Trade of the Day

Thai Beverage PCL (SGX: Y92)

Analyst: Zane Aw

(Current Price: S$0.575) – TECHNICAL BUY
Buy price: S$0.560 Stop loss: S$0.535
Take profit 1: S$0.615 Take profit 2: S$0.660

Topic #4 – Market Behaviour in US Recessions

Analyst: Zane Aw

– Many investors are wondering if the US will enter a recession in the near future. To better understand how the market has performed during previous recessions and the recovery thereafter, this report looks at how the S&P 500 did in the last 5 recessions since the 1980s.

– Recessionary declines typically last under a year with the drawdown ranging from 20% to a substantial fall of over 50%. Looking at the 6-month market performance pre- and post- recession, stocks may or may not decline before the recession starts to serve as an indicator. However the market tends to bottom and begin recovering well before the recession ends, with a period of good gains stretching for the 6 months post the recession.

– With the 6-month performance post-recession rewarding investors with decent returns of over 9%, the key takeaway for investors is to buy the dips after a substantial decline in a recessionary period, even when they have missed the market bottom as they stand to benefit from a large rally. Investors should keep in mind history is on their side as the S&P 500 has recovered to pre-recession levels following every recession.

Week 24 equity strategy: This week will be dominated by macroeconomic news. We have the release of US consumer and producer inflation data, followed by interest rate decisions by the Fed and ECB. Our expectation, as per consensus, is the Fed will not raise rates. But there is a narrative of a hawkish pause or skip, implying this is not a permanent pause and the Fed is ready to raise rates. This stance will be supported by the Fed summary of economic projections raising interest rates expected by year-end compared to the current 5.1%

Our near-term defensive posture to the equity market has not changed. But the resilience of US market has defied expectations. We believe there are several reasons for this. Firstly, the hype surrounding AI supporting large-cap tech. Valuations of Nvidia are at a nosebleed 184x PE. But this is less than Cisco valuation of 382x PE, at the peak of the dotcom mania. We think these valuations could stretch even further. Incremental ETF flows that dominate the market are agnostic to valuations and benefit large-cap names the most. Secondly, recent Fed support of commercial banks during the recent spate of bank runs has reduced the risk of bank failures and boosted sentiment. Fed lending to banks is the largest since the Global Financial Crisis (GFC). It is now US$288bn, around 50% of the GFC peak. Finally, strong growth in jobs raised expectations of a soft landing in the US. Alternatively, with high inflation, GDP growth is expanding even faster than previous recession episodes, in nominal terms.

Paul Chew
Head Of Research

Singapore shares nearly missed the rally in key Asian indexes, after a choppy session on Friday (Jun 9). It rose 0.36 points or a mere 0.01 per cent to 3,186.97 points. Singapore shares, which has been trading range-bound this week, managed to notch a gain of 0.7 per cent over the week. Key Asian stock markets wrapped up the last trading day of the week higher, sanguine that the US Federal Reserve will pause the interest-rate hike next week after jobless claims in the world’s largest economy beat consensus.

The S&P 500 closed higher on Friday (Jun 9) but off session highs, as a Tesla rally failed to galvanize the broader market on the eve of the Federal Reserve’s policy meeting and inflation data next week. Tesla Inc shares climbed 4.1 per cent, clinching their longest winning streak since January 2021, after General Motors Co agreed to use the company’s Supercharger network. GM shares rose 1.1 per cent. The benchmark S&P 500 built on Thursday’s 20 per cent rise from its Oct 12, 2022 finishing low, heralding the start of a new bull market as defined by some market participants. The S&P 500 gained 4.93 points, or 0.1 per cent, at 4,298.86, taking this week’s advance to 0.4 per cent and extending its winning streak to four weeks, the longest since the July-August 2022 period. The Nasdaq Composite notched its seventh straight week of gains, adding 20.62 points, or 0.2 per cent, to 13,259.14 on the day and 0.1 per cent on the week. The Dow Jones Industrial Average rose 43.17 points, or 0.1 per cent, to 33,876.78, for a weekly gain of 0.3 per cent.

Top gainers & losers





Chinese property developer Ronshine China Holdings has yet again missed the payment for its Singapore-listed 8.1 per cent senior notes due 2023. The notes, with a principal amount of US$316 million, matured on Friday (Jun 9). The outstanding amount is US$328.8 million, including the bond’s accrued and unpaid interest. This marks the latest in a series of defaults on offshore debt obligations by China’s property sector, first highlighted by China Evergrande Group, once the country’s top-selling developer but now the world’s most indebted property company. Ronshine last defaulted on paying out its July 2019-issued notes, which carried a coupon rate of 8.95 per cent, in January. The principal amount and accrued and unpaid interest totalling US$431.5 million was due and payable on Jan 22.

