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Singapore Market Strategy - UOB Kay Hian 2022-03-22: Impact Of China’s Resurgent COVID-19 Situation

Market Strategy - UOB Kay Hian Research | SGinvestors.io ASCOTT RESIDENCE TRUST (SGX:HMN)

Singapore Market Strategy - Impact Of China’s Resurgent COVID-19 Situation

  • While there are 8 Singapore companies under our coverage with > 70% revenue exposure to China, we have not made any changes to our 2022 earnings estimates yet. The downside risk involves the Chinese government clamping down harder on the economy in furtherance of its zero-COVID strategy.
  • Despite being the region’s best performing index, the STI’s current valuations remain undemanding, trading at a 2022 P/E and P/B of 13.5x and 1.1x, with the highest yield in the region at 4.1%.



Sustained COVID-19 outbreaks testing China.

  • With sustained outbreaks in two-thirds of the country’s provinces, China’s zero-tolerance policy towards COVID-19 is now facing its toughest test yet since the coronavirus first emerged more than two years ago in Wuhan. The contrast is especially stark in relation to much of the rest of the world which is progressing towards easing restrictions or in the case of Singapore, “streamlining” COVID-19 measures.


Uncertainty leads to share price underperformance.

  • As in prior periods of market uncertainty, investors tend to “sell first and ask questions later”, especially in an environment where newsflow appears to be overwhelmingly negative: the Russian invasion of Ukraine, inflation concerns for both soft and hard commodities, Fed rate increases, and increased policy risks in the Chinese technology sector, to name a few.


8 SGX listed companies with > 70% of revenue derived in China.



No changes to our 2022 EPS forecasts yet.



China growth forecasts lowered.

  • We highlight that the Russia-Ukraine conflict and worsening domestic pandemic issues has led the UOB Global Economics and Markets Research (GEMR) team to lower its growth forecast for China to 4.9% for 2022 from its previous forecast of 5.2%. It expects the impact of the lockdowns and higher commodity prices to affect 1H22 GDP and thus is forecasting 4.5% y-o-y growth for 1H22 before picking up to 5.2% y-o-y growth in 2H22.


STI’s current valuations undemanding

  • Despite being the region’s best performing index, the STI’s current valuations remain undemanding, trading at a 2022 P/E and P/B of 13.5x and 1.1x respectively, while paying the region’s highest yield at 4.1%. The STI is trading at 0.5x below its long-term average P/E while on a P/B basis, it is 1.0 standard deviation below the long-term average.





Singapore Research UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-03-22
SGX Stock Analyst Report BUY MAINTAIN BUY 1.290 SAME 1.290



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