Singapore Equity Picks
While the current view remains for the FED to cut rates in mid-2024, our interest rates strategist sees the possibility that the timeline could be brought forward by a month (May) or perhaps even three (March), depending on data. Fed funds futures currently shows (i) 67.8% chance Fed funds rate will drop by 25bps in March, 100% by May; and (ii) 61% chance of a 50bps drop by May.
Recall we started raising our REITs exposure in early November but locked in gains at the start of 2024, anticipating that the optimism on potential rate cuts may have reached an excessive level in the near-term. This move panned out well as most REITs are consolidating sideways or have pulled back. We are increasing our exposure on REITs to align with the possible shift in our interest rate strategist’s outlook.
Mapletree Pan Asia Commercial Trust: Increase by 7,000 shares at $1.51 to Dividend
Stock price has pulled back nearly 4% since we lowered our exposure on 2 January. We return the 7,000 shares to our equity picks.
Frasers Logistics and Commercial Trust: Add 18,000 shares @ $1.14 to Dividend
Among our industrial REITs picks, FLCT has the lowest gearing among peers at c.30% and a large cash balance that can be deployed for acquisitions as opportunities arise, potentially leading to additional growth to earnings. Dividend yield of 6.3% is attractive compared to its peers. Although the expiring Google lease at ATP is a near term concern to watch out for, the continued strength and rental growth for the logistics and industrial portfolio will help offset any near-term pitfalls, while positive rental reversions for the space will lead to an upside to earnings.
Global semiconductor shipment marks a turning point
Global semiconductor shipment trend (%)
Source: DBS Bank, SIA, Bloomberg Finance L.P.
- Latest global semiconductor shipment data shows signs of a strengthening recovery, as latest datapoint (Nov-23) marks the first reversal to y-o-y growth after 15 consecutive months of decline
- Recent uptick in the memory sector and AI-related developments are also positive drivers that could underpin continued recovery across the wider semiconductor value chain
- Monetization of AI-demand propelled above-expectation 4Q results for TSMC, with growth expected in 2024
- The 35% drop in Samsung’s Q4 results could be attributable to weak consumer electronics demand (e.g., smartphones), while performance has improved for its memory segment (Source: Nikkei Asia)
- SK Hynix, a key memory player, expects doubling of its market cap on AI-driven memory space over the next three years (Source: Bloomberg)
- Latest Nvidia’s AI-GPU for PCs could lend support to the recovering PC market
- Upcoming 4Q results would serve as the next catalyst for stocks -> our analysts’ expectation for sequentially flat/improving 4Q results would signal that the worst is likely over for our top picks UMS and Venture
- Earnings growth expected to pick up in FY24F: UMS (32.8%), Venture (13.7%)
- UMS: Growth opportunities from completed plant, scope for improving margins; Venture: Cheap valuations (-2SD levels), attractive 5.5% dividend yield