SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

Ascendas Hospitality Trust / Equity Bottom-Up

<ul>
<li>This week (30-31 July) the Fed Reserve is expected to deliver a cut in the Fed Funds Rate with the possibility of a dovish outlook and room for more cuts, in addition to ending the preceding course of balance sheet reduction/ quantitative tightening ahead of September.</li>
<li>A key motivation for this potential rate cut are weaker global numbers particularly in the manufacturing and trade-related sectors. The same weak reports, with the trade impasses &amp; consequential outlooks, have impacted the region as noted in recent earnings reports. </li>
</ul>
<ul>
<li>The Singapore stock market has kept resilient with the recent global challenges. While the most traded manufacturing &amp; real estate stocks outpaced the STI in 2019 YTD, trade-related economic uncertainty has seen the manufacturing stocks twice as volatile as the real estate stocks. </li>
</ul>
Global Anticipation of a Fed Funds Rate Cut
By Thursday (31 July) 2am Singapore time, the Federal Reserve is expected to deliver a 25 basis points (‘bps”) cut in the Federal Funds Rate. Should the majority consensus prove correct, this would be the first US Federal Funds Rate cut since December 2008. The current rate target range for the Federal Funds Rate is 2.25% to 2.50%.
The last time the Federal Reserve moved interest rates back towards 2.00% was in April 2008, citing that in the United States economic growth had remained weak, labour market conditions had deteriorated further, and manufacturing activity was soft. This time around, the expected rate cut has been cited by Fed officials for some insurance against a sharper US slowdown (similar to 1995-1996). Beyond the expected 25 bps rate cut, markets will also be on the watch for a dovish tone statement by the Federal Reserve, with room for more cuts. In addition, the market will be looking to see if the Federal Reserve ends its agenda of balance sheet reduction/ quantitative tightening ahead of September.
Reasons for a Dovish Federal Reserve Highly Relevant to Singapore Economy
The particularly good news for Singapore’s trade-orientated sectors is that the current economic uncertainty faced by the changed trade climate is a large part of the Federal Reserve’s reasoning for their more dovish outlook.
As noted mid-July (click <a href="https://www2.sgx.com/research-education/market-updates/20190712-us-rate-speculation-fuelled-weeks-swing-singapore-stocks" target="_blank" rel="noopener">here</a>) the rationale for the dovish stance taken by the Federal Reserve Chair at the Semi-annual Monetary Policy Report to Congress, was weak global numbers “particularly in the manufacturing and trade-related sectors”. Some of that economic uncertainty was communicated in the record 2QFY19 results reported by DBS Group Holdings yesterday (click <a href="https://links.sgx.com/1.0.0/corporate-announcements/CTK2YWJHT81P7ZZD/c01e17d21c8731077faf9078e7e92419f49979244654d99ab3f44b15b6c27004" target="_blank" rel="noopener">here</a>). This was through moderate increases in the group's provisions, through increased expected credit losses on the back of “heightened economic uncertainty and geopolitical tensions”.
The same economic uncertainty faced by the group, and indeed the region, is a key motivator for the expected cut in the Fed Funds Rate.
Singapore Policies Aimed at Boosting Growth while Promoting Great Equity
The highly eventful month of July also saw the International Monetary Fund (“IMF”) release its annual report of its bilateral discussion with Singapore. The report (click <a href="https://www.imf.org/en/Publications/CR/Issues/2019/07/15/Singapore-2019-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-47119" target="_blank" rel="noopener">here</a>) highlighted that:
<ul>
<li>Singapore’s GDP per capita more than doubled in the last twenty years and income equality has been advancing since 2008/2009;</li>
<li>Policies have been aimed at boosting growth while promoting greater equity; and</li>
<li>As a highly open economy and an important financial center, Singapore is strongly influenced by developments in the region and the rest of the world.</li>
</ul>
