Strategy

Strategy: Given the recent weak data points such as industrial production (August industrial production fell 7% yoy) and non-oil domestic exports (August NODX fell 8.4% yoy), there are increasing odds that Singapore may fall into a technical recession when 3Q15 GDP data is announced (expected 12-14 Oct).

Historically, banks have consistently underperformed the FSSTI during the last four technical recessions by 1-13%, due to being a proxy for economic outlook. In addition, being the largest (by market capitalisation) and the most liquid sector on the FSSTI, banks’ share price performances are also a reflection of capital flows and portfolio allocation.

In the last four recessions, the aviation sector underperformed three times. This is not surprising since discretionary travel would be reduced. During the SARS outbreak, most travelling plans for leisure and work were reviewed and only essential travel was unaffected.

Outperformers include healthcare, shipyards, plantation and supply chain. The healthcare sector was a consistent outperformer during recessionary times, which is not surprising given its defensive qualities and in the case of Raffles Medical, its strong
financials. Shipyards, plantation and the supply chain sectors are not domestic economy-centric and would be more correlated to other global factors including commodity prices and orderbook wins (for the shipyard sector).

Looking ahead, UOBKH sees several themes to navigate the current uncertainties. These include:
1) resilient yield in low growth environment (picks: SingTel, SATS, CCT);
2) favourable risk-reward stocks (picks: CapitaLand, Wing Tai, SCI, Ezion);
3) M&A (picks: Guocoland, Wheelock Properties); and
4) quality franchise stocks at compelling valuations (picks: DBS, CapitaLand, SingTel, SATS, ST Engineering and ComfortDelGro).