Since reaching a year-to-date high of 3,615 in early May, local benchmark Straits Times Index has shed more than ten percent amidst the amplifying volatility and trade war concerns. According to UOBKH, the retracement is largely due to a shift in interest rate hike expectations and the US-China trade spat. Such volatile time will require specific investing strategies in order for investors to beat the market.
- Hunting For Oversold Stocks On A Risk Premium Basis
One investing strategy that UOBKH recommends is to look out for oversold stocks, which are measured by market risk premium. UOBKH notes that stocks like Oversea-China Banking Corporation (OCBC), DBS Group Holdings (DBS), Keppel Corporation (Keppel Corp) and Wing Tai Holdings (Wing Tai) have seen a rise in risk premium that is much higher than the increase in the broader market’s risk premium. From UOBKH’s perspective, fundamentals for banks are largely intact, notwithstanding the rising risk that global growth could be dampened by prospects of weaker global trade. However, DBS and OCBC should still recover from their current valuations.
- Finding Stocks That Do Well Against Volatility
With the rhetoric over the trade spat and other geopolitical concerns, UOBKH thinks that the CBOE Volatility Index (VIX) is likely to go up. This is despite the recent decline in the VIX. UOBKH notes that trade tensions and geopolitical issues are likely to be protracted and could provide tactical trading opportunities for patient investors. UOBKH recommends investing in stocks that do well against volatility like Singapore Telecommunications, City Developments, CapitaLand Commercial Trust, OCBC, Keppel Corp and Wing Tai. Notably, these stocks have also corrected more than 15 percent from their 52-week high making their valuations more compelling.
- Reflation Picks
As the Fed continues its reflation path, riding on the wave is another investment strategy that UOBKH recommends. In particular, UOBKH thinks that the property sector will excel among other sectors. Despite the recent cooling measures imposed by the Singapore government, the positive outlook of appreciating asset prices will drive demand for properties over the next few years and should benefit the share price of property developers like City Developments, Wing Tai and Chip Eng Seng.
- Unloved Stocks At Attractive Valuations
Valuation of the stock market has been rocketing over the past decade but it was mostly blue chip darlings that have been chalking up gains along with growing investment risk appetite. With valuation now plateauing, UOBKH recommends investors to turn their attention towards unloved stocks that are priced at attractive valuations. This group of stocks includes Sunningdale Tech, Singapore Post, CSE Global and Tianjin Zhongxin Pharmaceutical Group Corporation.
- Stocks With Potential Earnings Upside
The last investment strategy that UOBKH recommends is to focus on stocks with potential earnings upside. With tailwind from the rising interest rate environment, UOBKH foresees DBS to benefit from rising interest rate spreads to bolster stronger earnings growth. Another stock that UOBKH recommends is CDL Hospitality Trusts that is riding on the macro tailwind as a proxy to the recovery of the local hospitality sector. After all, a much healthier rate of inbound tourist arrivals will further boost demand for accommodation and hence improves revenue per available room (RevPAR) for the sector.