As we begin to enter the second half of 2018, DBS came up with some investment strategies that investors should adopt when approaching the stock market
According to DBS, June is expected to be a quiet month with trading activities and volume to be mild. Investors should expect another round of interest rate hike by the Federal Reserve, to see the federal fund rate rise by another 25 basis points to 2 percent. However, the forecast and outlook for interest rate hikes should remain at three hikes in 2018.
With regards to crude oil, the OPEC is scheduled to meet on 22 June 2018 and a decision is like to be reached on whether to raise production levels as proposed by Saudi Arabia and Russia.
On the local front, May has not been a great month for the local stock market as the local benchmark Straits Times Index shed 5.1 percent on fears that arose from Italy’s political turmoil. Italy’s political turmoil has pushed more investors to seek safer grounds, driving down US 10-year yield by 24 basis points to 2.87 percent in the last two weeks of May. In addition, after the mid-year dividend season, analysts are seeing the lack of near-term catalysts that can spark a stock market rally.
Strategy To Adopt
Despite the lack of near-term catalysts, DBS recommends picking up stocks that have bucked the trend and saw their share prices climbing in May. In addition, these stocks should have a target price that indicates more than 10 percent potential upside. Alternatively, investors can adopt a contrarian strategy and pick up stocks on the opposite end of the spectrum. These stocks have been oversold and value has emerged.
Amongst STI component stocks, DBS recommends Wilmar International, Singapore Airlines, and Genting Singapore for their outperformance. Apart from that DBS also recommends Yangzijiang Shipbuilding (YZJ Shipbuilding) and HPH Trust due to value emergence.
Bargain Hunting Analysis
- Yangzijiang Shipbuilding
With the recent tumble in its share price, analysts at DBS opine that YZJShipbuilding was oversold on fears of “forex and steel cost pressure, as well as a slow sector recovery”. Falling to a valuation as low as 0.7 times its book value, investors can enjoy a higher yield of 5 percent and higher return on equity of 8 to 9 percent as compared to its peer average of 4 to 5 percent.
Balance-sheet-wise, investors should find solace in YZJ Shipbuilding’s net cash position as compared to the indebtedness of many other shipyard players. Furthermore, the firm has also bought back 5 million shares and announced that it will continue its share buybacks. The move is a signal of the company’s confidence in its prospects.
- HPH Trust
The removal from MSCI Singapore Index sparked the sell-off of HPH Trust. However, the fundamentals of the trust did not change much and looking at how well other stocks of Chinese port operators performed, DBS opines that the recent weakness is a one-off event which underscores the opportunity for investors to bargain hunt.
Currently, HPH Trust is amongst the highest yielding large cap stock in Singapore and hence investors who are looking for tactical buys should take a look at this stock.