A Peek into Singapore Market
Jeremy Chua, Dealing
Jeremy graduated from Nanyang Technological University with a Bachelor’s Degree in Business and is a member of the largest dealing team in Phillip Securities. He strongly believes in the importance of staying invested in the financial markets and evaluates stocks using fundamentals to make informed investment decisions.
In his free time, he enjoys researching on market events and disruptive investment themes to generate new investment ideas for the short and long term.
Singapore market in 2023 review
Singapore shares have experienced a roller coaster ride this year. In the first quarter of 2023, there was a surge of 3.5% in January, but the market subsequently relinquished all its gains to finish the quarter relatively unchanged. This can be attributed to higher-than-expected inflation in the US, along with anxieties about the banking sector.
In April, the ex-dividend dates for banks and other index component stocks bolstered Singapore’s stocks. However, uncertainties over inflation, a global economic slowdown, and an end to the net interest margin expansion for banks kept the rebound in check. Beyond April, the seasonal trend of “sell in May” has been evident post the ex-dividend dates.
Outlook for the Singapore market
Fed fund rate likely to remain steady
The Federal Reserve (Fed) announce a 25 basis points hike in the interest rate this month, while signalling a pause in any further rate hikes for the remainder of the year. In addition to this, real-time inflation data continues to decline, as shown by commodity prices (Fig. 1), rentals (Fig. 2), and logistics.
(Fig. 1) Source: Phillip Securities Research
(Fig. 2) Source: Phillip Securities Research
The benchmark interest rates, currently set within the 5.00 – 5.25% range, are anticipated to remain stable for the remainder of the year.
Given this, we might observe a renewed interest in rate-sensitive sectors such as Real Estate Investment Trusts (REITs) and technology, now that the recent series of Fed rate hikes are on hold. During the last pause in the Fed rate hike cycle from December 2018 to June 2019, the technology and REITs sectors outperformed the benchmark STI (Fig. 3).
China’s reopening and recovery
- The narrative of China’s reopening and economic recovery is still in its early stages, but it is anticipated to bolster market performance. Apart from industrial production and profits, most data releases from February have indicated strength.
- With China reopening, and continued growth expected in regional travel and tourism, the decelerating growth and financial instability in the US and Europe should be offset.The recent 25bps required reserve ratio (RRR) cut indicates the new administration’s strong commitment to sustaining growth .
Furthermore, the visit to China by Singapore’s Prime Minister Lee Hsien Loong in late March is set to deepen cooperation between the two nations. This could potentially reignite investor interest in Singapore companies with ties to China.
Limited upside for Singapore banks ahead
In the coming months, Singapore banks are expected to trend sideways and maintain their trajectory. Given their robust asset-liability management, well-diversified funding and deposit sources. Only 15% of their assets are in investment securities, a stark contrast to the 57% held by Silicon Valley Bank . Near-term uncertainties in the banking sector have also reduced.
However, the upside potential is somewhat constrained by concerns over a potential peak in sequential NIM improvement in H1 2023, as further rate hikes in 2023 are not anticipated, and the recovery in wealth management income remains uncertain.
Stock counters to watch
With the outlook that interest rates have reached a peak amidst a decelerating global growth, we are awaiting the effects of disinflation to take its course. In the interim, our tactical call would favour equities that exhibit bond-like characteristics, such as Real Estate Investment Trusts (REITs).
Within the REITs realm, our top picks include CapitaLand Ascott Trust (SGX: HMN) and CapitaLand China Trust (SGX: AU8U).
1. CapitaLand Ascott Trust
CapitaLand Ascott Trust (CLAS), formerly known as Ascott Residence Trust (ART), is the largest lodging trust in Asia-Pacific with an asset value of S$8.0 billion as at 31 December 2022. CLAS’ objective is to invest primarily in income-producing real estate and real estate-related assets which are predominantly used as serviced residences, rental housing properties, student accommodation and other hospitality assets. 
Chinese travellers to boost demand
With China’s reopening, we anticipate a steady recovery of corporate demand for long-stay and short-stay. Enquiries from Chinese guests have increased since China fully re-opened its international border and started to issue visas to foreigners in March 2023, following a three-year hiatus. On a group wide basis, Chinese guests accounted for 9% of its pre-pandemic guest count. 
Properties in Japan, Singapore, and Australia, which accounted for 17.5%, 17.1% and 12.7% of total assets respectively, should benefit from the resurgence of Chinese travellers. Prior to the pandemic, Chinese nationals accounted for 25-30% of visitor arrivals for Japan, 19% in Singapore and 15% in Australia. 
Additionally, we anticipate a rise in flight capacity to 25% by April 2023, considering that as of January 2023, global airlines are operating merely at 11% of pre-pandemic capacity levels for flights to and from China.
