SINGAPORE (Oct 12): The Dow Jones Industrial Average on Wednesday fell more than 800 points while the S&P 500 had its worst day since February as technology stocks were battered.
Another reason for the meltdown was the spike in the US 10-year Treasury bond yield from 3.06% on Oct 2 to 3.18% on Oct 3 and subsequently to a 7-year high of 3.23% on Oct 5.
On the back of poor market sentiment, the Straits Times Index declined 2.7% or 84 points on Thursday.
Given that volatility could remain heightened after this week’s meltdown, OCBC Investment Research encourages investors to position their portfolios with a measure of defensiveness, while waiting for the stormy macro conditions to abate.
In a Thursday report, the research house is recommending defensive REITs over those in cyclical sub-sectors such as hospitality.
OCBC’s preferred picks within the S-REITs space are Keppel DC REIT (buy; fair value: $1.54) for its long WALE and positioning in a sunrise industry, Frasers Centrepoint Trust (buy; $2.49) for the defensive nature of its suburban malls portfolio and track record of DPU growth, Frasers Logistics & Industrial Trust (buy; $1.19) for its long WALE and in-built rental escalations and Mapletree North Asia Commercial Trust (buy; $1.42) for its attractive yield relative to the other commercial REITs listed in Hong Kong.
OCBC also recommends tactical picks as well as stocks of companies undergoing or likely to undergo corporate action as resilience has been seen in their stock prices.
These include OUE Hospitality Trust (buy; $0.79), M1 (hold; $1.65) and Hotel Properties Limited (buy; $4.74), a possible privatisation candidate after the successful Wheelock Properties (Singapore) general offer.
Given growing worries concerns about downside risks to corporate earnings from the ongoing trade war, OCBC also likes players in regulated infrastructure industries such as NetLink NBN Trust (NLT) (buy; $0.90).
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
To be sure, the Singapore market has already been trending down since the high in May but OCBC says the spillover effect could bring the market lower for the near term although it “expects the quantum of decline to moderate”.
Across cyclical names, OCBC prefers the banks, especially DBS (buy; $31.83) as well as UOB (buy, $32.09).
