- 8 picks besides banks as monetary policy tightens – ComfortDelgro, Yangzijiang, Suntec REIT, Ascott Residence, CLCT, CDL HT, FEHT, Lendlease Global
- Keppel Corp, CSE Global and Bumitama will benefit from rising oil and commodity prices
- ThaiBev, JAPFA and Delfi are regional reopening beneficiaries
Is FED taper imminent? The FED could start scaling back on asset purchases as soon as November and conclude around mid-2022. Beyond that, our interest rates strategist expects one rate hike next year, maximum 2 if inflation stays elevated. The Vaccinated Travel Lanes (VTLs) to Australia, Switzerland and South Korea will start in November. The 13 VTLs will see up to 4,000 passenger arrivals per day or 7% of pre-COVID tourist arrivals. But for now, many will be returning citizens or PRs. For the STI, further upside through Nov-Dec is likely capped at 3200-3285, within the range of our year-end target of 3250.
Picks in a tightening environment Banks aren’t the only beneficiaries in a rising interest rates environment. We have picked 8 mid-large cap stocks that can benefit from a rising interest rates and recovery environment, based on the following criterial:(1) Market cap ≥S$1bil; (2) BUY recommendation; (3) ≥10% upside to TP; (4) Net debt/equity <0.5x; (5) FY22F EPS growth ≥10%; (6) FY21F yield ≥3.5%; (7) FY22F yield ≥4.5%. Our picks are ComfortDelgro, Yangzijiang, Suntec REIT, Ascott Residence, CLCT, CDL HT, FEHT and Lendlease Global.
Rising business costs a boon to some Keppel Corporation and CSE Global may gain from rising oil and commodity prices as both companies could see higher O&G and commodity-related orders. The retail electricity sector consolidation could lift Keppel Electric’s market share in the medium-term. Bumitama Agri is our pick to ride on higher crude palm oil prices, and 2H21 earnings should get a lift on the back of an absence of hedged CPO sales volume.
Regional reopening beneficiaries Several ASEAN countries such as Indonesia, Malaysia and Thailand are also on the cusp of easing COVID measures as cases decline and vaccination rates improve. Japfa and Delfi should see demand recovery as domestic restrictions ease in Indonesia. ThaiBev’s alcoholic drinks sales should improve as Thailand reopens its borders with 10 countries from 1 November whilst in Vietnam, restaurants and bars have already gradually reopened from 16 October.