According to DBS, statistically, October has a higher tendency to be positive whenever the STI declines in the months of August and September. So far, the current valuation of Singapore’s market is also very reasonable with the STI hovering around 3200 region. As such, there should be adequate cushion against the possibility of earnings cuts in the upcoming results season.
To ride out the month of October, DBS recommends three investment strategies.
Investors Takeaway: 3 Investment Strategies To Ride On October’s Momentum
- Palm Oil Stocks Enter Seasonal ‘Sweet Spot’
Historically, the price of crude palm oil (CPO) tend to peak in the month of March. It then bottoms out before mid-October followed by 2-3 months of price recovery. The October-December seasonal rise coincides with the low production cycle starting in November, ahead of Christmas and the New Year when demand typically spikes. Right now, CPO price is following that trend and DBS expects the sector’s share prices to recover with the seasonality sweet spot.
Apart from seasonality, the recent move by Indonesia to mandate railways and electrical generators to use B20 biofuel could help to absorb excess stockpiles to underpin higher CPO prices. In addition, CPO stocks like First Resources, Wilmar International and Golden Agri Resources could also benefit from a 6.9 percent rise in the USD/IDR exchange rate since June this year. These companies report their earnings in USD with a substantial portion of their cost in Rupiah.
- Trade War Beneficiaries
While majority of the market is concerned about the impact of trade war, DBS notes that trade war can lead to a positive impact as well. Trade diversion and cost reduction due to currency exposure are two silver linings of the current US-China trade war. As the US is not imposing a blanket tariff on all countries, US importers who find it too expensive to source from China could switch their procurement sources to other Asian countries such as Malaysia, Thailand or Vietnam. Trade diversion out of China into ASEAN will benefit companies like Venture Corp (BUY, TP $22.90) and Riverstone Holdings (BUY, TP $1.25).
- Potential Humps And Bumps In The Upcoming 3Q Results Season
With the 3Q earnings season approaching, investors can also look to ride on potential earnings surprises in the month of October.
- Singapore Airlines, SIA
DBS notes that SIA’s sequential earnings should improve with higher fares and surcharges offsetting rising fuel costs. DBS foresees SIA’s yields to improve 1-2 percent per annum going forward.
BUY, TP $12.40
- ComfortDelgro Corporation, ComfortDelgro
Results should improve in 3Q on the back of stabilisation of taxi fleet contraction and a minor increase in fleet, the first seen since Dec 2016. Less intense competitive pressure following the exit of Uber should also benefit ComfortDelgro.
BUY, TP $2.59
- Mapletree North Asia Commercial Trust
DBS is forecasting rental reversions from Mapletree North Asia Commercial Trust’s main retail mall to accelerate from a low base effect and an improving retail sales outlook in Hong Kong. Since Festival Walk contributes close to 55 percent of topline for Mapletree North Asia Commercial Trust, upside could also come from the strengthening HK/SGD exchange rate.
BUY, TP $1.45
DBS also warns that some stocks could meet with potential hiccups for the upcoming earnings season. DBS thinks that some stocks that investors should avoid before the 3Q earnings result is over are:
Singapore Post, SingPost
Investors who are hoping for the complete turnaround for SingPost’s eCommerce segment to be a catalyst may have to wait further. Moreover, execution risks remains as management recalibrates both its logistics and eCommerce segments. Its most profitable segment, i.e. international postal mail is showing the slowdown in growth, which will further weigh on SingPost’s share price.
HOLD, TP $1.28