- Singapore was a standout outperformer in 2022. In US dollar terms, Singapore equities were up 4.8% in 2022, (2021: +7.7%). A huge 24 -25% points outperformance over US and Asia (Ex-Japan) equities. Banks' performance was resilient as major beneficiaries of rising interest rates and healthy asset quality.
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- Conversely, 2022 was an awful year for REITs. Leading the decline were foreign asset base REITs Manulife US REIT (SGX:BTOU) (-55%), Prime US REIT (SGX:OXMU) (-51%) or data centres Digital Core REIT (SGX:DCRU) (-53%), Keppel DC REIT (SGX:AJBU) (-28%).
2023 Market Outlook
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- Our strategy for 2023 is the opposite. We expect inflation to fall sharply this year. Multiple indicators point to a steeper slowdown of inflation in the US. Goods inflation is sharply down, key services such as rents are turning around, freight rates are collapsing, and money supply is contracting. Core PCE (the Fed’s favourite inflation gauge) on an annualized basis is currently 2.6%, close to the Fed’s 2% target.
- A recession in the US is likely. The yield curve is significantly inverted and other economic indicators are slowing down. However, we expect any recession to be modest. This is because of strong employment and the absence of deflation shocks reminiscent of the mortgage debt or banking crisis of 2008. A huge deleveraging has taken place but is isolated with the US$2tr collapse in cryptocurrencies. We guess there is a limit to how much of your own (crypto) money you can print to get rich.
- During inflationary recessions, similar to the 1970s, nominal GDP or operating cash flows did not contract. They still can grow faster than interest rates due to negative real rates. Over 1970-82, when the US faced four recessions, nominal GDP growth averaged 10%. During these recessions, US corporate earnings contracted around 3% compared to the 20% for the three most recent recessions (2001, 2008/09, 2020).
The Phillip Absolute 10 – 2022 performance review
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Above is the excerpt from report by Phillip Securities Research.
Clients of Phillip Capital may be the first to access the full report in PDF @ https://www.stocksbnb.com/.
Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2023-01-04
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