F, respectively. Valuation is very attractive at < 1x P/BV, 12.3x fwd P/E, 2.6x EV/EBITDA, 5.9% FY23F yield, and in a net cash position.
- Wilmar International (SGX:F34)’s positive 1H22 earnings momentum should sustain into 2H22. Stock is trading at 8.1x FY23F P/E, -2 standard deviation of its 5-year average P/E. Net debt/equity is moderate at 0.7x.
Avoid stocks with negative 52-week low signals.
- Be wary about stocks that have, in recent weeks, fallen below their 52-week low for the first time in a year or longer and are currently trading within 10% of that initial breakdown level.
- Among the STI component stocks, the stocks to avoid are CapitaLand Investment (SGX:9CI), Jardine Matheson (SGX:J36), Hongkong Land (SGX:H78), and Singapore Exchange (SGX:S68).
- We are also watchful of UOB (SGX:U11), OCBC (SGX:O39), and SingTel (SGX:Z74), as these stock prices are within 5% of their 52-week lows for the first time in a year. These three stocks are index heavyweights, which can drag down the benchmark if there is a downside break.
Semiconductor stocks: Too early to bottom fish despite possibility of oversold bounce
- While semiconductor stocks AEM (SGX:AWX) and UMS (SGX:558) are oversold following the rapid sell-off in recent weeks and a technical bounce is possible, we’d rather not chase the bounce due to ongoing uncertainties from the slowdown in consumer demand and the recent US export controls on advanced chips/chipmaking equipment from China. The figures are tell-tale signs, with September the second consecutive month of contraction in NODX electronics exports.
- The full extent and impact of US export controls to China have yet to be fully understood, with a bias towards the downside. China is a key market for most US semiconductor companies, having contributed an average of ~30% to their revenue in the last financial year. As a result, AEM and UMS may be affected as Intel and Applied Materials mull over further production and/or CAPEX cuts.
- We see technical resistance for UMS Share Price at $0.97 and $1.02 and AEM Share Price at $3.34 and $3.46.
3 stocks most affected by China’s continued zero-COVID policies
- Chinese travellers made up 19% of Singapore visitor arrivals back in 2019. Any delay in the easing of China’s zero-COVID policy will cause a corresponding delay in Singapore’s tourist arrivals recovering to the pre-COVID level. Genting Singapore (SGX:G13) may be affected by the continued absence of Chinese high rollers in the foreseeable future. Genting Singapore's share price may be capped at $0.835 technical resistance for now, despite it being a beneficiary of Singapore’s reopening theme.
- Among the China-focused retail S-REITs, we see little downside for CapitaLand China Trust (SGX:AU8U) as it seems to have priced in the negatives, while Sasseur REIT (SGX:CRPU) risks being affected by debt refinancing. CapitaLand China Trust's share price trades at an attractive FY23F 9.2% yield.
Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.
YEO Kee Yan CMT DBS Group Research | Janice CHUA DBS Research | https://www.dbs.com/insightsdirect/ 2022-10-27 2022-10-27
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