Shaken investors run for cover as Brexit pummelling continues

Singapore

SINGAPORE investors huddled behind the stability of telcos and real estate investment trusts (Reits) on Monday, as Britain's decision to leave the European Union (EU) continued to wreak havoc in risk markets.

The Straits Times Index (STI) hit a four-month low of 2,709.56 near the market's open on Monday, but managed to claw its way back up over the day. Close to 3 pm, the blue-chip benchmark caught a second wind and entered into positive territory, in what one trader described as short covering. But the rally turned out to be a short gasp; the index fell back after touching a high of 2,750.27 and ended the day at 2,729.85, down by 0.2 per cent or 5.54 points.

Britain's vote on June 23 to exit the EU continued to dominate the news, with headlines over the weekend suggesting growing calls for a second referendum - buyers' Bremorse after the so-called "Brexit" vote.

Speculation also persisted about the potential for a breaking up of the UK and the EU, while questions arose about the leadership vacuum after the resignation of UK Prime Minister David Cameron.

NetResearch Asia wrote in a note: "The turbulence will continue for a few more days as news reports say the British Parliament may have to debate the appeal, while EU officials have said there is no need to delay the start of proceedings for the split. We would caution investors from selling into the panic and to wait for some signs of stability first as to the market direction."

The selling in Singapore was more reflective of general caution about the global situation than any specific exposure by the economy. DBS expected the STI to find support at 2,630, but to fall to 2,500 if there is greater fear of a contagion.

RHB wrote: "Trade exposure to the UK is modest for Singapore, but further downside may prevail if the broader EU were to see a slump in demand following Brexit. Singapore companies are mostly focused in Asia and have limited direct UK exposure."

For the handful of Singapore-listed counters seen to be more exposed to the UK, analysts were mostly of the view that the risks were contained.

ComfortDelGro, which runs bus and taxi services in the UK, bounced back from its Friday drop to gain 0.37 per cent or 1 Singapore cent. It closed at S$2.68.

DBS said it expects the weaker pound to only reduce its earnings forecast by 1.3 per cent.

"The impact is largely translational in nature as ComfortDelGro does not repatriate its profits.

"The group's Singapore operations have been, and, in our view, should continue to be able, to meet dividends and cashflow requirements in Singapore dollars."

Among the property developers, City Developments fell 3.73 per cent or 31 Singapore cents to close at S$8.00; Ho Bee Land shed 1.38 per cent or 3 Singapore cents to close at S$2.14.

UOB KayHian wrote in a note: "The impact on balance sheet is minimal for most companies due to their natural hedge. On the income side, a 10 per cent depreciation of the pound against the Singapore dollar will result in a 0.5 to 2.9 per cent negative impact on earnings."

Analysts were split about whether it was time to go bargain hunting.

OCBC research head Carmen Lee said: "We've advised clients to be ready to pick stocks if share prices correct further, as we believe that the impact from the Brexit on Singapore stocks is unlikely to be as severe as for European or UK companies, largely because only a handful of Singapore listed firms have exposure to the European/UK markets."

CIMB, however, struck a note of caution: "The sell-down could continue as the market grapples with contagion uncertainties, political instability and darker deflationary fears in Europe, post-Brexit. The road ahead is difficult and this may not be the best time to hunt for Brex-dip."

Still, even CIMB acknowledged interest in safe havens. Telcos, Reits and those companies that will benefit from a strong US dollar were particularly popular among investors on Monday.

The FTSE ST Telecommunications index rose 1.7 per cent, or 16.85 points, to close at 1,001.69. Also outpacing the general market was the FTSE ST Reit index, which added 1.4 per cent, or 9.9 points, to end Monday at 718.62.

Maybank Kim Eng wrote in a note: "Reits lock their tenants in for three years at least, while telco earnings are also more resilient to a growth shock, which is front and centre of risks at the moment. Low rates will also likely benefit both sectors due to the significant leverage they employ."

Companies that stood to benefit from the stronger US dollar were also in the spotlight, including contract manufacturer Venture Corp and casino operator Genting Singapore.

For more coverage of the EU referendum, visit bt.sg/BrexiT

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