Singapore’s shares are set to take a breather, DBS said, even as it raised its target for the Straits Times Index.
“World Cup and stocks do not mix well,” it said in a note on Thursday, noting the STI has fallen an average of 8.6 percent in the two-month May-to-June period of the past six tournaments. The World Cup begins play in Russia in June.
“Trading activity tends to slow starting May. A healthy consolidation with the best market re-entry time in beginning July if history repeats,” it said.
But DBS raised its STI year-end target to 3850 from 3715, pegged to 13.89 times 2019 price-to-earnings. That was “on the back of recent strong earnings upward revision boosted almost solely by banks,” it said, but it added that near term, a good first quarter for the banks was already priced in.
It tipped STI near-term resistance at 3650 and pullback support at 3500.
For its stock picks, DBS tipped mid- to late-cycle plays, such as capital goods, basic materials, commodity-related companies and consumer services and consumer goods.
Its picks were Wilmar and ThaiBev for consumer goods, Genting, Dairy Farm and SIA for consumer services and Keppel Corp., Sembcorp Industries and Sembcorp Marine for oil and gas.
DBS also pointed to shares that were in a net cash position as able to better weather a rising borrowing-cost environment; after screening for companies with either zero debt or net cash, Buy calls, a market cap above S$1 billion and at least 10 percent upside to the target price, it came up with a list of eight shares: UOB, OCBC, Hong Leong Finance, Genting Singapore, Yangzijiang, Sheng Siong, SIA Engineering and SingPost.
But it warned that S-REITs could continue to underperform if the U.S. Federal Reserve signals a June rate hike. DBS said it was expecting a total of four rake hikes this year and next.