Singapore’s stock market is in the “final ‘despair’ phase”, say DBS analysts Yeo Kee Yan and Janice Chua who think this stage begun on June 10 when the Straits Times Index (STI) was at 2,800 points.
“This is typical of the last phase of the bear market characterised by the worsening headline news, earnings losses, ‘no end in sight negative sentiment’ and investors’ disinterest in stocks,” the duo point out in an August 6 note.
Historically, stock markets have bottomed when GDP contractions were at their steepest. As such, Yeo and Chua expect such a bottoming out to have occurred in 2Q2020 ended June when Singapore’s GDP contracted a significant 41.2% quarter-on-quarter or 12.6% year-on-year, according to official estimates.
“We expect a gradual recovery going forward,” say Yeo and Chua who are looking at the STI hitting 2,440 – 11.41x the 12-month forward price-to-earnings ratio.
Still, uncertainty lies in a possible resurgence of Covid-19 infections both in Singapore and abroad.
For instance, the viral resurgence in the US and the sharp spike in cases in countries such as Hong Kong, Japan, Spain and the Phillippines show that the road to recovery will be long drawn, until a vaccine is found.
So far, over 165 candidates have come forward with vaccines and several are undergoing phase 3 trials – the final phase before they are given regulatory approval.
Against this backdrop, Yeo and Chua have a liking for “yield names” that provide opportunities in the “undervalued cyclical space”.
Companies in this category include: Ascendas REIT, Frasers Logistics and Commercial Trust, CapitaLand Mall Trust and Frasers Centrepoint Trust.
DBS’ analysts also point out Mapletree Logistics Trust and Mapletree Industrial Trust, but say they “prefer a pullback in stock prices” as their FY20F yield has dipped below 4%.
Meanwhile, Yeo and Chua also name undervalued cyclicals as counters to watch. This is as they will be “trading at historic valuation extremes,” they explain.
“While there is a lack of strong upside catalyst, we believe the current lull period for these stocks is an opportunity to accumulate”.
Their stock picks for this category are: CapitaLand, CityDev, ComfortDelgro, ThaiBev and OCBC.
The analysts have posted “buy” calls on all the counters they have their eyes on, with the exception of OCBC Bank which has a “hold” call.
The benchmark STI closed down 13.6 points or 0.53% at 2,545.51 points on August 7.
