A Peek into Singapore Market May 23, 2023

A Peek into Singapore Market

Singapore market in 2023 review

Singapore shares have experienced a roller coaster ride this year. In the first quarter of 2023, there was a surge of 3.5% in January, but the market subsequently relinquished all its gains to finish the quarter relatively unchanged. This can be attributed to higher-than-expected inflation in the US, along with anxieties about the banking sector.

In April, the ex-dividend dates for banks and other index component stocks bolstered Singapore’s stocks. However, uncertainties over inflation, a global economic slowdown, and an end to the net interest margin expansion for banks kept the rebound in check. Beyond April, the seasonal trend of “sell in May” has been evident post the ex-dividend dates.


Outlook for the Singapore market

Fed fund rate likely to remain steady

The Federal Reserve (Fed) announce a 25 basis points hike in the interest rate this month, while signalling a pause in any further rate hikes for the remainder of the year. In addition to this, real-time inflation data continues to decline, as shown by commodity prices (Fig. 1), rentals (Fig. 2), and logistics.

A Peek into Singapore Market(Fig. 1) Source: Phillip Securities Research

A Peek into Singapore Market(Fig. 2) Source: Phillip Securities Research

The benchmark interest rates, currently set within the 5.00 – 5.25% range, are anticipated to remain stable for the remainder of the year.

Given this, we might observe a renewed interest in rate-sensitive sectors such as Real Estate Investment Trusts (REITs) and technology, now that the recent series of Fed rate hikes are on hold. During the last pause in the Fed rate hike cycle from December 2018 to June 2019, the technology and REITs sectors outperformed the benchmark STI (Fig. 3).

A Peek into Singapore MarketSource: Bloomberg

  1. The narrative of China’s reopening and economic recovery is still in its early stages, but it is anticipated to bolster market performance. Apart from industrial production and profits, most data releases from February have indicated strength.
  2. With China reopening, and continued growth expected in regional travel and tourism, the decelerating growth and financial instability in the US and Europe should be offset. The recent 25bps required reserve ratio (RRR) cut indicates the new administration’s strong commitment to sustaining growth [1].

Furthermore, the visit to China by Singapore’s Prime Minister Lee Hsien Loong in late March is set to deepen cooperation between the two nations. This could potentially reignite investor interest in Singapore companies with ties to China.


Limited upside for Singapore banks ahead

In the coming months, Singapore banks are expected to trend sideways and maintain their trajectory. Given their robust asset-liability management, well-diversified funding and deposit sources. Only 15% of their assets are in investment securities, a stark contrast to the 57% held by Silicon Valley Bank [2]. Near-term uncertainties in the banking sector have also reduced.

However, the upside potential is somewhat constrained by concerns over a potential peak in sequential NIM improvement in H1 2023, as further rate hikes in 2023 are not anticipated, and the recovery in wealth management income remains uncertain.


Stock counters to watch

With the outlook that interest rates have reached a peak amidst a decelerating global growth, we are awaiting the effects of disinflation to take its course. In the interim, our tactical call would favour equities that exhibit bond-like characteristics, such as Real Estate Investment Trusts (REITs).

Within the REITs realm, our top picks include CapitaLand Ascott Trust (SGX: HMN) and CapitaLand China Trust (SGX: AU8U).


1. CapitaLand Ascott Trust

CapitaLand Ascott Trust (CLAS), formerly known as Ascott Residence Trust (ART), is the largest lodging trust in Asia-Pacific with an asset value of S$8.0 billion as at 31 December 2022. CLAS’ objective is to invest primarily in income-producing real estate and real estate-related assets which are predominantly used as serviced residences, rental housing properties, student accommodation and other hospitality assets. [3]

Chinese travellers to boost demand

With China’s reopening, we anticipate a steady recovery of corporate demand for long-stay and short-stay. Enquiries from Chinese guests have increased since China fully re-opened its international border and started to issue visas to foreigners in March 2023, following a three-year hiatus. On a group wide basis, Chinese guests accounted for 9% of its pre-pandemic guest count. [4]

Properties in Japan, Singapore, and Australia, which accounted for 17.5%, 17.1% and 12.7% of total assets respectively, should benefit from the resurgence of Chinese travellers. Prior to the pandemic, Chinese nationals accounted for 25-30% of visitor arrivals for Japan, 19% in Singapore and 15% in Australia. [4]

Additionally, we anticipate a rise in flight capacity to 25% by April 2023, considering that as of January 2023, global airlines are operating merely at 11% of pre-pandemic capacity levels for flights to and from China.

