#whatstrending

Ever wondered what is currently driving the local and regional markets? This new report series address some of the most trending questions/topics on the markets for investors. Designed to be educational, expect to get factual information on what is driving sectors and stocks listed on SGX

Q: Singapore has announced further easing of border restrictions and stepped down DORSCON level from orange to yellow. How has this impacted the local equities market?

Following the reopening of Singapore’s borders to all fully vaccinated travellers from 1 April 2022, Civil Aviation Authority of Singapore (CAAS) reported that air passenger traffic in Singapore reached 400,000 or 31% of pre-COVID levels in the week ending 17 April 2022, up from 18% a month ago. Transport Minister S Iswaran on 4 May stated Changi Airport passenger volumes has more than doubled to reach close to 40% of pre-COVID levels in end-April, up from 18% in March and on track to at least 50% of pre-COVID levels by this year.

SIA also reported significant increase in passenger demand in its March operating results. The Group carried 893k passengers in March, a 792.1% YoY increase. Its group passenger capacity reached 51% of pre-COVID levels, and expects passenger capacity to reach 61% of pre-COVID levels by May 2022.

We observed outperformance in the year-to-date for a number of reopening proxies including SATS, SIA, ComfortDelGro, Genting Singapore and SIA Engineering. These five stocks average total returns of 10.6%, outperforming STI’s +7.1% total returns YTD (as of 6 May ’22). On a funds flow perspective, these stocks saw a combined net institutional inflows of S$84.8 million in the YTD.

The easing of measures also had an impact on the F&B industry in Singapore. The top five actively traded SGX F&B stocks with Singapore exposure are: Jumbo, Japan Foods, Pavillion, RE&S and Kimly. Investors’ focus would be on Singapore’s F&B service sales data for April.

In the REITs Sector, SGX lists four stapled trusts and one REIT with significant exposure to Singapore hotels who may potentially benefit from reopening borders  - Ascott, CDL HT, Far East HT, Frasers HT, and OUE CREIT. These five trusts generated average total returns of 16.9% YTD (as of 6 May ’22). S-REITs with exposure to Singapore office assets as employees head back to office - Keppel REIT, CICT, Suntec REIT, MCT, and OUE CREIT.

Q: Rate hikes to combat inflation continues to be a focus on investors globally. How is this impacting the markets? Which are the sectors which may see direct impact?

The 16 March FOMC rate hike was in-line with market’s expectations. At the recent May FOMC, the Fed raised rates by 50bps, with a 75bps hike at the next meeting ruled out for now. Quantitative tightening will begin, with the Fed allowing up to US$47.5 billion/month in combined US treasuries and mortgage-backed securities to run off the balance sheet, increasing to US$95 billion after 3 months

Rates sensitive sectors such as Financials and REITs typically come into investors’ minds during rate hike/cut cycles.

• Notably, Singapore Banks – DBS (D05), OCBC (O39), and UOB (U11) has seen an average 7.2% gains since the start of heightened volatility in the markets (8 March), outperforming global banks and the STI. In the same period, the FTSE ST All-Share Index also saw total returns of +5.7%.
   
• REITs depend on borrowings/debt to help finance their asset purchases. Higher rates may impact their borrowing costs and dividend distributions. As a reminder, most of the S-REITs have gearing ratios (i.e. total debt/percentage of total assets) of c. 37%, below the regulatory limit of 50%. Further, S-REITs have, on average, also pegged more than 70% of their debt at fixed rates. Notably in this current rate hike environment, the sector (FTSE ST REIT Index) saw total returns of +6.4% from the year-low seen in late January.