Singapore Stocks Strategy - RHB Invest 2020-11-19: Stick To A Resilient Investment Portfolio During Uncertain Times

Singapore Stocks Strategy - RHB Investment Research | SGinvestors.io CHINA AVIATION OIL(S) CORP LTD (SGX:G92) DAIRY FARM INT'L HOLDINGS LTD (SGX:D01) SHENG SIONG GROUP LTD (SGX:OV8) MANULIFE US REIT (SGX:BTOU) SUNTEC REAL ESTATE INV TRUST (SGX:T82U)

Singapore Stocks Strategy - Stick To A Resilient Investment Portfolio During Uncertain Times


Recovery in global cyclicals that are vaccine-dependent to take time.

  • We believe a recovery in global cyclicals could take a prolonged period of a year or more – as either all countries in the world have to get the virus under control, or an effective treatment/vaccine is developed and widely deployed. While our house view is that a COVID-19 vaccine will be available by 2H21, large-scale immunisation is expected to take few years. Moreover, a lot can still go wrong, and fears of another economic collapse cannot be ruled out.
  • In our base case, global cyclicals or sectors that are directly vaccine-dependent, like aviation and related stocks, real estate, tourism-related (eg hospitality), entertainment, and healthcare – as well as industrials and commodity-related industries, will only start seeing earnings recovery towards the end of 2021, in our view.



What does the Biden victory mean for ASEAN?


Emerging market are beneficiaries of a Biden victory, the MSCI South East Asia (ASEAN) rallied 12% in the past week.

  • With Biden set to be inaugurated as the US president by Jan 2021, emerging and global markets seem to favour him winning against Donald Trump. The MSCI ASEAN has rallied 12% to 689 pts from 614 pts in the past one week – faster than the MSCI EM Index, which also rose by c.6% in the same period during the US election.

A Biden victory will be positive for Emerging Market.

  • Along with the news on vaccines, a likely Biden victory has helped to drive global markets in recent weeks. Although the US-China trade relationship will likely remain frosty, we expect Biden to take a multi-lateral approach when dealing with China.

What will happen if Biden raises taxes?

  • While stiffer tax rates in the US will be nominally negative for the markets, we think that wholesale policy changes are unlikely, because of a split US Congress. Biden’s policy platform includes higher taxes that are intended to raise funding to improve healthcare and expand free college programmes. The likely inability of the Biden administration to secure a significant fiscal stimulus programme would mean the continued prominence of low interest rates in the US’ monetary policy. This, in turn, highlights the persistent structural weakness of the greenback.
  • All these imply that investors will begin to relook at Emerging Market in the year ahead. Emerging Market is trading at 14x FY21F P/E – a significant discount to DM’s 19x FY21 P/E and the S&P 500 Index’s 20x P/E.


Singapore Market - Stay invested in defensive names, while gradually building positions on the domestic recovery theme.

  • We note that optimism of an economic recovery is rising amidst Singapore’s strong control over the spread of COVID-19 infections – leading to the Singaporean Government announcing plans to gradually ease into Phase 3, positive non-oil domestic exports (NODX) data, and the revival of business activities from the lows recorded during the Circuit Breaker.
  • Amidst expectations of this recovery being sustained in 2021, the Street is now forecasting strong profit growth for the STI Index in 2021. However, the global COVID-19 situation remains fluid, with a resurgence of cases in Europe and the US leading to some European countries as well as some cities/states in the US imposing renewed lockdowns.
  • As investors wait for clear signs of direction on where economic recovery is headed, we advocate building a resilient investment portfolio for challenging times. We recommend that investors stick with REITs and defensive stocks, while selectively adding exposure to cyclical recovery names with higher dependence on domestic consumption recovery.


Signs of optimism for Singapore.

  • The COVID-19 infection rate in Singapore continues to decline, allowing the Singaporean Government to relax more restrictions and support more businesses to return to normalcy. It has announced plans to gradually ease into Phase 3, which will become the country’s new normal until the pandemic is brought under control globally, or until a vaccine is available and widely deployed across the world. The Multi- Ministry Taskforce is piloting the use of pre-event COVID-19 testing to enable the opening up of larger-scale and higher-risk activities.
  • On the external front, the NODX continues to perform well on strong demand for electronics and pharmaceutical products. Manufacturing Purchasing Managers’ Indices (PMIs) continue to indicate a sequential expansion in output. While travel bubbles are being set up by the Singapore Government, a full return to normalcy in travel-and tourism-related sectors is at least a year away.
  • With Singapore’s worst GDP contraction now behind it, expectations of an improvement in GDP over next 12 months should be positive for the equity market. This is because, historically, the STI Index’s returns have been closely correlated with Singapore’s GDP growth. Amidst expectations of an economic recovery, the Street is also holding on to its expectations of strong EPS growth for the STI Index in 2021.
  • We recommend that investors gradually build positions in domestic consumption recovery stories, where private consumption is expected to sustain its path of improvement from now until early 2021.
  • Our domestic consumption recovery picks are
  • The availability of a successful and safe COVID-19 vaccine by 2H21, and large-scale immunisation will start being reflected in the earnings growth of vaccine-dependent sectors.
  • Our the long-term cyclical recovery plays are


Downside risks to Singapore’s and global economic recovery necessitates the selection of defensive stocks.

  • We note that the global COVID-19 situation remains fluid, with a resurgence of cases in Europe and the US. Some European countries are already in lockdown and hospitalisation rates are rising in the US. An inability to control COVID-19 infections in countries that are Singapore’s key trade partners, or countries that account for the highest number of tourist inflows, could derail the expectations of an economic recovery that are currently in place. In addition, there are external risks from the continued deterioration of US-China ties.
  • On the domestic front, the government support that has helped businesses and Singaporeans get through the tough Circuit Breaker measures – unless required again – is expected to gradually taper off and end by Mar 2021. Moreover, the current unemployment rate of 2.9%, which has already exceeded the historical average, is expected to continue rising. This could keep business and consumer confidence low, and dampen the expected recovery in domestic economic activity.
  • To cover for such risks, we recommend that investors stay invested in REITs and defensive stocks offering better earnings and dividend visibility.
  • Our key defensive and/or high-yield picks are

STI remains the cheapest ASEAN market with the highest yield in Asia.






Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-11-19
SGX Stock Analyst Report BUY MAINTAIN BUY 1.150 SAME 1.150
BUY MAINTAIN BUY 4.470 SAME 4.470
BUY MAINTAIN BUY 1.870 SAME 1.870
BUY MAINTAIN BUY 0.900 SAME 0.900
BUY MAINTAIN BUY 1.790 SAME 1.790



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