Recent economic data have showed that the global economy was getting sluggish. It is no wonder central banks around the world are taking a pre-emptive strike against a deep slowdown by hinting of interest rate cuts. A coordinated effort to cut interest rates will nonetheless support stock prices. Given that the US and China has restarted trade talks to give us hope of a resolution, we focus on “risk-on” strategies in this article.
Risk-On Environment: Defensive Sectors Lose Its Shine, Cyclicals To Outperform
DBS believes that a temporary truce in the trade war will lead to rebound trades in cyclical names that have underperformed. In particular, there will be rotational interests in cyclicals such as Oil and Gas, Real Estate and Banks as investors take profit on defensive sectors like Consumer Goods, Industrial, Technology, REITS and Telcos.
Investors Takeaway: 6 Blue-Chip Stocks To Own In A ‘Risk-On’ Environment
While Wilmar has put in a good performance this year (17.5 percent gain year-to-date), DBS thinks that investors can expect more upside from Wilmar. DBS notes that the listing of Wilmar’s China operations will be a strong catalyst to drive its share price. In addition, DBS expects Wilmar’s earnings to be driven by stronger performance in tropical oils division despite pressure from soy crushing margins given the ongoing swine flu situation.
The merger of CapitaLand and Ascendas-Singbridge heralds a new growth era for the group, according to DBS. The combined entity will bring a myriad of positives where it CapitaLand will emerge financially stronger and scale to greater heights as one of the largest real estate managers globally. Post-merger, it is forecasted that CapitaLand will achieve a return on equity of 8.9-9.4 percent over FY19-FY21F, driven by an efficient mix of higher proportion of recurring income, projected continued asset revaluations and projected gains on $3 billion of planned asset divestments annually.
While regulatory approval to pave the way for the entry of new digital banks could impact incumbents in the longer term, DBS believes that UOB is still poised to deliver mid-single-digit earnings growth in the near term. At its current valuation near its 10-year historical mean valuation, DBS notes that UOB’s current valuation is undemanding. DBS also highlights that UOB tends to outperform in weaker market conditions and has a defensive franchise, which is less exposed to volatility in wealth management fees. Moving forward, UOB will continue to leverage on its strong capital position to capture cross-border loan growth opportunities.