Felicia Tan Thu, Jun 02, 2022
As the US Federal Reserve expects a total of seven interest rate hikes in 2022, DBS Group Research analysts Yeo Kee Yan, Janice Chua and Woon Bing Yong see a “base building month ahead” with June marking a peak in rate hike worries.
The brokerage’s rates strategist is also estimating inflation fears to peak in the second quarter and improve thereafter, the analysts write in their May 27 report.
On this, the analysts are seeing support at 3,142 points for the benchmark Straits Times Index (STI) as valuation is “inexpensive” at a 12-month forward P/E of 12.2x and -1 standard deviation.
“A base in June followed by a July recovery is in line with STI’s seasonal trend that had guided us to expect a weak May,” the analysts say.
Grab bargains in these sectors
Amid the rate hikes, which saw a market sell-off in May, the analysts say they are now looking for “bargain hunting opportunities”.
“Technology and REITs, which have underperformed year-to-date (y-t-d), should stabilize and attempt a recovery as rate hike fears peak,” they write.
Among the technology sector, the analysts have identified AEM and Venture Corporation as their top picks, while Mapletree Industrial Trust (MINT), Frasers Logistics & Commercial Trust (FLCT) and Keppel REIT (KREIT) were selected as their top picks within the REIT sector.
The analysts have rated AEM and Venture Corp both “buy” with target prices of $6.04 and $22.70 respectively.
MINT and KREIT were also given “buy” calls with respective target prices of $3.05 and $1.40.
Reopening still in favour
In addition to scoring bargains on rate hike casualties, the analysts are still putting their money on counters that will benefit from the reopening from the Covid-19 pandemic.
“Pent-up travel demand among locals and inbound tourists will make up for some of the slag from China’s zero-Covid policy that is likely to remain through 3QFY2022 at least,” they write.
As such, their picks for the reopening of air borders are SATS, Singapore Airlines (SIA), Ascott Residence Trust (ART), CDL Hospitality Trusts (CDLHT) and Genting Singapore.
SATS, SIA, ART and CDLHT have gotten “buy” calls with respective target prices of $4.90, $6.20, $1.40 and $1.55.
Frasers Centrepoint Trust (FCT), Lendlease Global Commercial REIT (LREIT), CapitaLand Integrated Commercial Trust (CICT) and ComfortDelGro (CDG) were also identified as the analysts’ top picks for easing domestic restrictions.
FCT has been rated “buy” with a target price of $2.90.
Stagflation hedge
Investors looking to hedge against stagflation – which is unlikely to happen in Singapore – should seek positions in consumer staples such as Sheng Siong and Singtel.
Sheng Siong has been given a “buy” call with a target price of $1.76.
“Our base view is for the Singapore economy to grow by 3.5% y-o-y for 2022. While stagflation risk is low in Singapore, worries about a global economic slowdown or even recession has risen,” the analysts write.
The STI closed 17.28 points lower or 0.53% down at 3,226.72 points on June 2.