Why should I care? A fund manager's take on Budget 2020

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With the Budget 2020 speech over and your newsfeed spammed with coverage from media outlets, we believe it's an opportune time to get insights from a finance industry veteran, one such as Mr Sng Tong Hoe. 

Mr Sng is the Director of Wealth Management at Aura Group Singapore, a wealth and fund management client solutions business. 

Sng has over 25 years of prior experience in wealth management, having had stints at top institutions such as Merrill Lynch, BNP Paribas Private Bank, UOB Private Bank and Bank of Singapore. 

We sought to pick Sng's brain to garner some context about the Singapore's financial situation prior to the Budget as well as the road ahead. 

More importantly, we delved deeper into Singapore's stock market to see what stocks Sng is looking at that could potentially ride out the current economic doldrums. 

PRIOR TO ISSUING THE BUDGET, COULD YOU GIVE US A SENSE OF THE OVERALL INVESTMENT CLIMATE THAT SINGAPORE WAS FACING? HOW HAS THAT AFFECTED INVESTMENT RETURNS? 

Sng (S): The Singapore economy had been growing below trend rate, due to the US-China trade wars, Brexit uncertainties and other geopolitical tensions.  Investment returns were volatile and swinging with every news flow.  

Since the signing of the Phase 1 trade deal coupled with a clear and strong election mandate for the Conservative government in UK, returns from the market stabilised (STI gained +5 per cent for 2019) and looked positive going into 2020.  

With the recent Covid-19 health worries, this has put a damper on the economic and market growth trends and is likely to continue in 1Q20 and likely into 2Q20 as well.  

Unless there are strong policy stimuli, one can expect few drivers to power the Singapore economy and its equity market going forward.

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WITH THE ACCOMMODATIVE BUDGET, WHICH SECTORS DO YOU THINK WILL BENEFIT THE MOST? WHY?

S: In the short term, sectors deemed as classic defensives, for example healthcare providers, producers of medical equipment such as gloves, masks and telcos have outperformed from the current health scare. However, the preference is to position for a recovery.  

Why?  

The Singapore market should rebound once the current health scare gets resolved (SARS in 2003 saw the STI rebounding ending the year +48 per cent).  

However in my view, the rebound this time may not be as strong as some expected, because global fundamentals have showed slowing growth even before the health crisis started.

With the accommodative budget announcement, REITs, financial services and companies whose earnings are resilient irrespective of a pandemic should benefit from the current crisis and beyond.  

Investors are still likely be out looking for yields, security of dividends, steady growth, and earnings from possible restructuring opportunities.

ARE THERE ANY SGX-LISTED STOCKS IN PARTICULAR THAT YOU THINK ARE VALUE BUYS AT THIS MOMENT AND COULD POTENTIALLY REAP REWARDS FROM THE ANNOUNCED BUDGET? 

S: For the moment, the more obvious stocks are companies such as SIA (Singapore Airlines) because of rebates on aircraft landing and parking charges; Suntec REIT from the 15 per cent property tax rebate, and domestic consumer companies such as Sheng Siong and Dairy Farm from the cash distribution, grocery vouchers as well as the GST delay.

WHAT OTHER SGX-LISTED STOCKS ARE YOU ALSO LOOKING AT DURING THIS ECONOMIC DOWNTURN?

S: We should position for a possible recovery with selective yielding and restructuring stories. We like the Singapore financials, such as UOB, OCBC and DBS, for their sustainable dividend yields, even though there could be pressure on profitability due to lower interest rates and potential soft GDP growth within the region.

We also like Keppel DC REIT, Ascott Residence Trust for its diversity of assets and geographical spread; Mapletree Industrial Trust with a strong sponsor and potential asset injection pipeline. CapitaLand Mall Trust with its good growth potential through asset enhancement, portfolio reconstitution and acquisitions as well as continued low interest rates. Singtel for its sustainable yield and increased use of data for teleconferencing and improving competitive conditions for its subsidiaries in countries such as Thailand and Indonesia.

For the more adventurous investors, companies such as Venture Corp, City Developments and ST Engineering could also be considered.

The above content is for general information purposes only and does not constitute professional financial advice.

simeonang@asiaone.com