Singapore Monthly Strategy - Spotlight on dividends
- Key events in April – French Presidential Elections, MAS likely to maintain policy.
- April STI expected range - 3055 to 3230.
- Position for ex-dividend - OKP, OCBC, Golden Agri and Olam; top picks ComfortDelgro and Sheng Siong.
- Holdings in five large caps to be reduced at STI 3200 - Keppel Corp, Yangzijiang, ST Engineering, City Developments and UOB.
Looking back at March
- The benchmark Straits Times Index gained 79 points (+2.5%) in March, lifted by possible quarter-end window dressing in the final week of the month. The property sector performed best, boosted by optimism that the recent easing of the seller stamp duty (SSD) signalled the start of a multi-year relaxation trend of current property curbs. Shares of City Developments and UOL gained 7.7% and 5.7% respectively in March.
- Frasers Centrepoint Limited and UOL are our current picks among the property developers. The O&G sector underperformed as oil price retreated to around US$50pbl on concern of rising US crude inventories. News of Ezra filing for bankruptcy in the US also weighed down on sector sentiment.
April Market Outlook
Expect MAS to keep policy on hold
- The Monetary Authority of Singapore (MAS) will release its semi-annual policy statement and macroeconomic review not later than mid-April. Our Singapore economist expects MAS to keep the SGD NEER policy band at zero percent appreciation as well as leave the width and centre of the policy band unchanged.
- While growth outlook is improving, the turnaround is not broad based and the labour market remains soft. Macro risks from a faster-than-expected FED rate hike cycle and the upcoming Eurozone elections remain. MAS may prefer to see sustainability in both inflation and growth before shifting back to a tighter monetary policy stance.
Expect a firm Singapore 1Q GDP figure
- The advanced estimate for Singapore’s 1Q GDP will be released during the second week of April. Our economist expects a firm +2.9% y-o-y improvement, similar to the strong showing in 4Q16.
- Manufacturing and export data (industrial production, purchasing managers index and non-oil domestic export) YTD have been strong, powered by a pick-up in the electronics semiconductor and precision engineering sub-sectors.
- The services sector picked up too with the key financial sub-sector lifted by a 5.2% y-o-y growth in February bank loans led by business loans, up 6.4% y-o-y. The figure was the strongest since end-2013.
French head for polls
- The first round of the French presidential election will be held on 23 April. A run-off election between the top two candidates will be held two weeks after that should no candidate win a majority. Concerns about right-wing populist parties seizing power over Europe eased following the disappointing showing by the anti-EU PVV party at the Dutch elections last month.
- France makes up nearly 15% of EU’s GDP. Investors will likely focus on the improving Eurozone outlook if Le Pen losses but uncertainty will return should she become the next French president. Le Pen and Emmanuel Macron are running neck-to-neck in the polls for the first round of the presidential race, though she is widely forecast to lose in any second round scenario. Stay tuned.
- The Euro recovered to a high of 1.09 against the USD in March as the latter took a beating amid scepticism about the Trump administration’s ability to push tax reform and fiscal stimulus through Congress. The Euro was also underpinned by the outcome of the Dutch election and the prospect of ECB’s exit strategy from its ultra-loose monetary policy.
- At 1.08 against the USD, the Euro is currently trading at the upper ceiling of our currency strategist’s projected band for the year. A Le Pen victory will spell weakness for the Euro from current levels. Singapore companies with currency and business exposure to Europe can be affected if the Euro falls sharply.
Straits Times Index Outlook
- We continue to tie strong short-term resistance at 14.02x (+0.25SD) 12-month forward PE for the STI while strong support is seen at 13.25x (-0.25SD) 12-month forward PE in the event of Madam FREXIT winning the French election. We thus peg a range from 3055 to 3230 for April with the midlevel at 3140.
- We believe the blue chip Straits Times Index’s consecutive 3- month rally YTD should come to a pause around 3200, which provides a near-term PE valuation check.
- Meanwhile, the FY ex-dividend period that spans from April through May and cautious optimism heading to the 1QFY17 results season should lend support to the Singapore market on pullback.
- Corporate earnings revision trend turned positive for the first time in two years in the previous 4QFY16 results season.
- Investors will be seeking affirmation that last quarter was the start of an earnings revision trend reversal and not a blip.
Position for Dividends
- With the start of the ex-dividend season arriving and short-term upside limited for the Singapore equity market from a PE perspective, stocks that have declared attractive dividend payouts and going ex-dividend soon should continue to see investors’ interest.
- Stocks with
- an upcoming dividend amount that is at least 1.5% of its current stock price, and
- more than 5% upside to fundamental TP
Holdings in five large caps to be reduced at STI 3200
- With the Singapore market nearing a “fairly rich” level from an earnings perspective at 14.02x (+0.25SD) 12-month forward PE, we seek out the blue chip stocks to take shortterm profit as the STI heads for 3230 using the following criteria –
- Less than 5% upside to TP, and
- outperformed STI by more than 5% from a 3- or 6-month perspective.
- These are Keppel Corp, Yangzijiang, ST Engineering, City Developments and UOB.
- Between these five stocks, ST Engineering (10-ct dividend, ex-date 25 April) and UOB (35-ct dividend, ex-date 26 April) should be comparatively more resilient from now until their ex-dividend dates towards endApril.