The Singapore market notched a poor start to the year with a 2.7% decline in January, notes PhillipCapital Research analysts in a Feb 2 note. Most sectors in Singapore were in the red, except for transportation, which rose 0.9% in the first month.
Headline economic news was favourable with Singapore's GDP expanding at a faster pace of 2.8% y-o-y in 4QFY2023, but most indicators remain sluggish, says PhillipCapital in its monthly note.
REITs’ results were operationally healthy, but interest expense and currency dragged down dividends, they add. “Around two-thirds of REITs reported a contraction in their distribution per unit (DPU). China was the weak spot, with either negative rental reversions or arrears creeping up.”
Thus, PhillipCapital blames the poor figures for the 0.86% loss that its Absolute 10 model portfolio recorded in January.
Major outperformers were Valuetronics BN2 , Frasers Centrepoint Trust J69U (FCT) and Keppel, whose share price grew 2.5%, 1.8% and 1.3% respectively in January.
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Valuetronics continues to benefit from share buybacks with the recent high at 59.5 cents, says PhillipCapital.
Meanwhile, FCT’s share price was resilient, despite raising $200 million via private placement, adds analysts. “Expectations of strong rental reversions this year also supported the share price.”
Among PhillipCapital’s 10 stock picks, FCT and Oversea-Chinese Banking Corporation (OCBC) boast the highest historical dividend yield, tied at 5.3%.
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Finally, Keppel benefited from expectations of healthy power demand following the award of a new power plant and comments by the Energy Market Authority.
The largest declines were seen in CapitaLand Investment (CLI), ST Engineering and Singtel, whose share prices fell 6.3%, 4.1% and 2.8% respectively last month.
According to PhillipCapital, CLI is still suffering from weak sentiment over the valuations and operations of its China assets.
“Our macro backdrop is weakening global growth but the downside is protected by interest rate cuts. The portfolio is a mix of stable yield, dividend or earnings growth and re-rating stocks. Our most recent additions were China Aviation and Valuetronics for their earnings visibility,” says PhillipCapital.
First rate cut in May?
Overall, PhillipCapital analysts say they are “still positive” on REITs as rate cuts are expected this year.
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“Inflation at 2.9% is trending even below Fed expectations of 3.2%. Furthermore, US core inflation is close to its three-year lows when the Fed Fund rate was still zero.”
The Fed has ruled out a hike in March but mentioned it still favoured an interest rate cut this year. The first cut is possible in May after three more inflation data points, says PhillipCapital.
In telecommunications, the only sector to post positive returns, PhillipCapital favours Singtel for the multiple share price catalysts. “We believe mobile price repair is occurring in most of its markets, the planned $600 million of cost cuts are underway and another $4 billion of divestments are on track. Also, there is now a new driver, which is AI. Separately, Singtel is working with Nvidia to build green AI-ready data centres.”
