■ STI – Barring ‘Grexit’, maintain view for inflexion point at 3270-3300, rebound potential to 3425 by end-July
■ Position into blue chips ahead of July rebound – UOB, OCBC, ST Eng, SIA, CityDev
Markets are getting increasingly jittery as the month-end deadline for Greece to repay its loans draws near. There is still hope as the Greek PM unveiled new proposals to EU leaders yesterday. Attention turns to the emergency summit of European leaders today that could finally break the stalemate in negotiations between Greece and its creditors.
While ‘Grexit’ concerns and the sharp correction in Chinese shares caused a choppy environment last week, the STI held firm at around the 3300 level, underpinned by attractive valuation of 13x (-0.5SD) 12-mth forward PE and oversold technicals.
Barring a loan payment default by Greece that can result in near-term uncertainty, we maintain our view for an inflexion point at STI 3270-3300 and see the current correction as an opportunity to accumulate stocks in anticipation of a July rebound that can lift the STI to 3432. Seasonality is another factor. Historically over the past decade, the month of July boasts the best monthly performance in terms of consistency (9 out of 10 years were positive) and highest m-o-m % gain (average +3.9%).
The potential STI rise to 3432 next month should be led by banks and SingTel, which has recently started to outperform the index. Technically, UOB shares have a rebound potential to S$$24.00, OCBC shares to S$10.38 and SingTel shares to S$4.30 or slightly higher. Two stocks that have corrected significantly since mid-Apr and where our analysts expect earnings to improve going forward are ST Engineering and SIA. SIA shares fell last Friday on news that the MERS virus has hit closer to home after Thailand reported its first case. Technically, we maintain the view that any further downside should be limited at S$10.00-10.20, where valuation is attractive on a P/BV perspective. Meanwhile, support for ST Engineering shares is seen at S$3.22.
Finally, shares of City Developments should rebound this week as the unwinding due to its removal from the FTSE EPRA / NAREIT Global Real Estate Index Series comes to an end. (Read Report)
Source : DBS Group Research