It has been a volatile month of May so far which is rather unsurprising given the 'sell in May' syndrome as well as the SG Markets has been 1 of the better performer this year.
With the heightened Phrase 2 announcement at about 1pm on 14 May 2021, the STI responded by tanking around 2+ % from 3114 to 3032. However, in the following week it has recovered to 3114. Seemingly the impact of the heightened Phrase 2 seems to have negligent impact on the STI.
How should we position the portfolio moving forward?
Sectors to avoid (Ranked according to my own thoughts)
1) Aviation
2) Hotels
3) F&B Services
4) Banks
Aviation - With the mutation in Covid 19 Variants and the travel bubble being postponed yet again, its rather safe to say 'uncertainty' is a word that the aviation industry will have to deal with and as such i am not very keen as an investor to deal with uncertainty. While the instant gratification in medical breakthough might occur like it did in 2020, this is something out of the hands of many to model and predict. As such i would gladly avoid the industry which will likely have very tough times ahead.
Stock to avoid in SGX for this sector will be Singapore Airlines (SIA).
Hotels - Similar with the explaination above, i believe that the rediscover vouchers and staycation effect will unlikely bring hotels to a profitable level that is anywhere near pre-covid. Unfortunately if tourist are not arriving in Singapore then the hotels in Singapore will unlikely benefit as well. While hotels based in other countries such as China might benefit, generally i struggle to think of a pure play hotel reit or company that is currently listed in Singapore.(Not accounting for the possible listing of hotels by greentown china according to rumours) Hence i will likely stay away from investing in this sector as well.
Stock to avoid in SGX for this sector will include Far-East Hospitality Trust and Hong Fok
F&B Services - The industry has always been a margin thin industry due to huge amount of competitors and the difficulty in hiring labor without increasing cost as much. With the recent covid implications, a double whammy is formed as companies would struggle to increase manpower when restrictions are lifted while they would also be hard-pressed when restrictions are imposed. As such, while good food can guarantee the company to survive by innovations through good marketing on social media and deliveries, it is unlikely to drive shareholder returns. Despite that, certain listed F&B Companies recorded profits and paid dividends in 2020 all thanks to large government support. Such initiatives are unlikely to be seen in 2021 and should not be relied on as a catalyst for returns.
Stock to avoid in SGX for this sector will include Jumbo , Soup Restaurant and RE&S Holdings
Banks - A little controversial and hard-pressed decision. I believe this can go 50-50 because the economy is in a pretty down situation and a value hunter will say buy when the economy is bad so u can take profit when the economy is good. However the current prices of banks in Singapore are actually near all time high and does not reflect the economic conditions. While i acknowledge the economic conditions moving forward should be in the form of a 'tick' shape and will get better, i do not acknowledge the valuations seen and as such would feel that a better return could be found elsewhere.
Sectors to be Optimistic (Not ranked)
1) Shipping
2) Brokerage
3) Tech Manufacturing
Shipping - Its a pretty known fact that shipping stocks have gone crazy since the end of last year and as such will likely to ride on the trend further. In comparison of Singapore Shipping Companies to those in listed in Taiwan and Hong Kong, Singapore has lagged behind. While the main factor could be due to the lack of big name counters for investors to have their interest in, i believe their profitability should reflect when the results are released.
Stocks include SamuderaShipping and Uni-Asia Group
Brokerage - With covid and stay home being an increasing trend, there would likely be more time for people to get their hand-on on financial markets at home. Also this provides an opportunity for folks to use their saved up income for travelling to invest and plan for the future as well. Brokerages will likely ride the tailwinds of the extended stay home trend.
Stocks include Ifast and UOB Kay Hian
Tech Manufacturing - Its a 50-50, the tech manufacturing sector has showed resilience in 2020 and has produced good results and returns. As such, with the stay home trend continuing, one would expect these industries to benefit from the increased demand as well. Being essential services companies, these companies are likely to be less affected even if there is another round of circuit breaker.
However at the same time certain companies have showed corporate results/decisions that isn't to my liking. For example, AEM guided a similar revenue but profits has fallen a lot in 1Q 2021 compared to 1Q 2020. UMS has underwent an impairment in 2020 Q4 but has decided to acquire JEP, which has went into a loss making position due to the aviation sector being affected badly. However, its Q1 2021 has showed continued growth from previous quarters which affirms the growth trend.
As such, i would say that if one believes in the plans of these companies then they would be attractive valuations to get into.
Stocks to ponder about - UMS and AEM
Moving forwards, the chopy markets is likely to sustain. Even though the STI has recovered from its flash minor correction last week, i do think there is more of such corrections to come.
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