CFA Society Singapore
SINGAPORE (July 18): The STI has rebounded since news of the UK voting in a referendum on June 24 to leave the European Union, suggesting the market has brushed off fears over Brexit.
But UOB Kay Hian warns that “macro risks remain elevated and earnings visibility is limited”.
“Following the news of Brexit on 24 June 2016, the FSSTI retraced 3.2% before rebounding and closing 4.2% higher than pre-Brexit levels,” UOB analyst Andrew Chow says in a report on July 14.
However, Chow advises adopting a “relatively defensive stance” as he sees “the likelihood of more earnings downgrades and with the mixed external outlook.
“Position selectively given the limited upside to our year-end FSSTI target of 2,910,” Chow says.
Chow says laggards in the rebound with potential as tactical “buys” include Ho Bee Land, City Developments, and Bumitama.
He also includes First Resources, which has been underperforming recently given its weaker-than-expected results, but is expected to register a 10% q-o-q rise in earnings in the upcoming 2Q16 results due to higher CPO prices.
In addition, Chow says “rising expectations of a prolonged low interest rate environment amid increased uncertainties as Brexit unfolds will lead to continued interest in REITs in Singapore”.
UOB is maintaining its “overweight” rating on Singapore REITs, with Ascott Residence Trust and Ascendas REIT listed as its tops picks.
As at 3.06pm, Ho Bee Land is trading 1.9% higher at $2.20, City Developments is 0.3% higher at $8.66, Bumitama is 0.7% lower at 74.5 cents, First Resources is 1.3% higher at $1.58, Ascott Residence Trust is 0.9% higher at $1.145, and Ascendas REIT is 1.2% higher at $2.47.