- Tactical low around mid-June as rate hike fears peak
- Positive 1Q22 earnings revision places support at STI 3142
- Bargain hunt rate hike casualties, stay positive on reopening
- Consumer staples and telcos are a stagflation hedge
Forming a near-term base. We see a base building month ahead with June marking a peak in rate hike worries. Similarly, our rates strategist keeps his view for inflation fears to peak in 2Q and improve thereafter. We see support at STI 3142 as valuation is inexpensive at 12.2x (-1SD) 12-mth forward PE. 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.
Positive 1Q22 earnings revision. The recent results season saw earnings revision of+2.6% for FY22 and +3.1% for FY23 for companies under our coverage. STI’s EPS growth forecast stands at a double-digit rate of 11.3% in FY22F and 15.9% for FY23F. SIA has almost single handedly lifted the earnings revision for the industrial sector that helped offset modest downward revisions for banks – UOB and OCBC. Higher CPO prices buoyed a 17% lift in FY22F earnings for consumer staples led by First Resources and Bumitama Agri.
Rate hike casualties approaching a tactical low. We seek bargain hunting opportunities post the market sell-off in May. Technology and REITs, which have underperformed YTD, should stabilize and attempt a recovery as rate hike fears peak. Our technology picks are AEM and Venture Corp. Leveraging off our recent REITs report titled Bank the winners, our picks are MINT, FLT and KREIT.
Reopening remains in favour. We stay positive on the reopening theme. 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 3Q22 at least. Our picks are SATS, SIA, ART, CDL HT and Genting for reopening of air borders; FCT, LREIT, CICT and ComfortDelgro for easing domestic restrictions.
Grocers and telcos are a stagflation hedge. 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. There are few winners in an economic recession or worse, stagflation. For investors who seek a hedge against such a scenario, unlikely at this juncture, consumer staples such as grocery retail, Sheng Siong, and telco SingTel are outperformers.