Singapore’s economic growth is projected by the IMF to decline to 2.0% in 2019, below potential which is estimated at 2.5% in the medium term, with modern services becoming an increasingly important driver.
On the risks front, the report reiterated that as a financial and trading hub, Singapore is particularly exposed to a tightening of global financial conditions, escalation of sustained trade tensions, and deceleration of global growth. 
And as discussed above, the key trio of assessed external risks of a sharp tightening of global financial conditions, rising protectionism and retreat from multilateralism, and weaker than expected global growth overlap with the motivators for the expected dovish stance to be taken by the Federal Reserve at the imminent meeting.
Meanwhile on the domestic front, the IMF assessed the risk of a disorderly correction in Singapore property prices was a low likelihood, which compared to a low-to-medium likelihood for Australia, and a medium likelihood for Hong Kong, based on similar reports earlier in the year.
Diversified Stock Markets Provides for More Choice in Risk to Return 
Singapore’s stock market is highly diversified with the 200 most active stocks by turnover this year representing more than 20 different sectors or industries. The two sectors with the greatest representation by the number of stocks amongst the 200 stocks have been real estate stocks( or trusts) and manufacturing-related stocks. Together these two stock sectors accounted for more than two-fifths (40%) of the 200 most active stocks by turnover in 1H19.
In both instances, the average year-to-date total return of the stocks that make up those sectors has outpaced the STI’s 11.8% 2019 year-to-date total return. However economic uncertainty resulting from ongoing global trade discussions, in addition to expectations that the next move by the Federal Reserve will be an interest rate cut (following nine successive hikes) has seen the manufacturing stocks average twice the volatility of the real estate stocks.
&nbsp;
Both sectors have stocks well diversified by exposures to Singapore, the region and globally. However, the two distinct stock genres maintain different risk profiles, for instance:
<ul>
<li>Both in the July month-to-date and 2019 year-to-date, the manufacturing stocks have seen much greater swings and less consistency in the returns across the 24 relevant stocks than the 59 counterparts in Real Estate; &nbsp;</li>
<li>At the same time the best performing manufacturing stock in the July month-to-date, AEM Holdings, with its 16.5% total return doubled the month-to-date return of the best performing real estate stock over the period, OUE Commercial REIT (which was up 7.9%); &nbsp;</li>
<li>A similar observation was made in the 2019 year-to-date with&nbsp;manufacturing’s best performer Frencken Group generating a 79.7% total return compared to real estate’s Ascendas Hospitality Trust generating a 41.2% total return. &nbsp;</li>
<li>The average 12 month historical volatility of the 24 manufacturing stocks was 48% compared to 19% for the 59 Real Estate Stocks.</li>
</ul>
The 59 Real Estate stocks averaged a 17.9% total return in the 2019 year-to-date, with just two decliners amidst the 59 stocks.&nbsp;The Real Estate Investment Trusts (“REITs”) have been a key driver of the performance of the real estate stocks with the&nbsp;<a href="https://www2.sgx.com/indices/products/sreit" target="_blank" rel="noopener">iEdge S-REIT Index</a>&nbsp;generating a 21.9% total return in the 2019 year-to-date. Analysts attributed the strength to defensive flows into REITs in a risk-off environment (due to trade tensions) and growing expectations for a cut in the Federal Funds Rate. The REIT segment has also continued to expand and recently saw the debut of the third US office REIT (Prime US REIT) to list on SGX – click&nbsp;<a href="https://www2.sgx.com/research-education/market-updates/20190719-prime-us-reit-sgxs-3rd-pure-play-us-office-reit-makes" target="_blank" rel="noopener">here</a>&nbsp;for more.
By contrast, the 24 Manufacturing stocks averaged a 20.8% total return in the 2019 year-to-date, with five decliners amidst the 24 stocks. The below tables are sort by total returns for the 2019 year-to-date.


