Sunday, August 21, 2016

Singapore stocks prices are cheap, but

cheap can get cheaper, so we need convincing of us.

The Thai economy was certainly a bit more Boleh in Q2. 2Q16 GDP expanded 3.5% yoy, the strongest since 1Q13 led by increased public sector spending as well as steady contribution frm the hospitality sector to offset the drag from exports and sluggish private consumption. Fingers crossed the Land of Smiles can continue to recover.
Despite sluggish global growth, the region’s macro picture is looking “less bad” according to 2 other countries who reported Q2 GDP growth during the week. Taiwan’s 2Q16 GDP rose 0.7% yoy vs. 1Q16’s -0.3% yoy. It was the first growth since the Q2 2015, and the fastest expansion since Q1 2015 on “less bad” exports.
Over in the Philippines, the economy is on fire. 2Q16 GDP expanded 7.0% yoy, the fastest expansion since the Q3 2013, as a stronger domestic demand (consumption and investment) offset a slowdown in exports.
What about the poor July trade performances of Indonesia, Singapore & China or the stagnant Japanese economy? Total trade fell 15% yoy in Indonesia while Spore’s total trade shrank 11% yoy in July, the worst in 6 mhs for both countries. While this is a reflection of the still sluggish global demand, the shorter working month due to the Hari Raya festivities could be the main reason for the sharp plunge in July trade while China’s data was partly affected by supply disruptions (the severe flooding in July).
What about Japan? On an annualized basis, the economy grew just 0.2% in Q2 as companies cut back on capital spending and exports fell. Spending by businesses was weak & household spending was also lacklustre. But we must also remember that earthquakes in April caused extensive damage and disruptions to production in western Japan, while exporters kena by stronger yen with more expensive Made-In-Japan goods. More pressure on PM Abe & the BoJ to spend and spend to lift domestic demand.
The disappointing Q2 GDP growth in Japan, so-so July US and Asian macro data fuel expectations that there will be more global fiscal stimulus from governments & monetary easing by central banks. Expectations of cheaper liquidity “add oil” to global equities (except in Spore where sadly there’s still minimal interest in our local stocks). In Asia, the interest this week is very much focus on the upcoming trading link between HK & Shenzhen that will give outsiders the chance to trade shares, not of stodgy SOEs (listed in Shanghai), but the smaller start-ups & leading Chinese tech companies.
The only thing we can say for SGX-listed stocks is that many are cheap cheap, and despite the rally, valuations for Spore REITs are not over-stretched. According to a recent report from CIMB Research. S-REITs are trading at mean of 6.3% dividend yield and 1x P/BV. Furthermore, S-REITs are still trading at a 450bp spread vs. the 10-year bond yield, 75bp higher than the average 370bp. Compared to the other key REIT markets, S-REITs is also one of the cheapest. And, Industrials replace the office as their most preferred sub-sector. So Spore REITs still Boleh.
Not so boleh was the US$ during the week. Expectations that the US central bank may hold off raising interest rate in September pushed the US dollar lower this week although it managed to recover some ground on Friday. The dollar index (DXY) ended the week 1.3% weaker (-0.5% last week) and the US 10Y Treasury note ended the week at 1.58% (1.51% the previous Friday). Gold, which usually benefits from a soft dollar and falling bond yields, ended Friday at US$1,341 an ounce, highest in 3 weeks.
Weaker US$ and (misplaced?) hopes that major oil producers can agree to an output freeze next month continued to underpin oil prices for the third consecutive week. Brent crude crossed US$50 for the first time in 5 weeks, to end Friday at US$50.88/bbl.
And speaking of oil, the Norwegian govt reported this week that it had to tap into its massive oil fund (US$890bn, the largest sovereign wealth fund) for spending for the first time in two decades. Given the current trends of low oil prices and low (& lower?) expected rates of returns, there is a big debate in Norway about how much risks this mega fund should take to grow or protect the fund if the govt were to continue dipping into reserves to fund spending. Here in Spore the same question is being asked at GIC/Temasek. It’s a indeed a very stressful time for SWFs, pension funds & long-term investors.
This question & more will certainly be asked at the key event for Week 34 of 2016, a gathering of central bankers, finance ministers, etc. at Jackson Hole, Wyoming, USA for the Kansas City Fed’s annual symposium (Thur/Fri). The theme this yr is ‘Designing Resilient Monetary Policy Frameworks for the Future’, or in simple Singlish, “What can central banks do ah if global growth and inflation stay low low for long long?” Fed Chair Yellen will cakap on Friday & we’ll wait to see if she will “show hands” (unlikely) on what the Fed may or may not do in its next policy meeting. 
There is no major central bank monetary policy decision this week but there is plenty of Developed Mkt data to test investor confidence. Among the key macro releases: Prelim Aug PMI readings from US, Eurozone & Japan, US Durable Gds Orders, revised Q2 GDP readings from UK & US.
Here in Asia, Taiwan will report July export orders (Mon) and industrial output (Tue). Spore will report July factory output data on Friday & PM Lee is off to Semarang, Indonesia for a 3-day meeting and makan with Pak Jokowi on Wednesday.