Review: Singapore equities climbed 2.3% in August, the fifth consecutive month of
gains. Equities have reported positive returns in 15 of the past 16 months. Banks
(Figure 1) and industrials (Figure 2) led this month’s gains. Bank earnings rose 13% YoY,
supported by a 40% jump in wealth management fees. DBS and OCBC results beat
expectations, but UOB disappointed. Industrials such as shipyards and defence were
the biggest outperformers (Figure 2). The transportation sector suffered as the Middle
East conflict reignites (Figure 3). REITs remain lacklustre amid worries of a hawkish Fed
(Figure 4).
8.2%-4.2%
UOB
7.2%
YZJ
OCBC
Figure 3: Transportation suffer -11.8%
Outlook: Global long-bond yields in developed countries are rising to multi-year highs:
Japan (30-year), Germany (15-year), and the US (3-year). In contrast, Singapore yields
have moved sideways over the past 15 months (Figure 8). We believe global yields are
rising due to a reversal in expectations of a Fed rate hike, stronger global growth and
a surge in hyperscaler bond issuance. Earlier this year, expectations were for 2 rate
cuts. This has now reversed to one rate hike (Figure 9). Hyperscalers’ massive
US$250bn bond issuance for data centres is also pushing up bond supply. We are not
expecting a bond rout that will derail equities. Inflation expectations are muted, with
5-year and 10-year breakeven inflation expectations stable despite the jump in bond
yields (Figure 10). Liquidity is also ample, as reflected in the US$8tr in money market
funds (Figure 11). Rising fiscal deficits and government bond issuance are not new
(Figure 12). However, foreign holdings of Treasuries, particularly from Asia, are
declining (Figure 13) despite rising current account surpluses (Figure 14).
Sembcorp Ind.-11.3%-17.1%
SATS
SIA
Figure 4: REITS still sluggish
0.5%-1.3%
J Matheson-4.4%
Recommendation: Singapore equities P/E ratio is 17x, above the historical average of
15x. We believe the premium is justified by the growing earnings momentum. Multiple
sectors are benefiting from earnings drivers. Banking stocks are supported by robust
loan growth (+10%), rising deposit flows (CASA +12%) and vibrant capital markets
(SDAV >30%). Industrials benefit from the AI-driven boom in electronic exports. The
outlook for shipyards is improving as container freight rates jump. The power sector
is enjoying a rise in electricity spreads as LNG prices pick up. Defence spending is
underpinned by ongoing global conflicts and a rising need for national security. Sectors
with weaker outlook are transportation (volatile fuel prices), healthcare (pressure
from payers and currency) and telecommunications (price competition). REITs face
headwinds on expectations of higher interest rates and growing supply of new issues.
The pending AirTrunk IPO could absorb US$1.5bn in liquidity from the REIT sector.
Mid-cap stocks have been de-rated following poor IPO performance and the sell-down
in UltraGreen.ai.
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Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.
He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.
