While April was not the best of months for the stock market, the benchmark Straits Times Index (STI) managed to recover lost ground to end at 3175. This is thanks to a late-month rally in US markets ahead of details on Trump’s tax plans had a positive spillover effect on global equities.
From the start of May till now (23 May 2017), the STI has been dropping. The drop could be largely due to the disappointment of various earnings announcement. We covered our local companies, including banks, airlines and potential privatisation candidates to name a few.
STI hits 3250 and drops
DBS’s short-term view for the month of May was a rise above the year-to-date high of 3188 towards 3250 that coincides with 14.02x (+0.25SD) 12-month forward PE based on current earnings estimates. DBS notes that the 3250 level is the next short-term resistance level that will lead to another consolidation. Sure enough, the STI hit 3,271 on 11 May 2017 only to plunge sooner after.
Unless there is a military conflict between North Korea and the US, DBS doesn’t foresee the STI holding below the recent low of 3115. DBS recommends three strategies that investors could tap on to.
1. External Over Domestic
DBS’s first strategy is to focus on external trade-related sectors such as information technology and electronics. This is because Singapore’s economic growth this year will be largely driven by external trade, based on the latest semi-annual macroeconomic review by the Monetary Authority of Singapore (MAS).
Moreover, the economic outlook for Singapore’s trading partners such as the US and regional economies are also looking good.
2. Going with the results
The second strategy that DBS recommends is to focus on stocks with take profit or earnings forecast uplift. This is because of these stocks are likely to see sustained interest as optimism that the economy data point recovery in recent months is sustainable grows and the results season kicks off to a positive start.
3. Following interest in hospitality REITs
DBS believes that there could be renewed interest in hospitality REITs as the sector potentially recovers from a supply glut in 2018. Among the hospitality REITs, DBS prefers those with geographical focus in Singapore such as OUE HT and Far East Hospitality Trust.