Do not lower your defences
We take the view that global monetary policies would be increasingly less dovish, led by the unprecedented central bank unwinding and potential rate hikes. We remain cautious and continue to advocate a rotation strategy.
Fidelity Global Dividend Fund
This fund’s focus on high quality, dividend yielding stocks allows it to weather volatility and downside risks better than other equity funds. Should risk assets rebound, the fund’s equity orientation and strong focus on companies backed by earnings potential should help it capture more market upside relative to defensive funds. As such, investors can potentially achieve income, stability and growth in one fund. They may also reap potential pay outs of approximately 3 per cent per annum, paid monthly.
Equity-Linked Convertible Investments
Technology names rebounded in October. Nevertheless, the sector continues to look fully valued, trading at a forward price earnings (PE) of 20 times, versus the 5-year average PE multiple of 16.8 times. Coupled with the sharp year-to-date outperformance, investor sentiments remains edgy. Despite the positive near-term outlook, we believe that valuations across the sector are reflecting rosy scenarios in new and emerging technologies. Within the sector, we see cloud computing benefiting from healthy corporate demand, as companies increasingly seek to improve cost efficiency and enhance business processes by migrating systems to the cloud.
A key BUY-rated name here is Amazon (AMZN US).
Financials had a more muted month in October. Near-term, earnings outlook, especially for large-cap U.S. banks, appears to be impacted by lower trading revenue and/or loan growth. The lower capital market volatility has impacted trading revenue. While some of the banks will be affected by the recent destruction from the hurricanes in the southeast of the U.S., costs should be manageable, with the majority of losses covered by insurance. Notwithstanding the near-term factors, we continue to expect banks to benefit from higher interest rates as central banks become increasingly more hawkish.
Singapore equities moved in line with Asian equities last month, with strong outperformance by property developers. Helped by a recent spate of deals, en bloc sales (redevelopment deals where a group of property owners sell their apartment block at a premium) in Singapore hit a 10-year high this year. Year-to-date, en bloc sales are estimated at more than S$5bn, versus the previous peak in 2007, which reached an annual figure of about S$11.5bn.
We maintain our call as of last year to invest in property developers which are trading at attractive valuations. Sector share prices have rallied year-to-date on positive sentiment over en bloc news and improving data points. Our view on the Singapore residential market remains positive over the medium term, with home prices likely to have marked their cyclical lows in mid-June this year. A gradual recovery looks underway towards our forecast for physical residential price to appreciate 3-8 per cent in 2018. Our preferred stock pick for exposure to this theme is City Developments (CIT SP), which has rallied ~12 per cent last month and ~53 per cent year to date. We caution against investing at current levels but to await pullbacks before accumulating fresh positions.
On other stock ideas, we highlight our recent fair value upgrades of Venture Corp (VMS SP) where we expect its strong earnings growth momentum to continue particularly as it enters a seasonally stronger 2H2017 period, and Mapletree Greater China Trust (MAGIC SP) which benefits from positive rental reversion trends and improved consumer sentiment through its portfolio of assets in Hong Kong and China.
Buy Olam 4.375% 9 January 2023 USD bond
A diversified, vertically integrated agricommodities merchandiser, producer and trader, the company includes Temasek Holdings as its largest shareholder, with 52.2 per cent stake, followed by Mitsubishi Corp., with 20.3 per cent, Kewalram Chanrai Group (founder) with 4.9 per cent and senior management with 4.6 per cent.
The company enjoys healthy revenue with EBITDA improving YoY in 1H2017. In 1H2017, total comprehensive income was S$288.6m, resulting in a favourable impact to book value equity. As at 30 June 2017, book value equity was S$5.8b (up 3.4 per cent against end-Dec 2016), net gearing was relatively stable at 1.98 times as at 30 June 2017.
LionGlobal Short Duration Bond Fund invests in investment grade bonds and receive a potential pay out of 2.5 per cent per annum (paid quarterly). This may be an ideal investment in an environment where interest rates are about to rise.
Investors looking for a high sustainable income and potential capital appreciation can consider the Pimco GIS Income Fund. The fund employs extensive credit research and is diversified across 11 different sectors. It can tactically shift portfolio weightings to where Pimco believes attractive yield can be generated in different investment environments, and aims to pay out 4 per cent p.a, on a monthly basis.
Lion-OCBC Global Core Fund provides exposure to globally diversified asset classes via cost efficient iShares ETFs. The fund typically invests into 10-15 iShares ETFs, and allows investors visibility on most or all of their portfolio holdings.
Investors get to enjoy potential quarterly payouts, which could range between 3.5 to 4.5 per cent per annum, depending on the portfolio selected (Moderate or Growth) and the currency share class. Portfolio rebalancing is done periodically, typically every quarter or ad hoc in response to significant market risk events.
For investors with a preference for Asia, the Lion-Bank of Singapore Asia Income Fund may be able to provide income and capital growth via investments in a diversified portfolio of Asian equities, Exchange Traded Funds and bonds. The fund employs a covered call strategy which reduces the impact of negative returns in a down market. Its flexibility to hold a higher proportion of its portfolio in cash (up to 30 per cent) can also help to mitigate risks.
Just as in past two months, the U.S. Dollar index may potentially continue to carve out a multi-month bottom into November, with U.S. budget deliberations set to conclude before Thanksgiving and potentially underpinning the greenback along the way. Rate differential dynamics also continue to provide support for the U.S. Dollar in the short term.
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