·         Singapore equities were up 2.1% in April. It is the 2^nd consecutive month of gains, nudging the market to a positive YTD24 gain of 1.6%. Financials drove the returns this month with a gain of 5.4%.

·         Singapore announced advance estimates for 1Q24 GDP growth of 2.7% YoY (4Q23 +2.2%). It is the fastest pace of growth in six quarters. The recovery in manufacturing supported GDP growth. The fastest-growing segments were construction and services.

·         We see the window narrowing for the Fed to cut rates. Inflation has been stickier than expected, and a rebound in commodity prices makes June or July rate cuts a challenge. The upcoming US election cycle makes it too political for the Fed to cut in the September (Presidential debate) or November (elections) meetings. This leaves December as the likely trigger point. With such a backdrop, inflation hedges or high-interest rate beneficiaries are Singapore banks.

Review: Singapore equities reported their 2^nd consecutive month of 2% plus gains in April. YTD24. The market is now up 1.6%. Shipping and banks were the biggest gainers in April (Figure 2). Seatrium rallied in tandem with oil prices and the announcement of a S$100mn share buyback. We are puzzled that gearing up the balance sheet to purchase shares for the employee share plan and director fees is a positive thing for the company. Seatrium already pays S$229mn in interest expenses in FY23. DBS’s outperformance was due to expectations of higher for longer interest rates. REITs took another knock as interest rate cuts were delayed (Figure 4).

Economy:  Inflation in the US has turned more resilient than expected. Trendline core PCE inflation is now 4.4% by Dec24 (Figure 7). This is far from the Fed’s target 2% and its summary of economic projections of 2.9% by Dec24.  Inflation is likely to perk up in the coming months. Gasoline and industrial commodities are at year highs. Furthermore, the benefits of disinflation in the goods sector is wearing out as supply chains normalise. In Singapore, manufacturing data is recovering at a gradual pace. The new orders PMI averaged above 51 for the past 3 months till April. These are the highest readings in two years (Figure 10). Electronics PMI is the highest in 28 months. The residential property market is still reeling from last April’s cooling measures. 1Q24 new launch residential transactions are down 13% YoY. Transactions are now hovering between 6,200 to 6,500 units per year. Volumes are lower than in 2015, which was suffering from the introduction of TDSR (Figure 12). Singapore’s positioning as a tourism hub for events is enjoying stellar results, with hotel RevPAR jumping 21% YoY in March (Figure 13). It is supported by a 45% jump in visitor arrivals to 1.48mn, of which China arrivals jumped 4-fold to 247k (Figure 14).

Sectors: Most electronic contract manufacturers, including Aztech Global, Nanofilm and Venture, are guiding for a recovery in customer orders for the coming quarters. We believe the demand returns as inventory normalises and new products are launched. The recovery bodes well for Valuetronics (BUY, TP S$0.70). The company benefits from four new customers, pays a 6% dividend yield, and trades at 9x PE or 2x PE excluding the S$200mn net cash on its balance. However, we believe the electronics recovery will not extend to the semiconductor stocks in Singapore. After record orders for semiconductor equipment in 2022/23, the industry is still absorbing this spike in capacity. Both ASML Holdings and Lam Research have guided for lacklustre June quarter revenue declines of 24% and 2%, respectively.