This week (30-31 July) the Fed Reserve is expected to deliver a cut in the Fed Funds Rate with the possibility of a dovish outlook and room for more cuts, in addition to ending the preceding course of balance sheet reduction/ quantitative tightening ahead of September.
A key motivation for this potential rate cut are weaker global numbers particularly in the manufacturing and trade-related sectors. The same weak reports, with the trade impasses &amp; consequential outlooks, have impacted the region as noted in recent earnings reports. 


The Singapore stock market has kept resilient with the recent global challenges. While the most traded manufacturing &amp; real estate stocks outpaced the STI in 2019 YTD, trade-related economic uncertainty has seen the manufacturing stocks twice as volatile as the real estate stocks. 

Global Anticipation of a Fed Funds Rate Cut
By Thursday (31 July) 2am Singapore time, the Federal Reserve is expected to deliver a 25 basis points (‘bps”) cut in the Federal Funds Rate. Should the majority consensus prove correct, this would be the first US Federal Funds Rate cut since December 2008. The current rate target range for the Federal Funds Rate is 2.25% to 2.50%.
The last time the Federal Reserve moved interest rates back towards 2.00% was in April 2008, citing that in the United States economic growth had remained weak, labour market conditions had deteriorated further, and manufacturing activity was soft. This time around, the expected rate cut has been cited by Fed officials for some insurance against a sharper US slowdown (similar to 1995-1996). Beyond the expected 25 bps rate cut, markets will also be on the watch for a dovish tone statement by the Federal Reserve, with room for more cuts. In addition, the market will be looking to see if the Federal Reserve ends its agenda of balance sheet reduction/ quantitative tightening ahead of September.
Reasons for a Dovish Federal Reserve Highly Relevant to Singapore Economy
The particularly good news for Singapore’s trade-orientated sectors is that the current economic uncertainty faced by the changed trade climate is a large part of the Federal Reserve’s reasoning for their more dovish outlook.
As noted mid-July (click here) the rationale for the dovish stance taken by the Federal Reserve Chair at the Semi-annual Monetary Policy Report to Congress, was weak global numbers “particularly in the manufacturing and trade-related sectors”. Some of that economic uncertainty was communicated in the record 2QFY19 results reported by DBS Group Holdings yesterday (click here). This was through moderate increases in the group's provisions, through increased expected credit losses on the back of “heightened economic uncertainty and geopolitical tensions”.
The same economic uncertainty faced by the group, and indeed the region, is a key motivator for the expected cut in the Fed Funds Rate.
Singapore Policies Aimed at Boosting Growth while Promoting Great Equity
The highly eventful month of July also saw the International Monetary Fund (“IMF”) release its annual report of its bilateral discussion with Singapore. The report (click here) highlighted that:

Singapore’s GDP per capita more than doubled in the last twenty years and income equality has been advancing since 2008/2009;
Policies have been aimed at boosting growth while promoting greater equity; and
As a highly open economy and an important financial center, Singapore is strongly influenced by developments in the region and the rest of the world.

Singapore’s economic growth is projected by the IMF to decline to 2.0% in 2019, below potential which is estimated at 2.5% in the medium term, with modern services becoming an increasingly important driver.
On the risks front, the report reiterated that as a financial and trading hub, Singapore is particularly exposed to a tightening of global financial conditions, escalation of sustained trade tensions, and deceleration of global growth. 
And as discussed above, the key trio of assessed external risks of a sharp tightening of global financial conditions, rising protectionism and retreat from multilateralism, and weaker than expected global growth overlap with the motivators for the expected dovish stance to be taken by the Federal Reserve at the imminent meeting.
Meanwhile on the domestic front, the IMF assessed the risk of a disorderly correction in Singapore property prices was a low likelihood, which compared to a low-to-medium likelihood for Australia, and a medium likelihood for Hong Kong, based on similar reports earlier in the year.
Diversified Stock Markets Provides for More Choice in Risk to Return 
Singapore’s stock market is highly diversified with the 200 most active stocks by turnover this year representing more than 20 different sectors or industries. The two sectors with the greatest representation by the number of stocks amongst the 200 stocks have been real estate stocks( or trusts) and manufacturing-related stocks. Together these two stock sectors accounted for more than two-fifths (40%) of the 200 most active stocks by turnover in 1H19.
In both instances, the average year-to-date total return of the stocks that make up those sectors has outpaced the STI’s 11.8% 2019 year-to-date total return. However economic uncertainty resulting from ongoing global trade discussions, in addition to expectations that the next move by the Federal Reserve will be an interest rate cut (following nine successive hikes) has seen the manufacturing stocks average twice the volatility of the real estate stocks.
&nbsp;
Both sectors have stocks well diversified by exposures to Singapore, the region and globally. However, the two distinct stock genres maintain different risk profiles, for instance:

Both in the July month-to-date and 2019 year-to-date, the manufacturing stocks have seen much greater swings and less consistency in the returns across the 24 relevant stocks than the 59 counterparts in Real Estate; &nbsp;
At the same time the best performing manufacturing stock in the July month-to-date, AEM Holdings, with its 16.5% total return doubled the month-to-date return of the best performing real estate stock over the period, OUE Commercial REIT (which was up 7.9%); &nbsp;
A similar observation was made in the 2019 year-to-date with&nbsp;manufacturing’s best performer Frencken Group generating a 79.7% total return compared to real estate’s Ascendas Hospitality Trust generating a 41.2% total return. &nbsp;
The average 12 month historical volatility of the 24 manufacturing stocks was 48% compared to 19% for the 59 Real Estate Stocks.

