Excerpts from Terence Wong's report published today
Terence Wong, CFA, co-head of research, OSK-DMG. NextInsight file photoI RETURNED from Japan last Thursday after marketing to fund managers. And what a difference half a year makes!
The mood was totally different from when I last visited, as consumers and investors were evidently more upbeat, thanks to Prime Minister Shinzo Abe and Bank of Japan governor Haruhiko Kuroda.
This was the sharpest turnaround in sentiment I have seen, even surpassing the recovery from the dreadful SARS period back in 2003.
The benchmark Nikkei 225 index, which was zombie-ing for the past decade (or two), was up some 70% in six months. But on the day that I was returning, the stock market took a tumble as Nikkei slumped over 7% in a day, dragging down other regional markets including Singapore.
One key reason for the slump was the volatility in interest rates.
Terence Wong, CFA, co-head of research, OSK-DMG. NextInsight file photoI RETURNED from Japan last Thursday after marketing to fund managers. And what a difference half a year makes! The mood was totally different from when I last visited, as consumers and investors were evidently more upbeat, thanks to Prime Minister Shinzo Abe and Bank of Japan governor Haruhiko Kuroda.
This was the sharpest turnaround in sentiment I have seen, even surpassing the recovery from the dreadful SARS period back in 2003.
The benchmark Nikkei 225 index, which was zombie-ing for the past decade (or two), was up some 70% in six months. But on the day that I was returning, the stock market took a tumble as Nikkei slumped over 7% in a day, dragging down other regional markets including Singapore.
One key reason for the slump was the volatility in interest rates.
>> Focus on interest rates. The Japanese Government Bond (JGB) yields have been climbing as investors regain confidence in the country. This poses a problem as the Japanese have been accustomed to cheap money.
And the rise goes against Kuroda’s growth strategy to keep interest rates low and stable to boost borrowing and investment.
US Federal Reserve chairman Ben Bernanke also spooked markets as he revealed that the Fed could start to taper back its monthly bond purchases of USD85bn within the next few months.
And the rise goes against Kuroda’s growth strategy to keep interest rates low and stable to boost borrowing and investment.
US Federal Reserve chairman Ben Bernanke also spooked markets as he revealed that the Fed could start to taper back its monthly bond purchases of USD85bn within the next few months.
>> REITs over-owned! This validates one of my key thesis during the current marketing round on the REITs – it is a highly over-owned sector and a potential interest rate hike would send the stock prices of the REITs falling.
REITs were indeed one of the major casualties last Thursday, heading south by 4.1%.
Given that the yields are averaging 5%, it would imply that the dividend income for the year was almost wiped out in a single session.
REITs were indeed one of the major casualties last Thursday, heading south by 4.1%.
Given that the yields are averaging 5%, it would imply that the dividend income for the year was almost wiped out in a single session.
>> Our REIT analyst Pang TiWee shot out a timely note early Thursday morning warning about the current euphoria. But I think the writing was already firmly on the wall, as we have been downgrading the REITs under our coverage over the past six months and was just left with two buy calls – AIMS AMP Capital Industrial REIT (AAREIT) and Frasers Commercial Trust (FCOT).
Incidentally, we are bringing AAREIT to market in Japan this week. As TiWee noted, given the high sector valuations, the risk-reward profile is less sanguine than before.
>> In terms of subsectors, we believe prospects will be dampened for the industrial, hospitality and retail markets given the shaky economic growth. However, we continue to be positive on the outlook of Grade-A office sector in Singapore as
demand remains limited coupled with an expected lift in rental rates.
Lian Beng's industrial property development at Mandai Estate, M-Space, has been fully sold. Even though cash has been progressively collected, revenues will only be recognized when it obtains its temporary occupation permit around Sept 2013 (which is in the 2Q of Lian Beng's FY2014).Judging from the strong interest, it will likely head up upon listing. This should have a positive impact on the construction plays in Singapore, which has generally traded at depressed levels.
I will once again be adding Lian Beng, one of Singapore’s largest contractors, to my model portfolio. I will be buying 500,000 shares at SGD0.52 per share.
It has been piling on the construction projects over the past few months and currently sits on orders of SGD1.2bn. Moreover, contributions from its property arm should continue to stream in.
FY13 (FYE May) profit will not look pretty, but FY14 looks like a strong comeback year, with recognition of its Mandai industrial property coming through.
Recent story: LIAN BENG: 1Q2013 Numbers Fall On Delayed Recognition Of Industrial Project
Soilbuild will be relisting on the SGX today, three years after it was taken private.
Lian Beng's industrial property development at Mandai Estate, M-Space, has been fully sold. Even though cash has been progressively collected, revenues will only be recognized when it obtains its temporary occupation permit around Sept 2013 (which is in the 2Q of Lian Beng's FY2014).Judging from the strong interest, it will likely head up upon listing. This should have a positive impact on the construction plays in Singapore, which has generally traded at depressed levels. I will once again be adding Lian Beng, one of Singapore’s largest contractors, to my model portfolio. I will be buying 500,000 shares at SGD0.52 per share.
It has been piling on the construction projects over the past few months and currently sits on orders of SGD1.2bn. Moreover, contributions from its property arm should continue to stream in.
FY13 (FYE May) profit will not look pretty, but FY14 looks like a strong comeback year, with recognition of its Mandai industrial property coming through.
Recent story: LIAN BENG: 1Q2013 Numbers Fall On Delayed Recognition Of Industrial Project
