Singapore’s DBS Group Holdings, CapitaLand, Mapletree North Asia Commercial Trust (MNACT), Frasers Logistics & Commercial Trust (FLCT), Ascendas REIT (A-REIT), Ascott Residence Trust (ART) and Mapletree Industrial Trust (MINT) are among OCBC Investment Research’s (OIR) top picks, which should benefit from the ongoing rotation.

The team has give the counters fair value estimates of $29.50 (DBS), $3.79 (CapitaLand), $1.06 (MNACT), $1.62 (FLCT), $3.89 (A-REIT), $1.24 (ART) and $3.51 (MINT).

The report, dated March 16, comes as US 10-year Treasury yields rose ahead of the Federal Reserve’s (Fed) policy meeting.

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On that, the team views the turbulence in equities driven by the increase in the yields as “unlikely” to derail the long-term equities bull market.

“Our view has been that a post-crisis steepening of the yield curve driven by improved growth expectations is a largely healthy phenomenon typically seen in the 24-month period after a recession,” it writes.

In this phase of the business cycle, the team adds that it continues to “see equities as relatively attractive and expect equities to outperform bonds in this phase of the business cycle given that equity earnings yields still far exceed real yields, with the spread still significantly above the 30-year average, as seen in the US”.

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On that, the team has identified beneficiaries of the initial phase of recovery as cyclical stocks such as energy, commodities, industrials and financials.

Earnings of these stocks tend to benefit more from the pick up in economic growth and rise in yields, it writes.

However, the team warns that high growth stocks such as tech will “typically face headwinds in valuations” as their future earnings are more heavily discounted with higher rates into net present value.

“We have been advocating for clients to position for the equity cyclical rotation for some months now, and continue to hold this view. Abundant liquidity (with significantly more to come from the US$1.9 trillion ($2.56 trillion) US stimulus package) tend to exaggerate market movements – as we have seen from the sharp V-shaped rebound from March 2020 – and the rotation into cyclicals this year could be surprisingly violent in our view,” says the team.


“In particular, we believe that the energy and materials equity sectors are attractively valued and would further benefit from the White House’s subsequent focus on its infrastructure bill to rebuild the United States’ aging fixed assets in line with long term decarbonisation and sustainability goals,” it adds.

“The size of the recently passed US stimulus bill with a headline of US$1.9 trillion has exceeded consensus expectations, and this speaks to the impact of the Democrats’ control of the Senate after the Georgia runoffs.”

Shares in DBS and CapitaLand closed $28.02 and $3.29 on March 17, while units in MNACT, FLCT, A-REIT, ART and MINT closed 99 cents, $1.42, $3.05, $1.08 and $2.71.