- Ukraine war – Brief shock reaction, longer inflation shadow
- STI – March tactical low ahead of ‘XD’ April
- Reopening theme – Borders could reopen by mid-April
Brief shock reaction, longer inflation shadow. US equities were quick to brush aside the initial shock of the Ukraine war. Unless the crisis spreads beyond Ukraine, the economic impact is unlikely to be significant as Russia accounts for only 1.8% of global GDP and trade flows. But if the fighting drags on, the impact for global economies and financial markets would be through supply disruptions, prolonging inflationary pressure or even altering the pace of FED rate hikes. Market rate hike expectations remains off February high with banks UOB and OCBC most affected by fluctuations. Transport related companies such as SIA, SBS Transit, ComfortDelgro and HPHT faces cost pressure if Brent crude stays elevated around USD100pbl over the next few months, but Keppel Corp can benefit if sustained high oil price stimulates capex that leads to higher orders for rigs.
Rate hikes imminent The FED is poised to start a major rate hike cycle come mid-March. Rates should rise at least 25bps while market expectations have moderated from a 100% chance of a 50bps hike to just a 27% chance due to the Ukraine war. Our interest rates strategist keeps his 5 rate hikes by year-end forecast. We note that local bank stocks have a 0.90 (90%) correlation with the US Dec 2022 rate hike expectations since June 2021. It has retreated from a February peak of 6.9 hikes to 6.2 hikes.
March tactical low ahead of ‘XD’ April STI trades at 13.2X (AVE) 12-mth fwd PE with near-term support at 3245 and resistance 3370. We see odds of a near-term low in March as investors capitalize on the Ukraine sell-off to position ahead of the FY21 XD period from April to May. But if the unfolding Ukraine situation leads to more market volatility, we see any further short-term decline to 3150-3200 level (12.7X, -0.5SD 12-mth fwd PE) as a good tactical buy opportunity.
Borders could reopen by end-March to mid-April The Ukraine sell-off is an opportunity to relook at the reopening theme. With the Singapore government seeking to further reopen borders once the Omicron wave passes, logic tells us that stock prices are likely to hold at or above their respective Omicron low back in early December 2021. Looking at the timeline of the global Omicron wave, we think COVID measures here could ease by end-March to mid-April. Our picks are hospitality/tourism (ART, CDL HT, Genting), retail (FCT, CICT) and transport (ComfortDelGro) and aviation (SATS).