Alpha Picks: Add ThaiBev And ComfortDelGro; Remove BRC Asia And Frencken
Our Alpha Picks outperformed the STI index in Sep 22, declining by 0.4% on a market cap-weighted basis vs the STI’s 2.8% decline. For Oct 22, we add ComfortDelGro and Thaibev after their recent share price weakness as we expect the economic reopening to continue to drive their demand recovery. We cut losses on BRC Asia, whose business is affected by the temporary stop-work orders, and remove Frencken as we expect weak sentiment towards tech stocks amid the rising interest environment.
• Market review. Except for the banking sector which is a clear beneficiary of higher interest rates and some event-driven stocks, the general market was weak in September (-2.8% mom). The stubborn US inflation data (8.3% in August, higher than economists’ median forecast of 8.1%) released in the middle of the month was believed to have reinforced the US Fed’s hawkish stance to manage inflation through further rate hikes. Against this backdrop, one-year US treasury yield ended at 4.05% on 30 September (+55 bp mom) while yield for one-year Singapore government treasury bills reached a decadehigh level of 3.24% (+35 bps mom). These attractive short-term yields and expectations for further interest rate increase have led to fund outflow from stock markets, as investors hold cash or short-term deposits for potentially better stock market entry prices later.
• Outperformed in Sep 22 and 3Q22. Our Alpha Picks portfolio outperformed the STI in Sep 22 with a 0.4% mom drop on a market cap weighted basis vs the STI’s 2.8% mom decline. Importantly, our portfolio materially outperformed in 3Q22 by 4.7ppt. For Sep 22, the outperformance was primarily driven by a few large-cap names, including Yangzijiang Shipbuilding (+6.2% mom), DBS (+2.4%), and Genting Singapore (+1.3%) while the tech sector did poorly with Frencken (-15.2%) and Nanofilm (-11.4%) being the key losers.
• Add Thaibev and ComfortDelGro; remove BRC and Frencken. For October, we add ComfortDelGro and ThaiBev into the portfolio as: a) both are set to benefit from demand recovery from the economic reopening and removal of COVID-19 measures, and b) the recent share price weaknesses have made their valuation more compelling. We cut losses on BRC Asia as temporary stop-work orders caused by its recent workplace incidents are expected to affect its construction activities and delivery volumes, and we also remove Frencken as the rising interest environment has negatively affected sentiment for tech stocks.