In this briefing:
- Battery Technology- The Key To An Electric Vehicle Future
- Singapore REIT – The Draft Master Plan 2019 Boost and Q1 Scorecard
- More Volatility in the LNG Markets as JKM Drops Below TTF – Oil Majors Increase Exposure to US LNG
- What Next in the Inflation / Deflation Debate and What Does It Mean for Asset Prices?
- Monthly Geopolitical Comment: Markets Are Still Waiting for the Result of US-China Trade Talks
1. Battery Technology- The Key To An Electric Vehicle Future
This Insight has been produced jointly by William Keating at Ingenuity and Mio Kato, CFA and Aqila Ali at LightStream Research.
The Insight is structured as follows:
- A. Key Conclusions
- B. Report Highlights
- C.History of Electric Vehicles
- E. History of Rechargeable Battery Technologies And An In-Depth Analysis on Li-ion Batteries
- F. Batteries Beyond Li-ion
- G. Supply Constraints for Key Raw Materials
- H. The Competitive Landscape
A. Key Conclusions
Global sales of EV’s reached 2m units in 2018. As a base case scenario, we expect a combination of improving EV battery cost-effectiveness, increasingly challenging emissions standards and ongoing incentives by various governments to propel unit sales to 8m units annually by 2025. Against this, we consider battery material price increases, a reduction of EV incentives in the US and China and political and environmental risks from the mining of metals used in batteries as downside risks which could delay the growth of the EV market.
Surprisingly, the EV battery technology that will drive us towards that 8m unit goal is still very much a work in progress. While Lithium Ion is the by far the dominant technology, there are striking differences between variants of the technology, battery pack design, battery management systems and manufacturing scale between the leading contenders. Furthermore, while there’s nothing on the horizon to completely displace Lithium Ion within the next decade, it remains unclear whether the technology will be the one to achieve the $100/kWh price target that would make the EV cost-neutral compared to its internal combustion predecessors.
Quite apart from the technology, the EV battery segment faces other significant challenges including increasing costs for core materials such as Cobalt, increasing safety concerns as the mix of that very same cobalt is reduced in the cathode, the growing risk of litigation amidst a fiercely competitive environment and last but not least, the appetite of various governments to maintain a favourable subsidy framework.
2. Singapore REIT – The Draft Master Plan 2019 Boost and Q1 Scorecard
Singapore REITs (S-REITs) are up about 13% year-to-date in 2019 on a total returns basis against the Straits Times Index’s (STI) 8.3%. S-REITs is expected to continue its outperformance on the back of a pause in the US interest rate hike cycle, falling Singapore government bond yields, and improving demand and supply dynamics in the underlying sub-markets. Valuations of many S-REITs, however, may be appearing stretched as S-REITs’ yields have compressed significantly in the last six months, leaving the yield spread over the 10-year Singapore government bond yield at about 350 basis points, which is lower than the historical average spread of about 370 basis points.
Contrary to the popular belief that retail malls are no longer relevant, we view the outlook of the retail space market as positive due to the limited new supply from 2020 and new trend towards omnichannel retailing. Our preference remains on selected retail REITs with exposure to suburban malls such as Frasers Centrepoint Trust (FCT SP) .
Office REITs are given more legs to run with the new CBD incentive scheme in the URA Draft Master Plan 2019. The sustained office upcycle may also spill over to the business parks and hi-specs industrial space, benefiting some of the business parks/industrial REITs.
We prefer selected industrial REITs with a diversified geographical exposure such as Mapletree Logistics Trust (MLT SP) and those with greater exposure to business parks and high-specs industrial space.
Referring to our earlier report Singapore REIT – Preferred Picks 2019 , two of our preferred picks, Mapletree Logistics Trust and Mapletree Greater China Commercial Trust (MAGIC SP) (now known as Mapletree North Asia Commercial Trust), were among the top five S-REITs performers year-to-date, having achieved the same total return of 17.6%. Manulife Us Reit (MUST SP) and Frasers Centrepoint Trust (FCT SP), also did well, beating the STI with total returns of 10.4% and 9.5%, respectively.
3. More Volatility in the LNG Markets as JKM Drops Below TTF – Oil Majors Increase Exposure to US LNG
The JKM has halved its value since December, continuing its steady decline and dropping below the TTF, the benchmark for European LNG prices. Asian LNG spot prices are now at their lowest level since May 2015. While a prolonged LNG price downturn could force many projects to be cancelled, the winners among the developers are starting to emerge, aggressively pushing ahead their projects closer to the final investment decision.
Both Tellurian Inc (TELL US) and NextDecade Corp (NEXT US) signed high-profile deals, respectively with Total Sa (FP FP) and Royal Dutch Shell (RDSA LN), that could significantly de-risk their proposed LNG projects and increase the probability to reach FID in 2019. In Russia, LNG newcomer Novatek PJSC (NVTK LI) agreed two long-term offtake deals with Repsol SA (REP SM) and Vitol thereby moving a step closer to FID its Arctic LNG 2 project.
4. What Next in the Inflation / Deflation Debate and What Does It Mean for Asset Prices?
Despite some signs of stabilization in China’s factory gauges the primary trend is still weakness and it might be rash for investors to read too much into the recent data given the apparent weakness in the Eurozone and the moderation form a high level of growth in the United States. Quantitative tightening is on hold in the United States but a sharp “U-turn” to easing has not happened yet and is politically embarrassing. As inflation falls real rates are rising. Housing markets are showing signs of price weakness. Investors need to watch for signs of credit quality decay that could be an indicator of the next period of severe financial distress.
5. Monthly Geopolitical Comment: Markets Are Still Waiting for the Result of US-China Trade Talks
The future of the US and China relationship remains the most significant geopolitical and economic issue watched by the markets. While the markets prefer to focus on the positives, the eventual outcome of the talks may yet prove disappointing. Meanwhile, a rift is emerging among EU members who have diverging attitudes to cooperation with China. Authorities in Turkey have again spooked investors with their ham-fisted approach to markets. In Ukraine, comedian Zelensky has won in the first round of the presidential poll. In India, sabre-rattling continues ahead of parliamentary elections despite the de-escalation of tensions with neighbouring Pakistan.
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