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Monthly Strategy: Sit tight - Directional break ahead

Shared By Stock Fanatic on Tuesday, April 3, 2018 | 3.4.18

■ STI to break out from 3400-3500 tightening consolidation in 1-2 months

■ Hedging against inflation – Gold, oil, commodities and farmland, real estate

■ US-China trade war on the horizon

Stocks to position ahead of upcoming ex-dividend dates – UOB, ST Engineering, Chip Eng Seng, First Resources, Hong Leong Finance, Sunningdale

Eyes on MAS policy meeting. Consensus expects MAS to return to a gradual appreciation of the SGD NEER at this month’s policy meeting. Our economist sees tightening this year, but the exact timing will depend on inflation and labour market conditions.

Equity market to break out from tightening consolidation in 1-2 months. STI’s narrowing consolidation range has tightened to 3400-3500, expect a breakout latest by May.

The directional break depends on 
(1) how the US-China trade skirmish unfolds, and

(2) 1Q18 earnings season and corporate earnings revision trend.

We keep our base-case assumption for STI year-end objective at 3715.

Hedging against inflation. Inflation is back in focus as the FED turns more hawkish and trade tariffs drive up the costs of goods. Hard assets are inflation hedges and stocks/ETFs related to these should benefit as inflationary pressure picks up.

These are 
(1) Gold - GOLD US$ ETF,

(2) Oil - Positive for rigbuilders Keppel Corp, SembCorp Industries, SembCorp Marine,

(3) Commodities/farmland - Lyxor Commodity US$ ETF, Lyxor CRB Ex-Energy US$ ETF, Olam, Wilmar, Bumitama, First Resources, and

(4) Commercial/Residential properties – CityDev, UOL, Roxy Pacific, Capitaland, Hong Fok.

US-China trade tension. The US-China trade “skirmish” could drag on till the November US mid-term election or escalate into a trade war involving multiple nations. Order visibility could turn cloudier for Singapore manufacturing companies with China operations (e.g. Hi-P, Sunningdale). Still, the final impact is hard to pin down because the current trade skirmish is a developing story that could turn either way. It is hard to determine what percentage of their customers’ end-products is shipped to the US.

Stocks to position ahead of upcoming ex-dividend dates. Stocks with good dividend payouts over the next 1-2 months could be supported. Large-cap stocks under our coverage with good dividend payouts are UOB and ST Engineering. For small caps, these are Chip Eng Seng, First Resources, Hong Leong Finance and Sunningdale. (Read Report)

Source : DBS Group Research

Posted on Tuesday, April 3, 2018 | 3.4.18
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