DBS Group Research analysts Andy Sim, Geraldine Wong and the Singapore research team are recommending investors buy into staple consumer plays such as Sheng Siong and Kimly as prices in Singapore continue to increase.
In March and April, the Singapore consumer price index (CPI) saw y-o-y increases of 5.9% and 5.8% respectively, a rate of increase not seen since mid-2008.
The CPI is designed to measure the average price changes of a basket of consumption goods and services commonly purchased by resident households in Singapore. The index is also used as an instrument to measure inflation.
80% of consumers see surging inflation lasting for 12 months or longer
Further to their report on June 21, the analysts took a closer look at how the high CPI will affect consumers’ spending and how Singapore consumers perceive the ongoing surge in inflation.
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In a quick consumer survey that garnered 200 responses, the bank found that more than one in two respondents – or 54% -- are feeling the heat of inflation, perceiving price increases to be above 10%, higher than what official statistics have reported.
The survey was conducted over three days in the week of May 23. Respondents were evenly mixed in gender across a range of age groups. Eighty per cent of the respondents were employed, 7% were self-employed while the remaining 13% were retirees, students and homemakers.
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Eight in 10 (or 80%) of respondents see higher inflation going to last for the next 12 months or beyond.
Of the 200 respondents, 64% indicated that they will be taking a defensive stance in their spending, with their spending habits shifting in the next six months due to the higher prices.
“Groceries, utilities and dining-out rank among the highest on respondents’ priorities, while shopping, recreation and travel are lowest,” note the analysts.
“Compared with opting for cheaper alternatives and reducing frequency, essential groceries are heavily skewed towards cheaper alternatives, while spending on other groceries (branded food, alcohol, snacks), dining-out and shopping point to a fairly even mix,” they add.
“Interestingly, for highly discretionary spending on travel and recreation, respondents seem to favour quality over quantity, and will opt to reduce frequency rather than look for cheaper alternatives,” they continue.
On the back of the expected change in spending habits, the analysts posit that expectations for higher growth in the retail sales index in May and June should be mitigated going forward, even if these months could show stronger figures on reopening.
Counters to accumulate
In addition to their consumer picks, the analysts are also recommending investors buy into counters like Singapore Airlines (SIA) due to the airline being a beneficiary of the pent-up demand for travel.
Retail and hospitality REITs that are also beneficiaries of the reopening are also worth looking into. In their report, the analysts from DBS highlighted the following counters: Frasers Centrepoint Trust (FCT), Lendlease Global Commercial REIT (LREIT), CapitaLand Integrated Commercial Trust (CICT), CDL Hospitality Trusts (CDLHT) and Ascott Residence Trust (ART).
