Phillip 2Q23 Singapore Strategy - Phillip Securities 2023-04-03: More Patient Than The Fed

• After an encouraging 3.5% rise in January, the Singapore market returned all its gains to finish 1Q23 relatively unchanged. Higher-than-expected inflation in the US plus jitters over banks pushed markets lower. Singapore banks were sluggish.
• The largest gainers were conglomerates from successful restructuring and better-than-expected results. Property counters were surprisingly the weakest as higher interest and a large pipeline of new launches haunted investors.

2Q23 Market Outlook:

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• Secondly, raising rates will only deepen balance-sheet losses for US banks. With government and central bank stimulus, deposits in the US banking system surged by US$4.3tr over three years. Almost US$1.5t p.a., or triple the pre-pandemic level, was deployed to purchase government and mortgage securities. This raised bank balance sheet risk to interest rates. The curse of marking to market is either recognising the security losses immediately (as available for sale) or warehous ing (as held to maturity).
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We think the Fed is behind the curve. It is raising rates because economic weakness is not yet obvious. However, lead indicators point to an upcoming recession, especially in manufacturing.

Conventionally, a catalyst to rally the market would be a Fed pause or interest rate cut. However, over the past three recessions, the Fed cut rates just 3-6 months before a recession. The market only bottoms 1-17 months after a rate cut, depending on the level of contraction in the economy.

In Singapore, the external environment is weakening fast. Exports are in their fifth month of decline. The domestic economy will slow but we expect it to be resilient, supported by foreign direct investment (FDI) flows, migration, tourism and fiscal spending.

Investment Recommendation:

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Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2023-04-03 SGinvestors.io

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