Unless the expected gradual recovery in economic activity stalls, Jaiswal believes that downgrades to 2020F EPS, which has been lowered by 39% YTD, should taper off from here. “We recommend investors to gradually build positions in CapitaLand, City Developments, ComfortDelGro, Suntec Real Estate Investment Trust and Thai Beverage – our cyclical recovery picks.”
That said, Jaiswal notes that support schemes by the government are expected to taper off. Coupled with a rising unemployment rate of 2.9% — higher than the historical average —business and consumer confidence is expected to remain low, dampening the expected recovery in economic activity.
The Asian Financial Crisis in 1997 and 1998 saw around 30,000 retrenchments, while the Global Financial Crisis in 2008 and 2009 claimed around 40,000 jobs. In 1H2020, there have already been almost 10,000 retrenchments.
“In addition, there are external risks from the continued deterioration of relationship between the US and China. To cover for such risks, we recommend investors to stay invested in REITs and defensive stocks offering better earnings and dividend visibility. Ascendas Real Estate Investment Trust, Manulife US Real Estate Investment Trust, Sheng Siong, Singtel and ST Engineering are our key defensive picks for rest of 2020,” says Jaiswal.
See: STI on the backfoot again despite fiscal stimulus
STI remains the cheapest ASEAN market with highest yield in Asia, notes Jaiswal. “Given that the current close-to-zero interest rate environment is expected to persist beyond 2021, rising global liquidity should bring investors to high yielding markets.”
STI’s 13.9x 1-year forward P/E sits above its historical average. Much of the P/E increase has come from the sharp downgrades to 2020 earnings. With expectations of a rebound in GDP growth and investors building up the confidence in earnings growth for 2021, Jaiswal believes there is potential for the P/E to increase further.