The closing date for the offer to take construction and engineering company Lian Beng private at S$0.68 a share has been extended further to 5.30 pm on Jun 30, from Friday (Jun 9). This comes after the total number of shares held by the offeror, its concert parties and valid acceptances reached 82.42 per cent of Lian Beng’s total number of issued shares as at 6 pm on Wednesday. The extension means Lian Beng will have three more weeks to garner enough acceptances to cross the 90 per cent threshold and compulsorily acquire the rest of the shares in the company.

Hongkong Land Holdings said it plans to open 10 retail developments in the next five years in seven cities across China, bringing the total number of commercial projects in the country to 17. The cities will be Chongqing, Chengdu, Wuhan, Shanghai, Nanjing, Hangzhou and Suzhou, it said in a statement on Thursday (Jun 8), adding the new developments will add 280,000 square meters of retail floor space to its China portfolio. Hongkong Land also said it will complete the US$8 billion West Bund Financial Hub development in Shanghai in three phases through 2027, and start selling the high-end waterfront apartments later this year. The West Bund Orbit, a landmark public art centre, will also be launched by the end of 2023, it added. Acquired in 2020 with a joint-venture partner, the West Bund Financial Hub is built on a 23.1-hectare mixed-use site located in Xuhui district, where the local government plans to create a new international financial centre.

Real estate management services provider LHN said the Shanghai-listed company’s offer to buy over its indirect 84.05 per cent stake in LHN Logistics at S$0.2266 per share aligns with the group’s long-term goal of enhancing shareholder value. If the deal goes through, the transaction is expected to generate S$32 million in cash proceeds for LHN. That would be equivalent to 23 per cent of LHN’s market capitalisation on Jun 1, it noted in a bourse filing on Friday (Jun 9). Both LHN and LHN Logistics are listed on the Catalist board. LHN had spun off LHN Logistics, its logistics and transportation arm, in 2022, then said to “unlock shareholders’ value”.


Twitter will start paying content creators for the advertisements displayed in their replies, with an initial payment pool of US$5 million, Elon Musk said in a tweet on Friday (Jun 9). “Note, the creator must be verified and only ads served to verified users count,” Musk, the billionaire who bought Twitter last October, added in the tweet. Since Tesla CEO Musk acquired Twitter, the platform has struggled to retain advertisers, who have been wary about the placement of their ads after the company laid off thousands of employees. The move comes as Twitter’s newly named CEO, Linda Yaccarino, an advertising veteran from NBCUniversal, is about to take the helm at the social media platform.

Tesla stands to bring in as much as US$3 billion by 2030 thanks to deals with Ford Motor and General Motors for their electric vehicles to use its charging network, according to Piper Sandler & Co. The Elon Musk-led electric-vehicle company announced the latest deal Thursday (Jun 8) in a Twitter Spaces audio chat alongside GM chief executive officer Mary Barra. It was Barra’s first appearance on the social media site since Musk completed his purchase of Twitter late last year. Ford CEO Jim Farley announced its deal with Tesla in a similar arrangement in May. The deals, which now make Tesla’s charging model the standard in the US among the largest American automakers, will pressure competitors to ditch the primary competing standard, known as CCS.

The Energy Department announced Friday (Jun 9) it planned to purchase 3 million more barrels of crude oil for the Strategic Petroleum Reserve. A previous solicitation for 3 million barrels resulted in contracts awarded to five companies, with the oil being purchased for an average price of about US$73 per barrel, according to a DOE statement. The department said contracts for the new solicitation of sour crude oil would be awarded by Jun 30. The move marks the agency’s attempts to begin replenishing the emergency reserve after it released more than 200 million barrels last year, in part to curb high energy prices.

Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, PSR


FAANGM Monthly May 23 – AI vs Dot-com euphoria

Recommendation: NEUTRAL (Maintained); Analysts: Jonathan Woo, Maximilian Koeswoyo, Zane Aw, Phillip Research Team

– FAANGM was the biggest gainer in May, up 8.6% compared to the Nasdaq’s gain of 7.6%, and a 0.2% rise in the S&P 500.

– Big Tech rode the AI wave in May, with four of the FAANGM rising >10%. Large-cap semiconductors performed better, gaining 29-36%, with other small-mid cap AI-related software companies doubling their stock price in a month.

– With such hype surrounding AI, valuations for companies like Nvidia have run up tremendously (184x LTM P/E), drawing comparisons to the Dot-com bubble. Cisco LTM P/E peaked at 382x in the Dot-com bubble.

– FAANGM P/S has moved +1 std dev away from its long-term average with YoY revenue growth estimates remaining relatively unchanged. Near-term weakness in demand for tech consumer goods, digital advertising, and Cloud, still persist. As such, we remain NEUTRAL on FAANGM.

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