Review: The STI was down 23% in 1Q20. This was its worst quarterly performance since 2008 and 12th largest 3-month decline. All STI component stocks were down, except SGX. There has been a spike in both derivative and equity volumes. The worst-hit sectors were the transport, hospitality and consumer sectors, with stocks shedding more than 30%.
Outlook: “Man vs virus” was Newsweek’s cover-page headline more than 50 years ago. We have been fighting viruses for decades and should be confident that we can overcome this pandemic. Tremendous resources and attention globally is focused on fighting this virus. Avoid the emotions of greed when prices rise and panic when they collapse. Rather, panic should be replaced by excitement when valuations turn attractive.
There are several reasons to be optimistic on the Singapore market:
Recommendation: The sectors we favour most are banks, REITs and electronics. All three pay good dividend yields and have the balance sheets to support their payouts. Banks’ earnings will be lower due to weaker net interest margins and higher credit costs. But they have sufficient capital buffers to maintain dividends. With interest rates at record-lows, assets that can provide yields will be the most sought-after, such as, REITs. We expect some impact on dividends from rental rebates, but the yields remain attractive. Our model portfolio – Phillip Absolute 10 – outperformed the STI in 1Q20 (-18% vs the STI’s -23%). The worst-hit were our hospitality exposure, Ascott REIT, followed by SingTel and UOB. We have removed SingTel from our model portfolio due to intense competition in Australia after the NBN migration and fears of renewed mobile competition after the Vodafone-TPG merger. We have included Thai Beverage instead. We find its valuations attractive at 12x FY20e PE for a dominant consumer stock with a market share of 90% in the spirits business.
1Q20 Performance
Figure 1: All banks in the red
Figure 2: Transport sector in a brace
Figure 3: SGX the rare gainer
Figure 4: Phillip Absolute 10 Model Portfolio
Figure 5: New cases in China…
Figure 6: …and Korea have been contained
Figure 7: Globally, new patients still climbing…
Figure 8: …including Singapore
Figure 9: Valuations at GFC levels on Price to Book
Figure 10: And close to GFC on a dividend yield basis
Figure 11: Historically, rewarding to buy into large 3-month
Figure 12: China experiencing a sharp V-shaped rebound
1Q20 Performance Review – Phillip Absolute 10
Our Phillip Absolute 10 outperformed the STI in 1Q20. It is a modest consolation to the loss of 18.1%. The changes we made in 1Q20 is:
1Q19 Add: SGX, Keppel DC REIT, China Sunsine; Remove: Chip Eng Seng, Micro-Mechanics, Banyan Tree
2Q19 Add: NetLink Trust, Ascott REIT, Singtel; Remove: Ascendas REIT, CCT, Geo Energy
3Q19 Add: DBS, APAC Realty; Remove: China Sunsine, Keppel DC REIT
4Q19 Add: Venture Corp, PropNex; Remove: ComfortDelGro, APAC Realty
1Q20 Add: Thai Beverage; Remove: SingTel
We have not rebalanced our portfolio significantly.
Figure 13: Monthly movements 
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