Singapore Market Strategy - DBS Research 2019-08-01: Thirteen In A Row?

SGinvestors.io

SINGAPORE TECH ENGINEERING LTD (SGX:S63) CHINA EVERBRIGHT WATER LIMITED (SGX:U9E) MANULIFE US REIT (SGX:BTOU) KEPPEL-KBS US REIT (SGX:CMOU) KOUFU GROUP LIMITED (SGX:VL6)

Singapore Market Strategy - Thirteen In A Row?

• Weak August should see STI pull back to 3245-3275.
• Risk-off mode – prefer ST Engineering (SGX:S63), Ascendas REIT (SGX:A17U), Frasers Centrepoint Trust (SGX:J69U), Sheng Siong Group (SGX:OV8), Koufu Group (SGX:VL6), China Everbright Water (SGX:U9E).
• Rebound in USD-SGD positive for USD-denominated stocks - Manulife US REIT (SGX:BTOU), Keppel-KBS US REIT (SGX:CMOU), ST Engineering (SGX:S63), SIA Engineering (SGX:S59).

August the seasonally weakest month

• The Straits Times Index (STI) had ended the month of August down on a m-o-m basis for the past 12 consecutive years with a median return of -2.85% m-o-m.
• We observed that the Singapore market tends to peak in late July, falling through August before bottoming in early September.

5 reasons this August should be negative again

1. Earnings downward revision risk is present as a weak 2Q results season is expected;
2. Index heavyweights SingTel (SGX:Z74) and banks consolidate after going ex-dividend;
3. No FED meeting, no ‘dovish FED’ trade;
4. SGD is weakening against the USD heading to the October MAS policy meeting; and
5. HK civil unrest could worsen before getting better.

• We expect the STI to pull back to 3245-3275. If 3245 fails, a further dip to 3180 is seen.

Prefer stocks with high earnings visibility, yield and growth

• As the stock market is likely to consolidate during August, we adopt a more ‘risk-off’ mode, preferring stocks with high dividend yield and earnings visibility.
• Our picks are ST Engineering (SGX:S63), Ascendas REIT (SGX:A17U), Frasers Centrepoint Trust (SGX:J69U), Sheng Siong Group (SGX:OV8) and Koufu Group (SGX:VL6) – refer to our 2H19 outlook titled Singapore Market Strategy - Limbo Rock dated 1 July.
• We also think China Everbright Water (SGX:U9E), a utility stock, can outperform in the current environment given its defensive traits.

Rebound in USDSGD positive for USD-denominated stocks

• MAS could ease SGD policy in October given the weak GDP outlook and tame inflation. Our currency strategist sees SGD NEER retreating from the upper half into the lower half of its policy band. The USDSGD could rebound to 1.38~1.41.
• Ceteris paribus, the anticipated USDSGD movement is positive for USD-denominated stocks and companies with revenue in USD. These stocks are Manulife US REIT (SGX:BTOU), Keppel-KBS US REIT (SGX:CMOU), ST Engineering (SGX:S63) and SIA Engineering (SGX:S59).

IF HK civil unrest worsens/drags on

• In this scenario, these sectors can benefit –
  1. banks (UOB (SGX:U11), OCBC (SGX:O39)) from capital outflow out of HK into SG,
  2. residential properties (e.g. City Developments (SGX:C09), UOL Group (SGX:U14), APAC Realty (SGX:CLN)) as Hong Kong residents seek to relocate,
  3. hospitality (CDL Hospitality Trusts (SGX:J85)) as tourists and MICE divert destination to SG. However, Fortune REIT (SGX:F25U) and Mapletree North Asia Commercial Trust (SGX:RW0U) with HK retail mall exposure and HongKong Land (SGX:H78) that has commercial buildings in central Hong Kong could underperform.
• See attached PDF report for complete analysis.

Kee Yan YEO CMT DBS Group Research | Janice CHUA DBS Research | https://www.dbsvickers.com/ 2019-08-01

SGX Stock Analyst Report BUY MAINTAIN BUY 4.500 SAME 4.500

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