SINGAPORE (Aug 12): Amid the market volatility, investors are seeking refuge in safe-haven asset classes. Gold rallied above US$1,500 an ounce — the highest level since 2013, extending a 17% gain since the start of the year. Silver surged as well. “Turbulent geopolitical conditions along with shaky economic fundamentals have enacted sharp bearish pressures on risk assets while raising bullion appeal for the current term,” writes Phillip Futures analyst Benjamin Lu in his Aug 7 note.
“The current macroeconomic environment is highly supportive of gold and silver which, as inflation-busting assets, perform well during times of traditional currency weakness,” says Ned Naylor-Leyland, manager of the Merian Gold & Silver Fund at Merian Global Investors in an Aug 7 commentary.
Regulators and policymakers are taking no chances in the face of the volatility. The Reserve Bank of India on Aug 7 cut its benchmark repurchase rate by 35 basis points to 5.4% — the lowest level since 2010. This is India’s fourth cut this year. The move by India comes just hours after the Reserve Bank of New Zealand cut its official cash rate by 50bps to 1%. India and New Zealand joined the likes of South Korea and Indonesia in the region that had similarly eased their monetary policies in recent weeks. On the same day, Bank of Thailand unexpectedly cut 25bps to 1.5% — the first such move in more than four years.
Jardine stocks in play
The Singapore-listed, but Hong Kong-based Jardine family of stocks were sold down particularly in the early part of the week, as street protests in Hong Kong worsened significantly over the weekend, adding to worries of the wider economic slowdown.
Jardine Matheson Holdings, the main holding company, closed on Aug 7 at US$57.21, down 5.98% from Aug 2’s close of US$60.85. Jardine Strategic Holdings, on the other hand, closed on Aug 7 at US$33.48, down 3.35% from US$34.64 over the same period. Jardine Cycle & Carriage, which has significant interests in Indonesia, closed at $31.63, down 5.58% over the same period.
In addition, supermarket and retail chain operator Dairy Farm International Holdings, also part of the Jardine group of companies, posted flat 2H earnings of US$178 million ($246 million), but with performance mixed across its various markets and operating subsidiaries. DBS Group Research and RHB Research are keeping their “hold” calls on DFI, with respective price targets of US$7.99 and US$7.38. CGS-CIMB is more cautious, downgrading the stock from “hold” to “reduce”, with a new price target of US$7.29, from US$8.54 earlier. DFI closed on Aug 7 at US$7.01, down 7.76% from Aug 2’s close.
Yet another Jardine company, Hongkong Land Holdings, owner of huge swathes of prime commercial real estate in both Hong Kong and Singapore, closed on Aug 7 at US$5.52, down 8.3% since Aug 2. On Aug 1, the company reported a 63% y-o-y fall in 1HFY2019 earnings ended June to US$411 million from US$1.1 billion in 1HFY2018.
Some analysts worry over Hongkong Land’s exposure to a potentially weaker Hong Kong commercial property market. CGS-CIMB, on the other hand, sees the company potentially enjoying upside in its property development business. For example, via a joint venture with Sun Hung Kai Properties, it paid a land premium of HK$2.1 billion ($370 million) when it submitted a proposal to the Hong Kong government to raise the plot ratio of their residential project in Shek Wu Wai in Yuen Long that was converted from farmland, to 5.5 times from 0.4 times. The new proposal, if approved, would supply up to 11,000 residential units, equivalent to 84% of the Hong Kong government’s annual private housing supply target.
“We think the successful application for an increase in plot ratio would be a growth driver for HKL’s property development business in the medium term,” says CGS-CIMB analyst Raymond Cheng in his Aug 2 report. Cheng also notes that Hongkong Land did not repurchase any shares in 1H2019 but could resume the buybacks in 2H2019F, given its low net gearing. Cheng is keeping his “add” call and US$7.40 price target on the stock.
Another actively traded stock this past week is StarHub, which reported lower earnings of $39.5 million for 2Q2019 ended June, down 36.1% from $61.7 million the previous year. Revenue in the same period was down 7.4% y-o-y to $552.8 million. StarHub’s pay-TV business was especially bad, with revenue down 23.6% y-o-y to $64.7 million. The stock closed at $1.45 on Aug 7, down 2.03% for the day.
The week ahead
The 2Q earnings results reporting season continues. Companies reporting on Aug 13 include Straco Corp, Banyan Tree Holdings, Hiap Hoe, ABR Holdings, Heeton Holdings and Teckwah Industrial Corp. The following day Metro Holdings, Hong Leong Asia, Q&M Dental, Cordlife Group and Marco Polo Marine will release their results.
On the macroeconomic data front, US industrial production numbers for July will be announced on Aug 15. The following day, Singapore’s non-oil domestic export figures for July will be released, giving further updates on the health of the country’s export-driven economy.
