- Index rebalancing, Omicron, and rate hikes anticipation stir up an uneasy February
- Earnings recovery picks – Suntec REIT, ART, AEM, Starhub, ThaiBev, and Venture
- Back to office revival – ComfortDelgro, FCT, CICT, Suntec REIT
- Inflation resilient picks – UOB, CityDev, YZJSGD, ThaiBev, SingTel, Suntec REIT, CICT, ART
Eyes on Budget Details of the GST hike will likely be revealed in the 18 February Budget. Our economist thinks the increase could come as soon as July. MAS’s latest off-cycle tightening move is seen as an attempt to cool inflationary pressures that facilitate the hike. We think retail sales will still register growth even if there is a July GST hike due to the frontloading of purchase in 1H, while an anticipated rise in tourism receipts can offset the 2H22 dip in domestic demand.
An uneasy February We think the STI should head for a February consolidation (1) ahead of the Budget (2) an end-February index rebalancing that affects heavyweights (e.g., banks) (3) local Omicron cases rise in the immediate term and (4) ahead of the anticipated start of rate hike cycle in March. Pullback support around 3200.
Earnings recovery With FY21 earnings season ending, this is an opportune time to position into FY22 earnings recovery theme. Our picks for earnings recovery generating >10% EPS growth for FY22F vs negative growth in FY21F are Suntec REIT, ART, AEM, and Starhub. Meanwhile, ThaiBev and Ventre Corp should see FY22F earnings growth picking up further from the previous year.
Back-to-office revival Singapore’s workplace mobility jumped to within 8% of pre-COVID and transit stations improved to within 18% of pre-COVID with the 50% back-to-office guideline starting this year. We believe this will rise further when the work-in-office guideline is adjusted higher once the Omicron wave passes. Our picks are ComfortDelgro for ridership recovery, FCT for its assets’ proximity to transit stations and heartland areas, CICT and Suntec REIT for their centrally located malls and office assets as well as a return of tourists and MICE events.
Inflation resilient picks MAS’s latest off-cycle tightening move is a reminder that inflation remains a key concern, especially in 1H22. Banks should continue to outperform in an inflationary, rising rates environment; our pick is UOB. City Dev is our developer pick with properties often viewed as an inflation hedge. Value stocks thriving on the value unlocking team tend to outperform in a volatile environment. Our picks are Yangzijiang, ThaiBev and SingTel. We believe SREITs are a “sell-in-anticipation, buy-on-news” trade when rates are rising from near-zero levels and is still low even with three hikes this year. We prefer those that ride on the reopening theme such as Suntec REIT, CICT, and hospitality REIT such as ART.