Following a correction period in February, DBS Group Research sees the Straits Time Index (STI) picking up in the coming months, in-line with a strong March-April seasonal trend as well as an improved outlook for banks and upcoming ex-dividend period.
The STI has rebounded from a low of 2,870 in February as rising yields and an improved global pandemic outlook buoyed gains.
DBS Analysts Yeo Kee Yan, Woon Bing Yong and Janice Chua expect opportunities in S-REITs amidst the recent pullback.
SEE:Winners and losers from Singapore’s Budget 2021
“S-REITs’ yield spread of c.4.6% is the widest since 2013. The US 10-year yield spike should stabilise for now, as our interest rate strategist sees a 1.3-1.5% near-term range. Uncertainties are mostly priced in as our revised 2021 US 10-year yield target of 1.75% (previously 1.5%) is just 15bps above the 1.6% YTD high,” the team writes in a research note dated March 2.
DBS cites S-REITS from sectors related to pandemic recovery as top picks, including retail players CapitaLand China Trust and Lendlease Global Commercial REIT, as well as hospitality players like Ascott Residence Trust (ART), CDL Hospitality Trust (CDLHT), Far East Hospitality Trust (FEHT) and ARA US Hospitality Trust (ARA H-Trust).
Banks like OCBC and UOB will also likely benefit from the stabilised yield due to better net interest margins, with higher dividends expected for FY2021 on the back of stronger earnings.
As Covid-19 vaccinations continue to be rolled out, aviation and hospitality stocks will benefit, with DBS predicting that the US could potentially be among the first major developed countries to achieve herd immunity.
Their picks for hospitality players are Prime US REIT and ARA H-Trust for the US, ART, CDLHT and Frasers Hospitality Trust for the northern hemisphere, FEHT and CDLHT for Singapore, and Mapletree North Asia Commercial Trust for Hong Kong.
Stocks with stronger upcoming dividend payouts will likely gain more traction as ex-dividend dates loom closer. Large cap stocks with the highest upcoming dividend rates and yields include Wilmar International, ST Engineering, Venture Corp, SembCorp Industries and UOL, while smaller stocks include China Everbright, APAC Realty, CSE Global, Sasseur REIT, Frencken and Straits Trading.
For more stories about where the money flows, click here for our Capital section
DBS also notes that the upcoming National People’s Congress (NPC) meeting in China as well as the US Federal Reserve’s Open Markets Committee (FOMC) meeting will be closely watched in the upcoming weeks.
“China’s 13th NPC meeting this month will map out the development plan of technological independence and secure supply chains (e.g. semiconductors), sustainability and ‘dual circulation’. The Federal Reserve should leave rates unchanged at the FOMC meeting and maintain a dovish stance,” the team writes.
As at 4.23pm, the STI is trading 21.18 points higher or 0.71% points up at 2,995.05.
