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Citi: Grexit Impact Different From 2011
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By: Vance Wong
Articles (74) Profile

The Straits Times Index (STI) dropped by about six percent from its recent high, particularly because of the Greek Crisis. However, Citi Research points out that the previous eurozone debt crisis caused a 16 percent plunge, a substantially larger impact.

Although the current risks and threats of the Greek crisis are similar to the previous eurozone crisis, Citi thinks that there are some important differences for Singapore. In fact, Citi thinks that there are some stocks that investors can actually consider looking into.

Bonds; CDS; and Exports

Back in 2011-2012, Singapore ten-year government bond yields fell 110 basis points (bps). Conversely, yields had been rising since early 2015 by 90bps. Furthermore, the intra-year volatility in 2015 is 94bps, double 2014’s levels and the economic conditions were rather calm.

Historical records show that the STI weakened when CDS spreads rose. Citi acknowledges this and rising risk fears but according to the chart above, it is rising but at a slower pace currently. This is especially so for core Germany, France, Spain and Italy when compared with the past (2011-2011).

While exports to Europe from Singapore has reduced over the years, this is actually a good thing for us right now. Lower exports to Europe would mean that we have lower exposure to revenue earned in a weakening Euro currency.

High Dividend Yields Threatened By Restructuring

Source: CEIC, Datastream, Factset, Bloomberg, Citi Research

Following the jobs growth plunging to 300 from the usual norm of 30,000, restructuring had been put in place to rectify this issue. This will actually pose some risks to the high dividend yield segment.

Citi warns about the telco and transport segment, where a fourth mobile operator and Tower Transit Group will be entering the field respectively. Citi anticipates a rate hike in 4Q15, which would result in more volatility between SGD and USD. Its research showed that Real Estate Investment Trusts (REITs) tend to underperform developers in times like that.

Key Investment Themes

Citi Research is optimistic about names that are exposed to China. Stocks like CapitaLand that have diversified portfolios will be able to support their businesses during times of weak residential markets.

The banking sector is another area that Citi is interested in, particularly DBS and OCBC. When the Fed raise rates, DBS’s Net Interest Margin (NIM) leverage is the best among the three banks in Singapore. Meanwhile, OCBC’s Wing-Hang acquisition is expected to provide upside.

Nevertheless, investors should definitely be wary about the STI during this period. However, keep in mind that the impact of this Greek crisis would not be as substantial and damaging as the past euro crisis.

With a Communications background, Vance has the passion to write with a purpose - to provide content supported with substantial evidence to vested readers.

Please click here for more information about this author.

CapitaLand  3.530 +0.02 +0.57%   
Business: Co develops, owns, and manages real estate properties. [FY18 Geographical] China (41.2%), S'pore (38.5%), Europe & others (18.6%), Vietnam & Others (1.7%).

Insight: Apr-19, 1Q19 revenue fell 23.8% while net profit d... Read More
DBS Group Hldgs  25.120 +0.12 +0.48%   
Business: [FY18 Total Income] Institutional banking (43.7%), consumer banking/wealth management (42.9%), treasury markets and others (13.4%).

Insight: Apr-19, 1Q19 net profit rose 9% to a record $1.7b.... Read More
Oversea-Chinese Banking Corp  10.910 -- --   
Business: [FY18 Turnover] Global corporate/investment banking (35%), global consumer/private banking (34.8%), OCBC Wing Hang (11.5%), insurance (11%), global treasury & mkts (7.7%).

Insight: May-19, 1Q19 total income rose 14.7% driven by str... Read More


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