Singapore Monthly Strategy - DBS Research 2016-08-30: Shadow of September ~ October Volatility

Singapore Monthly Strategy - DBS Research 2016-08-30: Shadow of September ~ October Volatility Market Strategy

Singapore Monthly Strategy - Shadow of September - October Volatility

  • Key events in September – US employment figures, ECB and FED policy meetings, and informal meeting of oil producers. 
  • Expect Sept and Oct to be seasonally volatile - look for STI 2715 by end-Oct on weak earnings, GDP contraction risk, unattractive PE valuation and rate hike jitters. 
  • Stay with yield, selective on SREITs – our picks are ARA, Sheng Siong, ComfortDelgro and ST Engineering for yield; Keppel REIT, CDL Hospitality Trust, Frasers Logistics & Industrial Trust, and Ascendas REIT among SREITs. 
  • Risk not off yet for potential new telco entrant – near-term outlook for M1 and Starhub remain uncertain. 

Policy meetings back in focus 

  • The ECB policy meeting is on 8 September. We think the ECB will leave deposit rates unchanged at -0.4% and hold back further asset purchases but will nonetheless stress that they stand ready to act if the situation so warrants. The FOMC meeting is on 21 September. At Jackson Hole, FED Chair Janet Yellen set the tone for a rate hike this year, which could even be as early as next month.
  • Oil market eyes producers’ informal meeting on 26-28 September at Algiers that could steer the direction of oil prices for the remainder of 2016. Traders will be looking if an agreement to freeze production can be reached. Stay tuned as our technical view for Brent to head to USD62.6per barrel by year-end will be reinforced if the oil market demand/supply situation improves.

Look for STI to re-test BREXIT low of 2714 in the next 1- 2mths 

  • Rate hike jitters have ticked higher. Expectations are now at least for one, if not two rate hikes this year. Global equities are not cheap with the MSCI World Index trading at more than 22x historical PE, which is a 5-year high, even as earnings taper down. 
  • September and October are seasonally volatile months and this year may be no exception. 
  • In Singapore, the corporate earnings recession has deepened and our economist has warned that the risk of a GDP contraction has risen. Given these uncertainties, we look for STI to re-test the BREXIT low at 2714 by or before the end of October.

Stay with yield 

  • Our preference for defensive, yield stocks with resilient earnings outlook stays in the uncertain growth outlook environment. 
  • Our yield picks are ARA Asset Management, Sheng Siong, ST Engineering and ComfortDelgro
  • We expect ARA to grow AUM by S$2bil per annum. 
  • Consumer staple Sheng Siong enjoys improving operating efficiency and has a 90% dividend payout ratio. 
  • ST Engineering is a relatively defensive stock with a healthy balance sheet and secure dividend payouts.

Selective on SREITs 

  • We are selective on SREITs given the sector’s outperformance year-to-date and as rate hike jitters pick up. 
  • Our picks are Keppel REIT (KREIT) and CDL Hospitality Trust (CDREIT) as they offer better value and investors are more underweight. 
  • We also like Ascendas REIT (AREIT) and Frasers Logistics & Industrial Trust (FLT) for a combination of market liquidity, decent yields, clear growth drivers and upside to earnings from deploying their strong balance sheets.

Risk not off yet for new telco entrant 

  • We see near-term downside risk for Telco stocks as the risk of a new fourth entrant is not off despite a weak business case. The deadline for application submission for spectrum auction is 1 September 2016, while the spectrum auction is likely to be held in October 2016. 
  • We have downgraded both M1 and Starhub to Hold. 
  • Technically, we see downside risk to S$2.55 for M1 and S$3.55 for Starhub. We prefer to accumulate them on weakness if a new player enter.

Janice Chua DBS Vickers | Yeo Kee Yan CMT DBS Vickers | http://www.dbsvickers.com/ 2016-08-30
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