Source: Lianhe Zaobao

2023-01-03 05:00

In 2022, overall interest rates rose rapidly, local real estate investment trusts (REITs) lost popularity, and institutional investors bought the most telecommunication stocks to avoid risks. Analysts believe that if the economy slows down further in the new year, institutional investors may invest more funds in the more defensive Singapore stock market for further risk avoidance.

2022 was a year of disappointment for global stock markets, with the Singapore stock market being one of the few exceptions. Including dividends, the total return of the Straits Times Index in Singapore was 8.4%, outperforming the Asia-Pacific market. Stock markets in Hong Kong, Japan, Taiwan, and South Korea all had negative returns, ranging from -13% to -29.1%.

The return on the S&P 500 Index in the US was -19.4% last year.

According to statistics obtained by the Lianhe Zaobao from the Singapore Exchange, institutional investors net bought about SGD 756 million into the local stock market in 2022, reversing the situation in 2021 when they net sold SGD 1,754 million.

Out of the 12 sectors, only five were not impacted by institutional investors, with funds net flowing out from REITs exceeding SGD 1.1 billion.

2022 local resident and corporate deposits

If interest rates slow down, Institutional funds may buy REITs again

IG market strategist Ye Jun Rong told the Lianhe Zaobao in an interview that REITs that rely on acquiring assets to increase revenue face significant downward pressure in an environment of rising interest rates.

"Due to uncertainty regarding the level to which the highest interest rate will rise, institutional investors are choosing to avoid REITs. Therefore, the terminal interest rate is a key factor, allowing institutional investors to better evaluate the yield spread when buying REITs."

According to Ye Jun Rong, there have been some preliminary signs in recent months that the situation of supply chain disruptions has improved and the inflationary pressure has started to ease. If this trend continues, the market may no longer expect interest rates to continue to rise, thereby attracting some institutional investor funds into REITs.

However, financial stocks, which have traditionally benefited from rising interest rates, were relatively unaffected in 2022, with institutional investors net selling about 52 million yuan.

Ye Jun Rong believes that a judgement cannot be made based on a single year's flow of funds. "If we look at data over two years, the financial industry has seen a large inflow of funds from November 2020 to February 2022, indicating that institutional investors have already begun to lay the foundation prior to rising interest rates."

Looking ahead to next year, James Ooi, a market strategist at uSMART Securities, stated in an interview that if the global economy continues to slow down, Singapore may receive more inflow of funds from institutional investors.

The growth in net interest income yield is expected. Bank stocks still have potential for expansion in valuation.

James Ooi pointed out that global funds have always seen Singaporean stocks as defensive assets. "Therefore, if the global economy becomes weaker in 2023, institutional investors or fund managers, in order to further risk aversion, will invest in the Singapore stock market to reduce the volatility of their investment portfolios."

James Ooi believes that bank stocks are still the main sector that institutional investors will consider. "The expansion of net interest margin (NIM) is still expected for banks, and the valuation of bank stocks also still has potential for expansion."

However, if the global economy gradually stabilizes and the market is more inclined to chase risk, James Ooi says that institutional investors will move their funds to the US and Hong Kong stock markets where more technology companies are listed.

TerraSeeds training manager Wang Bin Ni was interviewed and said that even if the Fed does not cut interest rates in 2023, interest rates will not rise as rapidly as they did in 2022.

"Singapore's bank stocks have stable dividends, good asset quality, and institutional investors usually maintain a certain degree of exposure. In addition, when interest rates begin to stabilize, local REITs are also relatively attractive to institutional investors."

Wang believes that trust-related entities such as Mapletree and Keppel are options that investors can pay attention to. The loosening of border controls in China and hotel trusts are also worth monitoring.

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