Yield-Accretive Acquisitions for Student Accommodation and Rental Housing

In 2022, HMN invested S$420 million in 15 yield-accretive acquisitions, which included 12 longer-stay properties and three serviced residences. Longer-stay properties currently constitute 19% of total assets [4].

The Standard at Columbia, a 678-bed property located in South Carolina, is on track to be completed by 2Q23 and prepared to welcome students for the 2023-24 academic year, commencing on 23 August.

Resilient Balance Sheet

As of March 2023, HMN maintains a healthy aggregate leverage of 38.7%. The average cost of debt has risen to 2.3% (1Q23: 1.6%), which is among the lowest within its sub-segment. With a robust interest coverage ratio of 4.4x and 75% of total debt on fixed rates, its weighted average debt maturity remains at around four years [4].


2. CapitaLand China Trust

CapitaLand China Trust (CLCT), Singapore’s largest China-focused REIT, has total assets of approximately S$5.2 billion as at 31 December 2022. CLCT has a portfolio that encompasses 11 shopping malls, five business parks and four logistics parks, spread across 12 Chinese cities. [5]

In 2022, CLCT experienced a decline in its distributable amount from S$135.5 million in 2021 to S$125.6 million due to the necessity to grant higher rental reliefs to tenants impacted by China’s COVID-zero lockdowns [6]. This resulted in a year-on-year drop in its distribution per unit (DPU) by 14.1% to S$0.075 [6].

With the re-opening of China’s economy, CLCT’s retail malls are projected to see a surge in footfall, reducing the need for further rental reliefs. Management expects its retail portfolio to register positive rental reversion in FY23, aided by its asset enhancement initiatives. Meanwhile, the logistics park and business parks are anticipated to remain resilient. Increased activity levels within the REIT’s business and logistics parks should likewise benefit its tenants.


Promotion

A Peek into Singapore Market

From 1 March 2023 to 30 June 2023 (both dates inclusive), open a POEMS CFD MT5 account and trade with us to enjoy Apple Airpods, Trading Credits and Grab Vouchers.

This promotion is valid to all Phillip Securities Pte Ltd (PSPL) customers who have not opened a POEMS CFD MT5 Account.

*T&Cs Apply.

For more information, click here.


How to Get Started With POEMS

As the pioneer of Singapore’s online trading, POEMS’s award-winning suite of trading platforms offers investors and traders more than 40,000 financial products across global exchanges.

Explore an array of US shares with brokerage fees as low as US$1.88 flat* when you open a Cash Plus Account with us today. Find out more here (terms and conditions apply).

A Peek into Singapore Market

We hope that you have found value reading this article. If you do not have a POEMS account, you may visit here to open one with us today.

Lastly, investing in a community is much more fun. You will get to interact with us and other seasoned investors who are generous in sharing their experience and expertise.

In this community, you will be exposed to quality educational materials, stock analysis to help you apply the concepts, unwrap the mindset of seasoned investors, and even post questions.

We look forward to sharing more insights with you in our growing and enthusiastic Telegram community. Join us now!

For enquiries, please email us at cfd@phillip.com.sg.


Reference:

Disclaimer

These commentaries are intended for general circulation. It does not have regard to the specific investment objectives, financial situation and particular needs of any person who may receive this document. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of the units and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance. Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries. Investors may wish to seek advice from a financial adviser before investing. In the event that investors choose not to seek advice from a financial adviser, they should consider whether the investment is suitable for them.

The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries.

Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned.

About the author

Jeremy Chua
Dealing

Jeremy graduated from Nanyang Technological University with a Bachelor’s Degree in Business and is a member of the largest dealing team in Phillip Securities. He strongly believes in the importance of staying invested in the financial markets and evaluates stocks using fundamentals to make informed investment decisions.

In his free time, he enjoys researching on market events and disruptive investment themes to generate new investment ideas for the short and long term.

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you

IMPORTANT INFORMATION

This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.  

 

Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com