Singapore Market Strategy - OCBC Investment 2020-11-25: Christmas Came Early

Singapore Market Strategy - OCBC Investment Research | SGinvestors.io ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) ASCOTT RESIDENCE TRUST (SGX:HMN) CAPITALAND INTEGRATED COMM TR (SGX:C38U) CAPITALAND LIMITED (SGX:C31) FRASERS CENTREPOINT TRUST (SGX:J69U) FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU) MANULIFE US REIT (SGX:BTOU) MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) MAPLETREE NORTH ASIA COMM TR (SGX:RW0U) NETLINK NBN TRUST (SGX:CJLU) SHENG SIONG GROUP LTD (SGX:OV8) SINGTEL (SGX:Z74) UOL GROUP LIMITED (SGX:U14) VENTURE CORPORATION LIMITED (SGX:V03) WILMAR INTERNATIONAL LIMITED (SGX:F34)

Singapore Market Strategy - Christmas Came Early

  • November is a strong month for Singapore equities.
  • Valuations are still not demanding versus regional peers.
  • Adopt a stock pick strategy.



Stellar gains in November

  • Since the start of November, the benchmark Straits Times Index (STI) has outperformed the region with gains of 17.5% (as of 23 Nov 2020) – outperforming the rest of the region as well as most key equity indices. See Straits Times Index (STI) Constituents' share price performance
  • The strong recovery in November was largely fuelled by several factors including optimism about COVID-19 vaccines and the possibility of the resumption of travel. The worst-hit sectors were also the exact same sectors that posted the strongest recovery in November, as interest rotated into under-valued, defensive, cyclical and defensive stocks.
  • The FTSE ST Real Estate Holding and Development Index surged 18.1%, while the FTSE ST Financials Index piled on gains of 15.9%. As the STI has a high weightage of real estate and financial stocks, these two sectors helped to lift the STI higher.


Our call to rotate to value stocks panning out nicely…

  • In Sep 2020, and with the widening gap between growth stocks versus value stocks, we highlighted the attractive valuations then and identified Singapore stocks as ideal additions to ensure a more diversified stock portfolio. The STI was then trading at trough price-to-book valuation of 0.86x, which was two standard deviations below the historical 10-year average price-book of 1.27x. We favoured several Singapore companies and that included 8 property companies and 2 banks – and these value stocks have done well since then.
  •  DBS share price gained 22.2%, while UOB share price added 19.2%. The eight REITs and property stocks have gained an average of 4.8% during this period. The balance eight defensive stocks showed an average 7% appreciation during this period. With the recent strong rotation into under-valued, cyclical and defensive stocks, the gap between value and growth stocks is also narrowing from the highs in September 2020.


RCEP is positive for the region

  • The Regional Comprehensive Economic Partnership (RCEP) was recently formed on 15 Nov 2020 to aid tariff eliminations on traded goods and this aims to create a regional low-tariff bloc. The key countries participating in RCEP includes China, Japan, South Korea, Australia, New Zealand and the Association of Southeast Asian Nations.
  • We expect this to give a boost to Southeast Asian countries and since the announcement on 15 Nov 2020, equities in most of these participating countries have rallied. In the case of Philippines, the benchmark equity index rose 3.0% (from 15 Nov to 23 Nov), while the Vietnam Ho Chi Minh Stock Index gained 2.9%.


Potential for higher target levels for the STI

  • While other markets have seen strong upwards revisions in 12-month forward target price, this is not the case for the STI. The MSCI World Index (MXWO) has seen progressively higher price targets and at current level, it is higher than the pre-crisis level. This is similarly the case for the MSCI Asia ex-Japan Index. However, in the case of the STI, current 12-month forward target is 3043.42 (as of 23 Nov 2020) versus the last done level of 2848.78 (on 23 Nov 2020) implied an upside of only 6.8%.
  • With the gradual recovery taking place, there is a strong likelihood that the 12-month forward target for the STI is likely to be revised higher.


Long term recovery is in place, but near-term headwinds remain






OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-11-25
SGX Stock Analyst Report BUY MAINTAIN BUY 3.920 SAME 3.920
BUY MAINTAIN BUY 1.200 SAME 1.200
BUY MAINTAIN BUY 2.380 SAME 2.380
BUY MAINTAIN BUY 3.750 SAME 3.750
BUY MAINTAIN BUY 2.750 SAME 2.750
BUY MAINTAIN BUY 1.590 SAME 1.590
BUY MAINTAIN BUY 0.840 SAME 0.840
BUY MAINTAIN BUY 3.510 SAME 3.510
BUY MAINTAIN BUY 1.090 SAME 1.090
BUY MAINTAIN BUY 1.100 SAME 1.100
BUY MAINTAIN BUY 1.850 SAME 1.850
BUY MAINTAIN BUY 2.850 SAME 2.850
BUY MAINTAIN BUY 8.480 SAME 8.480
BUY MAINTAIN BUY 22.300 SAME 22.300
BUY MAINTAIN BUY 5.400 SAME 5.400



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