Safe havens outside euro zone

Safe havens outside euro zone

Investors looking for some stability in the wake of last Friday's Brexit voting outcome should opt for defensive stocks like telcos and real estate investment trusts (Reits) with no exposure to Britain or the European Union, said CIMB.

Analysts Lim Siew Khee and Kenneth Ng warned that more volatility is expected in the coming days and a weaker European economy is possible, which could hit the United States, China and other economies.

"The road ahead is difficult and this may not be the best time to hunt for 'Brex-dip'. However, telcos, selective Reits and US dollar gainers could offer some reprieve," they said in a note on Saturday.

Local banks will be among the less affected Singapore counters, they said. A direct impact could come from ownership of debt papers or investment securities linked to British or European banks, but this is limited for the three Singapore banks.

"That aside, all three banks are potential losers to a weak revenue generation environment if capital markets continue to crumble," they said.

Telcos could offer shelter as well. "The hefty investment required and the lack of a track record by the potential fourth telco could stall the bid for the upcoming spectrum auction, protecting the turf of incumbents in the meantime."

Some Reits have been seen as safe-haven investment tools and could be good bets, though some are exposed to Brexit risks. Local Reits with exposure to Britain and the European Union (EU) include CDL Hospitality Trusts, Ascott Residence Trust, IReit Global, Keppel DC Reit and Frasers Hospitality Trust, said Religare Capital Markets analyst Pang Ti Wee in a report yesterday.

"Based on our estimates, if the sterling and euro were to correct by 10 per cent to 15 per cent, the net asset value of these Reits could dip by an average of 0.5 per cent to 2.8 per cent over the near to medium term due to the volatility of these currencies against the Singapore dollar," he added.

However, Reits with no exposure to Britain and EU should continue to offer stable distribution payouts over the next 12 months, he added.

And with international markets in turmoil, a further delay in interest rate hikes is likely.

"Some of the more liquid defensive names such as Ascendas Reit, CapitaLand Mall Trust and Mapletree Logistics Trust are expected to benefit from this situation, followed by AIMS AMP Capital Industrial Reit, Frasers Centrepoint Trust, Starhill Global Reit and Soilbuild Business Space Reit," added Mr Pang.

Mr Lim and Mr Ng said that in terms of US dollar gainers, an exporter like Venture Corp would work.

Singapore Technologies Engineering, with about 24 per cent of its revenue and assets based in the US, could see some benefits.

A weaker Singapore dollar could also back the influx of Chinese tourists into Singapore, they noted, with Sats standing to benefit from higher Changi traffic. "Genting Singapore is cheap at 0.9 times price to book value, and likely to see gaming volume sustained by increased Chinese contribution," they added.

In healthcare, Tianjin Zhongxin Pharmaceutical Group Corporation has little impact from currency woes and is geared to an ageing population in China, meaning it would be minimally affected, they said.

This article was first published on Jun 28, 2016.
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