The 59 Real Estate stocks averaged a 17.9% total return in the 2019 year-to-date, with just two decliners amidst the 59 stocks.&nbsp;The Real Estate Investment Trusts (“REITs”) have been a key driver of the performance of the real estate stocks with the&nbsp;iEdge S-REIT Index&nbsp;generating a 21.9% total return in the 2019 year-to-date. Analysts attributed the strength to defensive flows into REITs in a risk-off environment (due to trade tensions) and growing expectations for a cut in the Federal Funds Rate. The REIT segment has also continued to expand and recently saw the debut of the third US office REIT (Prime US REIT) to list on SGX – click&nbsp;here&nbsp;for more.
By contrast, the 24 Manufacturing stocks averaged a 20.8% total return in the 2019 year-to-date, with five decliners amidst the 24 stocks. The below tables are sort by total returns for the 2019 year-to-date.

Market Update - Potential Rate Cut to Support Global Manufacturers & Region 

Keppel Pacific Oak US REIT / Equity Bottom-Up

David Snyder is an adventurous foodie, whose willingness to savour new and different cuisines reflects his characteristics beyond the dining table.
The Chief Executive Officer of the manager of SGX-listed Keppel-KBS US REIT has an adaptable, inclusive leadership style that helps him maximise outcomes in the face of complexity and change.
"I'm always open to trying something new," said Snyder, whose favourite foods include laksa, chilli crab, satay and roti prata. He also eats durians.
"Flexibility is important in life and work, especially when it comes to managing various stakeholders in the trust, as well as different tenants and assets within the portfolio of the REIT."

David Snyder is an adventurous foodie, whose willingness to savour new and different cuisines reflects his characteristics beyond the dining table.
The Chief Executive Officer of the manager of SGX-listed Keppel-KBS US REIT has an adaptable, inclusive leadership style that helps him maximise outcomes in the face of complexity and change.
"I'm always open to trying something new," said Snyder, whose favourite foods include laksa, chilli crab, satay and roti prata. He also eats durians.
"Flexibility is important in life and work, especially when it comes to managing various stakeholders in the trust, as well as different tenants and assets within the portfolio of the REIT."

Keppel-KBS US REIT Rides Positive Office Market Dynamics

Singapore

BHG Retail REIT is a real estate investment trust (REIT) in Singapore.

EC World Real Estate Investment Trust (EC World REIT) is the first Chinese specialised logistics and e-commerce logistics REIT listed on SGX-ST. 

It has a portfolio of quality properties located predominantly in one of the largest e-commerce clusters in the Yangtze River Delta which offers investors unique exposure to the logistics and e-commerce sectors in Hangzhou and Wuhan, China.
  
EC World REIT’s investment strategy is to invest principally, directly or indirectly, in a diversified portfolio of income-producing real estate which is used primarily for e-commerce, supply-chain management and logistics purposes, as well as real estate-related assets, with an initial geographical focus on the PRC. 

EC World REIT is listed in several indices. These include the FTSE ASEAN All-Share Index, FTSE ST All-Share Index, FTSE ST China Index and FTSE ST Singapore Shariah Index. For more information, please visit: http://www.ecwreit.com/ 

EC World REIT is managed by EC World Asset Management Pte. Ltd., which is an indirect wholly-owned subsidiary of the Sponsor – Forchn Holdings Group Co., Ltd.

Manulife US REIT is a Singapore listed REIT established with the investment strategy principally to invest, directly or indirectly, in a portfolio of income-producing office real estate in key markets in the United States, as well as real estate-related assets.

Lippo Malls Indonesia Retail Trust is a real estate investment trust that invests in malls and other retail locations.

