DBS Group Research analysts are recommending stocks that are “defensive, stable, and rising on reopening tailwinds” to hedge against the incoming technical recession, for the month of May.
Analysts Kee Yan Yeo and Fang Boon Foo say that the odds of the Singapore economy entering a technical recession has risen, following the weaker-than-expected -0.7% q-o-q (seasonally adjusted) gross domestic product (GDP) contraction in 1Q2023.
Yeo and Foo see a downside risk to the Straits Times Index (STI) at 3,180 points, which coincides with 10.8 times (-2 standard deviation or s.d.) 12-month forward P/E.
They add that a confluence of negative news from the latest residential property measures, manufacturing sector slowdown extending into 2Q2023 and banking sector uncertainties will likely affect investor sentiment at a time when the ex-dividend for the FY2023 ending in December 2023 full-year period ends and the seasonal “sell-in-May” arrives.
China’s reopening is a critical offset to the slowdown in both the US and Europe, as the International Monetary Fund (IMF) expects China and emerging/developing Asia to deliver stronger 2023 GDP growth of 5.2% and 5.3% respectively.
In Singapore, the travel/tourism sector is poised to get a further boost from Chinese tourist arrivals in the coming months.
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For that reason, the analysts prefer seven stocks that can hedge against a technical recession risk — Singapore Telecommunications (Singtel) Z74 , Frasers Centrepoint Trust (FCT) J69U , Lendlease Global Commercial REIT (LREIT) JYEU , Singapore Technologies Engineering (ST Engineering) S63 , Sembcorp Marine (SembMarine) , CapitaLand Investment (CLI) 9CI and CDL Hospitality Trusts (CDLHT) J85 .
“Leading purchasing managers' index (PMI) indicators highlight the resilience of the services sector, which is holding up better than the noticeably slowing manufacturing sector in recent months and at the cusp of further improvement on the back of China’s reopening,” the analysts say.
Meanwhile, the analysts highlight seven stocks to top slice or avoid in the near term, with their view for the benchmark STI to consolidate in the weeks ahead.
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These include banks such as UOB U11 and OCBC O39 , which have a downside risk to net-margin interest (NIM), weaker-than-expected loan growth and net interest income (NII) recovery.
