Singapore Traders Spectrum
Wired Weekly
Page 2
Macro-economic uncertainties persist despite current
resilience rally
Singapore’s GDP growth cut to 3%
Our economist lowers Singapore’s GDP growth to 3%
(previous 3.5%). Singapore is struggling with stagflation,
which is a combination of economic growth slowdown and
rising inflation. Singapore will be home to the weakest
growth (2012 GDP forecast 3%) and one of the highest
inflation rates (4.5%) in Southeast Asia.
There is also room for monetary policy to support growth,
given the authority’s tighter policy over the past two years.
Counter-cyclical measures are also on the cards for next
year’s budget if the external environment continues to
deteriorate.
Relative economic performance map, 2012 Growth below inflation – 30-yr history
Source: DBS Research, Irvin Seah, Singapore economist
A lot still has to happen to ‘save’ the Euro
The ECB will soon support the bond market in sufficient
quantities to ease the Eurozone’s debt crisis. Intervention
will start September and will depend on troubled countries
making a request and accepting strict conditions and
supervision. ECB President Mario Draghi added that
Germany had reservations about bond-buying and further
efforts would be needed to persuade the Bundesbank
before a final vote to take action.
This outcome from the ECB monetary policy meeting last
week failed to impress investors who expected a more
immediate and concrete action. Hopes were raised following
the ‘chest pounding’ statement made by ECB President
Mario Draghi last week to ‘do whatever it takes defend the
Euro’.
Investors had hoped that the ECB would issue a banking
license to Europe’s permanent bailout fund, which is the
European Stability Mechanism (ESM). Such a license would
have enabled the ESM to borrow from the ECB. Without this,
the remaining €400bil that is currently available to the ESM
is underpowered to face the €2800bil sovereign debt of Italy
and Spain.
Mix signals from US July job numbers
Despite the positive Wall Street reaction, the latest US July
employment numbers sent out a mixed signal. While the
163k increase in non-farm payrolls was smartly better than
consensus expectations of 100k, the unemployment rate
inched a notch higher to 8.3% from 8.2%.
Not all yields plays are still good bets…
Defensive and yield stocks have done well relative to cyclicals
through the year given the persistent macro-economic
uncertainties that stubbornly continues. Unsurprisingly, SREITs
have outperformed the broad market. The FTSE ST
REITs Index’s 35% gain YTD, clearly outpaced STI’s 15% rise
YTD.
While S-REITs may have become a popular choice among
investors, do remember that as stock prices move higher,
upside potential and dividend yield falls. Our analysts have
downgraded CCT, Cache Logistics, CMT and CDL HT to
Hold in recent weeks, mainly on valuation grounds.
While we like CMT for its big cap status and its defensive
earnings, the stock is trading close to our fundamental
target price. CCT has also risen close to our target price
despite its strong balance sheet and pro-active leasing
strategies. While growth momentum for CDL HT is expected
to continue in 2H12, this is at a moderate pace and the
stock now offers just limited upside to our fundamental
target price of S$2.09. Finally, Cache Logistics is also trading
close to our fundamental TP despite stable and resilient cash
flows.
As these stocks were downgraded due to limited upside to
their respective TP and not deteriorating fundamentals,
investors can look for re-entry opportunities again after
prices have retreated. A pullback to the stock’s 65-day or
200-day EMA support is a good re-entry guide.