Jul wrap-up: Singapore in 5
- The FSSTI closed Jul at 3,211.56 pts, up 109.35 pts mom (+3.52%).
- Inflation may be a concern, but we expect it to peak in the near term.
- We maintain our end-2022F FSSTI target unchanged at 3,475 pts, based on a -1 s.d. forward P/E of 12.5x.
A reprieve
The FSSTI closed Jul at 3,211.56 pts, up 109.35 pts mom (+3.52%), partially reversing last month’s 4% drop in a bear-market rally, even as the US Fed continued to hike rates. Singapore’s 2Q22 advance GDP estimates rose by 4.8% (1Q22: +4.0%), which was stronger than our forecast of +4.4%, but weaker than consensus’ expectations of +5.4%. Growth was aided by a low-base effect due to the tightened Covid restrictions in 2Q21 limiting economic activity. The Monetary Authority of Singapore (MAS), seeing inflation as a bigger risk than economic slowdown, tightened monetary policy by raising the mid-point of the S$NEER band upwards, in an off-cycle move. Jun 22 CPI rose to +6.7% yoy vs. +5.6% yoy in May, the steepest increase since Sep 2008. We, however, expect inflation to peak in the near term due to weaker demand and a drop in commodity prices. We keep our FY22 forecasts at +5.1% yoy for inflation and +3.8% for GDP. According to the Urban Redevelopment Authority (URA) data, monthly new private home sales plummeted at 64% mom, and 44% yoy due to the absence of new project launches. Resale homes sales followed suit. Singapore Real Estate Exchange (SRX) data saw private resale home volumes declining 17.2% mom (-17% yoy) and HDB resale volumes falling 0.8% mom (- 7.4% yoy). Prices, however, remained resilient with the 2Q22 Residential Property Index up 3.2% qoq. Jun 22 resale homes prices were up 0.8% mom for private homes, and 1.2% mom for HDBs.
Market and flows
The best performing sectors this month were: Oil & Gas, Consumer Services, and Financials, while Maritime, Healthcare, and Consumer Goods lagged. Index outperformers were GENS (unsolicited takeover offer), FLT (acquisition), and SIA (passenger volume rebound), while CIT (resignation of key person), DFI (1H22 loss), and STE underperformed. GER (consolidation of acquisition) joined GENS and FLT in the mid-large cap outperformers. FR and BUMI were dragged by falling CPO prices and NANO by expected demand slowdown in Tech. In the preceding four weeks, institutional investors were net sellers, disposing predominately Financials; as well as Industrials, Property and REITs, with small inflows into Telcos and Utilities. Retail investors were net buyers, acquiring Financials, REITs, and Consumer, while divesting Industrials, Tech, and Telcos.
Corporate News
ST to divest Amobee for US$239m, expects to realise US$197m in net proceeds. SIIC to divest waste treatment and incineration unit for Rmb283.3m. Consortium of KEP companies, including KIT, has been selected as preferred bidder for Eco Management Korea, which provides nationwide waste management services.
Research report you should not miss
Post-merger (with ALOG) , ELOG ranks as one of the most attractively valued industrial SREIT in our coverage, at FY22F DPU yield of 7.3% vs. the industrial SREIT average of c.6%. Asset recycling, M&A, and trading liquidity are the main rerating catalysts.
Technical Perspective
Jul saw the FSSTI rallying more than 4% after the index returned above the 3,200 psychological level on 28 Jul to reach 3,225.37 pts, which is the 161.8% Fibonacci expansion level at the 3,072-3,156 range. However, a bearish engulfing candle was found rejecting the 3,240 pts psychological resistance, and as such, we could see a potential rebound in the 3,165-3,186 support zones in the short term. Mid-term target remains at 3,257-3,280.
