Singapore Traders Spectrum - Wired Weekly

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KEY POINTS

■ Macro uncertainties weigh on STI despite attractive valuation – firm support at 3250 barring rapid deterioration of global fundamentals

■ 4Q results season – mostly SREITs over next two weeks, robust earnings expected for SMRT & CWT

Wired Weekly

Macro concerns are weighing down the Singapore market despite relatively attractive PE valuations. Currency volatility surfaced heading into the ECB’s policy meeting on Jan 22nd, and spilled over to the equities market. The ECB is widely expected to announce QE this Thursday in an attempt to prevent the Eurozone from sliding into a deflationary spiral. There is also Greece’s snap election on Jan 25th that could see the country booted out from the Eurozone if the anti-austerity Syriza party wins.

The commodities and bond markets are hinting at a slowdown in the global economy and flight to safety. Besides the oil price tumble in recent months that is partly attributed to a drop in global demand, the fall in copper price below key multi-year technical support also hints at a demand slowdown. Copper is used in many industries and often viewed as a proxy to the global economy. Unlike oil, there are no new major sources of copper supply that can explain the price decline. Then there is the drop in US bond yields and the recent rise in gold price that points to a flight to safety.

At 3300, the STI is currently trading closer to 13.02x (- 0.5SD) than 13.3x (-0.25SD) 12-mth forward PE. Barring a rapid deterioration of global fundamentals, we maintain our view that firm support for the STI is at 13.02x (-0.5SD) 12-mth forward PE, which is currently at 3250. This support level rises to 3320 by end-March.

The 4Q results season has started. The next two weeks will see SREITs releasing results. Among our coverage, REITS that are on semi-annual payment basis include Ascott Residence Trust, CapitaCommercial Trust, CapitaRetail China Trust and CDL Hospitality Trusts.

We expect SMRT and CWT to deliver robust earnings. On the other hand, Cosco Corp issued a recent profit warning to guide investors that FY14 results would show significantly lower y-o-y earnings.