• Three key events to watch in October: MAS policy meeting, GDP and 3Q earnings report card
• Preview of 3Q results – earnings cuts could continue
• REITS offer temporary shelter; depressed valuations in oil and gas sector provide trading opportunities
• Stay with stocks with earnings visibility, dividend upside potential and restructuring plays
Three key events to watch
Asia and emerging markets rebounded strongly in the past week as rate hike expectations were pushed back. DBS Economist sees the initial FED lift off in 1Q16 (previously Dec 2015) and for rates to increase twice (instead of 4 times) in 2016.
Closer home, the three important events that investors will be following closely in October are:
(1)Singapore’s 3Q GDP which could point to a technical recession;
(2) MAS could ease its monetary policy at its policy meeting;
(3) 3Q reporting season which is unlikely to inspire.
Market volatility is in full swing, this time to the upside. We maintain our near term STI trading range of 2750-3050 and 12-month target at 3200.
3Q preview : most sectors could disappoint except for transport
With macro uncertainties and the shadow of a technical recession in 3Q, investors are likely to cast a wary eye on the upcoming results season.
For 3Q results, we will be keeping an eye on
1) provision and NPLs for banks;
2) margins for downstream consumer and plantation sectors and the rig builders;
3) forex impact on plantations and SREITs; and
4) contract rescheduling/cancellations for rig builders which could point to further downgrades for 2016.
The only bright spot could come from better earnings from airlines/shipping, as we expect the positive impact of lower fuel costs to filter through.
Select stocks with earnings visibility or dividend upside -
Thai Bev, , Riverstone, Sheng Siong, Sembcorp Industries, ST Engineering, Capitaland, Singapore Airlines, and Venture Corporation. With the potential rate hike likely to be out of the way till 2016, REITS offer a temporary shelter for investors seeking yields. Our picks are stocks with sustainable growth - Mapletree Greater China Trust and Frasers Centrepoint Trust.
Depressed valuations in oil/gas sector throw up trading opportunities
Oil prices are near the bottom and the risk is on the upside as we approach a seasonally stronger quarter on winter demand, while OPEC’s meeting on Dec 4 is the wild card. Valuations of oil and gas stocks are near their GFC lows. Among the small caps, we prefer companies which have lower refinancing risks and are better positioned to survive this downturn - Ezion and Pacific Radiance. Sembcorp Industries is attractively priced, near its GFC trough valuation, its steady utility business should mitigate weakness from the marine sector. (Read Report)
Source : DBS Group Research