Lippo Malls Indonesia Retail Trust (LMRT SP)

Sabana Industrial Real Estate Investment Trust is a real estate investment trust. The Trust focuses on investments in income-producing real estate used for industrial purposes in Asia, as well as real estate-related assets, in line with Sabana investment principles.

IREIT Global is the first Singapore-listed real estate investment trust with the investment strategy of principally investing, directly or indirectly, in a portfolio of income-producing real estate in Europe which is used primarily for office, retail and industrial (including logistics) purposes, as well as real estate-related assets.

IREIT Global’s current portfolio comprises 5 freehold office properties in Germany, 5 freehold office properties in Spain and 27 freehold retail properties in France, with a total lettable area of approximately 384,000 sqm and a portfolio valuation of approximately €974.9 million.

IREIT Global is managed by IREIT Global Group Pte. Ltd., which is jointly owned by Tikehau Capital and City Developments Limited ("CDL"). Tikehau Capital is a global alternative asset management group listed in France, while CDL is a leading global real estate company listed in Singapore.

First Real Estate Investment Trust is a healthcare real estate investment trust. The Trust invests in and owns a diversified portfolio of healthcare and healthcare-related real-estate assets in Asia.

Frasers Hospitality Trust operates as a real estate investment trust. The Trust owns, operates and invests in hotels and serviced residences.

AIMS APAC REIT is a real estate investment trust. The Trust's principal investment objective is owning and investing in a diversified portfolio of income-producing industrial real estate assets throughout Asia Pacific, including warehousing and logistics, manufacturing, business parks and hi-tech spaces.

Starhill Global REIT is a real estate investment trust.  The trust invests in retail and office buildings in Singapore and overseas.

Sentral REIT is a real estate investment trust. The trust invests in office and retail buildings, business and technology parks, data processing centers, and car parking facilities primarily in Malaysia.

UOA Real Estate Investment Trust is a real estate investment trust. The trust invests in and owns commercial real estate and real estate related assets.

Future Park Leasehold Property Fund is a closed-end property fund incorporated in Thailand. The Fund will invest in the long-term leasehold rights in the Leased Assets, certain of Future Park Rangsit Project Building in Bangkok.

Future Park Leasehold Prop F (FUTUREPF TB)

Franklin Street Properties Corp. operates an investment firm. The Company focuses on investments in commercial properties, mainly institutional quality office assets in the United States. FSP also provides real estate operations including property acquisitions and dispositions, short-term financing, leasing, development and asset management.

Societe de la Tour Eiffel invests and manages business and office spaces in Paris and in the French provinces.  The Company opted for the SIIC legal status in 2004.

Capital & Regional plc operates as a real estate investment company. The Company owns, operates, and develops shopping centers. Capital & Regional serves customers in the United Kingdom.

Garda Property Group operates as an asset management company. The Company invests in commercial offices and industrial facilities, as well as provides fund management and real estate advisory services. Garda Property Group serves customers in Australia.

China Merchants Commercial Real Estate Investment Trust operates as a Hong Kong collective investment scheme. The Company invests primarilyin income-generating properties and uses the income to provide stable returns to itsunitholders. China Merchants Commercial Real Estate Investment Trust provides services in Hong Kong.

China Merchants Commercial REIT (1503 HK)

CP Tower Growth Leasehold Property Fund operates as a closed-end, real estate, investment fund. The Company invests in office space and commercial buildings.

CP Tower Growth Leasehold Property Fund (CPTGF TB)

LH Shopping Centers Leasehold Real Estate Investment Trust operates as a Real Estate Investment Trust out of Bangkok, Thailand.

Keppel Pacific Oak US REIT operates as a real estate investment trust with properties located in the United States. The Company invests in a diversified portfolio of income-producing commercial and real estate assets in key growth markets of the US.

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Keppel Pacific Oak US REIT (KORE SP)

Market Update - Potential Rate Cut to Support Global Manufacturers & Region

This week (30-31 July) the Fed Reserve is expected to deliver a cut in the Fed Funds Rate with the possibility of a dovish outlook and room for...

Singapore Exchange Ltd (SGX)

Keppel-KBS US REIT Rides Positive Office Market Dynamics

David Snyder is an adventurous foodie, whose willingness to savour new and different cuisines reflects his characteristics beyond the dining...

Singapore Exchange Ltd (SGX)

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