Telcos: There is downside risk for the global economy arising from a slowdown in emerging countries, especially those reliant on the export of commodities. Currencies of many emerging countries have already weakened in anticipation of the Fed
tightening monetary policy and hiking interest rates.
This is further exacerbated by the slowdown in China, which exerts downward pressure on commodities prices.
UOB Kay Hian's study on share price performance indicates that telcos have a 73% chance of outperforming the MSCI Singapore Index during a recession. The average quantum of outperformance per quarter during recessions was 3.2% for M1, 3.8% for StarHub and 5.9% for Singtel.
House stays Overweight on the defensive telco sector. We started the year with many investors complacent about the impact from the potential entry of a fourth mobile operator. Share prices have subsequently experienced massive corrections
while, concurrently, the risk of disruption from a fourth mobile operator has diminished.
Preferred BUYs for the sector are Singtel (TP: $4.56) and M1 (TP: $3.26). UOBKH has a Hold rating for StarHub with TP of $3.50.
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