Yield-Accretive Acquisitions for Student Accommodation and Rental Housing
In 2022, HMN invested S$420 million in 15 yield-accretive acquisitions, which included 12 longer-stay properties and three serviced residences. Longer-stay properties currently constitute 19% of total assets .
The Standard at Columbia, a 678-bed property located in South Carolina, is on track to be completed by 2Q23 and prepared to welcome students for the 2023-24 academic year, commencing on 23 August.
Resilient Balance Sheet
As of March 2023, HMN maintains a healthy aggregate leverage of 38.7%. The average cost of debt has risen to 2.3% (1Q23: 1.6%), which is among the lowest within its sub-segment. With a robust interest coverage ratio of 4.4x and 75% of total debt on fixed rates, its weighted average debt maturity remains at around four years .
2. CapitaLand China Trust
CapitaLand China Trust (CLCT), Singapore’s largest China-focused REIT, has total assets of approximately S$5.2 billion as at 31 December 2022. CLCT has a portfolio that encompasses 11 shopping malls, five business parks and four logistics parks, spread across 12 Chinese cities. 
In 2022, CLCT experienced a decline in its distributable amount from S$135.5 million in 2021 to S$125.6 million due to the necessity to grant higher rental reliefs to tenants impacted by China’s COVID-zero lockdowns . This resulted in a year-on-year drop in its distribution per unit (DPU) by 14.1% to S$0.075 .
With the re-opening of China’s economy, CLCT’s retail malls are projected to see a surge in footfall, reducing the need for further rental reliefs. Management expects its retail portfolio to register positive rental reversion in FY23, aided by its asset enhancement initiatives. Meanwhile, the logistics park and business parks are anticipated to remain resilient. Increased activity levels within the REIT’s business and logistics parks should likewise benefit its tenants.
From 1 March 2023 to 30 June 2023 (both dates inclusive), open a POEMS CFD MT5 account and trade with us to receive Apple AirPods, Trading Credits and Grab Vouchers.
This promotion is valid to all Phillip Securities Pte Ltd (PSPL) customers who have not opened a POEMS CFD MT5 Account.
For more information, click here.
How to get started with POEMS
As the pioneer of Singapore’s online trading, POEMS’s award-winning suite of trading platforms offers investors and traders more than 40,000 financial products across global exchanges.
Explore an array of US shares with brokerage fees as low as US$1.88 flat* when you open a Cash Plus Account with us today. Find out more here (terms and conditions apply).
We hope that you have found value reading this article. If you do not have a POEMS account, you may visit here to open one with us today.
Lastly, investing in a community is much more fun. You will get to interact with us and other seasoned investors who are generous in sharing their experience and expertise.
In this community, you will be exposed to quality educational materials, stock analysis to help you apply the concepts, unwrap the mindset of seasoned investors, and even post questions.
We look forward to sharing more insights with you in our growing and enthusiastic Telegram community. Join us now!
For enquiries, please email us at firstname.lastname@example.org.
The Power of Leverage in CFD
What is leverage? Read our article to find out more about the different uses of leverage through the use of Contract for Differences (CFDs) for both traders and long-term investors.
Why You Should Consider Dividend Investing
Have you tried dividend investing? Learn more about why you should consider dividend investing!
A Value(able) ETF During Rate Hikes
Interested in buying valuable ETFs? Read on our article to find out more!
This material is provided to you for general information only and does not constitute a recommendation, an offer or solicitation to buy or sell the investment product mentioned. It does not have any regard to your specific investment objectives, financial situation or any of your particular needs. Accordingly, no warranty whatsoever is given and not liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of your acting based on this information.
Investments are subject to investment risks. The risk of loss in leveraged trading can be substantial. You may sustain losses in excess of your initial funds and may be called upon to deposit additional margin funds at short notice. If the required funds are not provided within the prescribed time, your positions may be liquidated. The resulting deficits in your account are subject to penalty charges. The value of investments denominated in foreign currencies may diminish or increase due to changes in the rates of exchange. You should also be aware of the commissions and finance costs involved in trading leveraged products. This product may not be suitable for clients whose investment objective is preservation of capital and/or whose risk tolerance is low. Clients are advised to understand the nature and risks involved in margin trading.
You may wish to obtain advice from a qualified financial adviser, pursuant to a separate engagement, before making a commitment to purchase any of the investment products mentioned herein. In the event that you choose not to obtain advice from a qualified financial adviser, you should assess and consider whether the investment product is suitable for you before proceeding to invest and we do not offer any advice in this regard unless mandated to do so by way of a separate engagement. You are advised to read the trading account Terms & Conditions and Risk Disclosure Statement (available online at www.poems.com.sg) before trading in this product.
Any CFD offered is not approved or endorsed by the issuer or originator of the underlying securities and the issuer or originator is not privy to the CFD contract. This advertisement has not been reviewed by the Monetary Authority of Singapore (MAS).