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Market Commentary      

US stocks post weekly losses on inflation concerns; eyes on China data today
·           US equities rose on Friday, led by technology and communication services, but not enough to continue a five-week winning streak as investors focused on plummeting consumer sentiment. The Dow Jones Industrial Average gained 0.5%. The S&P 500 advanced 0.7%, while the Nasdaq Composite rose 1%. Despite the rise, the major averages closed the week lower after inflation data potentially weakened support for the Federal Reserve’s view of price pressures as “transitory”.

·           Consumer sentiment in early November dropped to its lowest level in a decade, the University of Michigan reported on Friday. Many survey respondents cited inflation concerns, according to the report. Consumers see inflation rising to 4.9% over the next year. Meanwhile, a record 4.4 million Americans quit their jobs in September, JOLTS showed, which tells us that people are still confident that they can get higher-paying jobs. Available positions eased to 10.4 million.

·           The 10-year Treasury yield ticked up to 1.57% from a 1.55% closing level on Wednesday. Inflation erodes the value of longer-dated Treasuries, so as expectations of prices pressures have risen, yields on the 10-year note and 20 and 30-year bonds have risen. The 10-year yield is still below 1.6%, which is seen as a key level. If it moves past that point, analysts believe the stock market could slide.

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·           The yield on the two-year Treasury note, which is sensitive to interest rate expectations, rose to 0.52% on Friday. The yield sat at around 0.42% before Wednesday, when it rose by the most since the market turbulence of March 2020.

·           In Europe, the main index has posted its longest weekly winning streak since mid-April, as investors have been reassured by the robust earnings season and companies’ ability to overcome surging inflation and supply constraints.

·           Shares in Asia mainly advanced on Friday, led by technology shares. Hong Kong-listed shares of JD.com soared 5.17% following the Singles Day online shopping event, while Alibaba fell 0.49%. Both companies set new sales records across their platforms on Singles Day. Adding to sentiment was the mandate for China’s President Xi Jinping to potentially rule for life, which may mean policy continuity and fewer regulatory surprises. A report that Didi Global is getting ready to relaunch apps in China further fuelled optimism.

·           Other technology stocks in the region rose, with shares of Japanese conglomerate SoftBank Group up 2.58%. Singapore’s Straits Times Index opened higher on Friday but slipped in the negative territory at the close, as inflation worries refuse to wane. The benchmark index ended 0.30% lower at 3,228.45.

·           Monday brings a deluge of economic data in China that is expected to show the nation’s V-shaped economic rebound is fading faster than expected. Consensus is for gains in retail sales, industrial output and fixed-asset investment – including real estate — to have all slowed in October.

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Key Research Idea

Frasers Logistics & Commercial Trust (FLT SP) – Sweet valuation uplift  

Frasers Logistics & Commercial Trust (FLCT) owns a portfolio of prime industrial and logistics assets strategically located within established industrial and logistics precincts across five states in Australia. It also has a presence in the Germany and Netherlands’ industrial markets. Following the completion of its merger with Frasers Commercial Trust on 29 Apr 2020, the combined entity also has commercial and business park assets in Singapore and the UK. One of FLCT’s investment merits is its defensive profile given its high occupancy rate and long weighted average lease to expiry with manageable lease expiries in FY22. FLCT also places strong focus on ESG aspects, and has consistently ranked highly in the Global Real Estate Sustainability Benchmark (GRESB) assessment. BUY(Research Team)

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Research Ideas

Singtel (ST SP) – Encouraging performance with full-year DPS likely at upper half of guidance payout range

Singtel’s 1HFY22 results exhibited good momentum, with notable strength in Australia Consumer and Airtel’s turnaround. Underlying EBITDA rose 16% YoY on the back of Optus’ margin expansion from mobile re-pricing & cost control, growth in NCS revenue from higher demand for digital services, as well as improved performance of Amobee and Trustwave. Regional associates’ pre-tax profits rose 21% YoY to SGD1.0b on the back of strong turnaround in Airtel led by robust operating improvements in India & Africa. Singtel has declared an interim DPS of 4.5 S-cents, which translates to a 76% payout ratio on underlying net profit. Over the mid-long term, Singtel targets SGD2b of capital recycling to unlock value across assets such as infrastructure, data centers and stakes in companies. On associates, management was optimistic about the operating environment in India, on the back of better market conditions and regulatory environment. In Singapore, we note that there are more than 200k 5G customers and understand that 5G plans generate an ARPU uplift of ~SGD10, which helps to offset weakness in legacy business like voice. Management continues to remain focused on growth initiatives and an optimal capital structure to increase ROIC from mid-single digit to low-to-mid-teen levels in the mid-to-long term. Following adjustments, which include more constructive estimates for FY22 and FY23, as well as a smaller ESG premium on the back of ESG rating downgrade, our FV rises from SGD2.89 to SGD2.98. BUY(Research Team)

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ComfortDelGro Corporation (CD SP) – A few recent setbacks

Covid-19 has impacted transport activity significantly in Singapore and overseas. As Singapore gradually seeks to return to normalcy, mobility should also improve in tandem. However, this is not a short process and patience is needed for a more significant recovery. Plans for the IPO of its Australian subsidiary has also been halted, while the outcome of the rail reform in Singapore may have been below expectations for some. On the other hand, the group reinstated its interim dividend in 1H21, which was an encouraging sign. HOLD(Research Team)

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AIA Group Ltd (1299 HK) – Slower 3Q

AIA is the largest independent listed pan-Asian insurance provider with presence in 18 markets and offering a diversified products range including life, accident, health insurance and retirement savings plans). 2020 value of new business (VONB) breakdown: Mainland China 32% (vs 2019’s 26%), Hong Kong 18% (vs 2019’s 37%), Thailand 15% (vs 2019’s 11%), Singapore 11% (vs 2019’s 8%), Malaysia 7% (vs 2019’s 6%), Others 17% (vs 2019’s 12%). We view AIA as a beneficiary of the rise of Asia’s middle class (particularly China) with growing protection and wealth accumulation needs. Prudent management, strong execution and well-trained agents drive sustainable new business growth and margin expansion from higher margin products. Although impact from the pandemic remains a risk to monitor near term, we see a sequentially improving outlook ahead supported by further normalization of its business as mass vaccination materializes regionally and its China expansion plan continues to progress. BUY(Research Team)