KGI Securities favours retail REITs on a faster-than-expected retail recovery in Singapore, say analysts in an Oct 5 note. 

REITs and Technology sectors are marked to “outperform” in an otherwise “neutral” climate, with competitor headwinds in the telecommunications sector driving it to “underperform”, according to KGI Securities’ Singapore research team.

“Given the gloomy outlook for interest rates, in addition to a cap on banks’ total dividends for FY2020 (60% of FY2019’s distributions), we think that REITs will continue to be a favourable opportunity for many investors. Focusing solely on the last quarter of 2020, we think that retail REITs will see a boost given the quick recovery in consumer spending in 3Q2020,” according to the analysts.

KGI Securities believes that even if Singapore does experience a mild second wave, there is limited downside to the retail REITs whose prices still seem depressed. “We think that there are still limited catalysts for quick a recovery in the fourth quarter, and the bulk of the recovery will begin only next year, as more restrictions and measures are being relaxed over the next few months.” 

See also: KGI Securities cuts dividend forecast for Uni-Asia Group due to headwinds in the year ahead

The hospitality REITs’ performance will also be largely dependent on the return of tourism, which is expected to be no earlier than the first quarter of 2021. “We are also positive on China’s recovery as they have consistently outperformed expectations – and China is the only G20 country expected to see positive economic output this year,” they add.

Following a “volatile two weeks” with US President Donald Trump’s Covid-19 diagnosis, “early trading hours on Oct 5 indicate optimism in Trump’s recovery,” note analysts. “While investors’ focus will largely be on Trump’s health in the next few days, we think any contraction should serve to benefit our recommended sectors, providing better entry points and greater alpha generation.”

KGI Securities highlights the upcoming merger between CapitaLand Mall Trust and CapitaLand Commercial Trust for its scale to offer larger headroom for domestic and international developments, unmatched by any S-REIT. 

Other companies in the spotlight include Mapletree Commercial Trust, Sasseur REIT and EC World REIT for their access and position in China developments. 

In technology, KGI Securities highlights AEM Holdings, UMS Holdings and ISDN Holdings. “In lieu of September’s risk-off, opportunities have emerged to accumulate on tech stocks that still ride on tailwinds into 2021. The tech sector exhibits K-shaped performance, and we expect the winners to continue extending their gains,” note KGI Securities. 

“We have a preference for the semi space, with one factory automation pick, opting to stay out of Electronic Manufacturing Services for the time being.”