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Singapore Market Focus - DBS Research 2021-03-02: Seasonal Support Ahead

Singapore Market Focus - DBS Research | SGinvestors.io PRIME US REIT (SGX:OXMU) VENTURE CORPORATION LIMITED (SGX:V03) ARA US HOSPITALITY TRUST (SGX:XZL)

Singapore Market Focus - Seasonal Support Ahead

  • March and April are seasonally positive months.
  • S-REIT pullback presents opportunities.
  • Vaccine beneficiaries back in spotlight.
  • Stocks going ex-dividend.



Dividend and seasonal trend support.

  • Improving outlook for banks, upcoming ex-dividend period and a strong March-April seasonal trend point to a correction low in February at STI 2870, in line with our expectation.
  • China’s 13th National People’s Congress (NPC) meeting this month will map out the development plan of technological independence and secure supply chains (e.g. semiconductors), sustainability and ‘dual circulation’. The FED should leave rates unchanged at the FOMC meeting and maintain a dovish stance.


Pullback in S-REITs an opportunity

  • The FTSE ST REITs Index retreated as much as 7.8% from its 20 January high as inflation concerns led to a jump in US 10- year yield from 1.08% to as high as 1.60%. We see opportunities amid the pullback in S-REITs over the past 1.5 months because
    1. Yield is rising from an absolute low level on the back of economic recovery optimism,
    2. S-REITs’ yield spread of ~4.6% is the widest since 2013,
    3. The near-term spike in US 10-year yield should stabilise for now, as our interest rate strategist sees 1.3-1.5% near-term range,
    4. Uncertainties mostly priced in – our revised 2021 US 10-year yield target of 1.75% (previously 1.5%) is just 15bps above the 1.6% year-to-date high, and
    5. FED Chair Powell remains dovish, we expect short-term rates to rise only in 2023.
  • See also recent report: Singapore REITs - DBS Research 2021-02-19: Rising 10-Year Yields A Bane For S-REITs; Beating The Odds.
  • Among S-REITs, we prefer pandemic recovery sectors to ride on a recovery in DPUs, including
  • Office REITs such as Mapletree Commercial Trust (SGX:N2IU), with a diversified portfolio of Grade A and business park assets, are also preferred to capture demand from structural changes in the sector.
  • Rising yields should also benefit banks (OCBC (SGX:O39), UOB (SGX:U11)) as net interest margin (NIM) improves. Both OCBC and UOB have recently guided for a stabilisation in NIM for FY21 at around ~1.55%. Asset quality concerns are also improving with both banks erring on the safe side in recognising additional allowances in FY20. Additionally, the MAS cap on FY20 dividends (capped at 60% of FY19 dividend) may not be extended in FY21, which could be another catalyst to drive further upside for banking names.


Vaccine beneficiaries back in the spotlight

  • Rotational interest is returning to aviation and hospitality stocks as the global COVID-19 vaccination drive continues to unfold and the single-shot vaccine by Johnson & Johnson becomes the latest vaccine to be approved by the US CDC, paving the way for public use. Aviation stocks SATS (SGX:S58) and Singapore Airlines (SGX:C6L) have led the current recovery.
  • We maintain our view that the US can be one of the first major developed countries to achieve herd immunity.
  • Europe is making good progress with UK leading the global developed economies’ vaccination drive. The coming of warm weather in the northern hemisphere and vaccine rollout among developed economies are positive for hospitality REITs with northern hemisphere exposure.
  • For Singapore, the resumption of more robust travel bubbles and reciprocal green lanes as soon as early 2Q are potential catalysts. Local staycation demand and the World Economic Forum in August are also positive drivers.
  • The 7-day moving average of new COVID-19 infections in Hong Kong currently stands at 19 that is well above the < 5 pre-condition for the SG-HK travel bubble to resume. With temperatures increasing in Hong Kong and the vaccination programme kicking off, we are cautiously optimistic that new infections will decline, and the travel bubbles will restart.


Stocks going ex-dividend


Straits Times Index Outlook

  • STI's January pullback supported at 2870, coincides with our stated first support at 2880 and 13.78 (+0.5SD) 12-month forward PE.
  • Seasonal trend suggests STI February low at 2870 and firming up in the March-April period heading towards the ex-dividend dates for index heavyweights.
  • Positive outlook from heavyweight banks should also underpin STI.





Kee Yan YEO CMT DBS Group Research | Woon Bing Yong DBS Research | Janice CHUA DBS Research | https://www.dbsvickers.com/ 2021-03-02
SGX Stock Analyst Report BUY MAINTAIN BUY 1.000 SAME 1.000
BUY MAINTAIN BUY 24.300 SAME 24.300
BUY MAINTAIN BUY 0.690 SAME 0.690


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