Lim & Tan Securities Research Report – April 4, 2025
Navigating the Small-Cap Rout: Insights for Investors
Small-Cap Stocks Plunge as Trump’s Trade Policies Rattle Markets
The Russell 2000 Index Dives 22% from All-Time Highs
According to Bloomberg, the revival in U.S. small-cap stocks expected from Donald Trump’s “America First” agenda has instead turned into a rout for shares in companies whose fortunes are most closely tied to the U.S. economy. 1
The Russell 2000 Index, which tracks small-cap U.S. stocks, plunged 6.6% on Thursday and is now down nearly 22% from its all-time high reached in late 2021. The index had come within a whisker of that record in November after Trump’s reelection, as investors bet on the president’s promised focus on revitalizing American manufacturing. 1
Key Takeaways:
Small-cap stocks were initially seen as a big winner from Trump’s protectionist policies, but the haphazard implementation of tariffs has created significant uncertainty.
Sectors like energy, technology, and consumer discretionary have led the small-cap decline, losing over 25% since the November 2021 peak.
Small-caps are typically the first to rebound coming out of a recession, making their steep selloff a worrying signal for the broader economy.
Tariffs and Trade Tensions Weigh Heavily on Small-Caps
“The greater uncertainty created by tariffs and how global trade will evolve in coming weeks is a huge hit for small caps,” said Michael O’Rourke, chief market strategist at JonesTrading. “While the group is expected to benefit from the hoped-for onshoring of production that is the goal of the tariffs, there will be significant friction and uncertainty for the foreseeable future.” 1
Trump’s latest announcement of new reciprocal tariffs on Wednesday has only exacerbated the challenges facing small-cap companies. These firms are more exposed to rising costs of raw materials, labor, and other inputs, squeezing their profit margins.
Small-Cap Underperformance Signals Recession Risks Small-cap stocks are often viewed as a leading indicator for the broader economy, as they tend to be the first to decline heading into a recession and the first to rebound coming out of one. Their steep selloff in recent months suggests growing recession risks, according to BCA Research.
“With U.S. small-cap stocks being a bellwether as a good recession indicator given that they are the largest job-creators for the U.S. economy, and now that the Russell 2000 index has dipped into a bear market having reversed all their Trump bump trade and dropped more than 20% from their peak in Nov’2024, BCA research’s recession call for the U.S. has strengthened significantly,” the report states. 1
Centurion Corp: Riding the Wave of Strong Demand for Worker and Student Accommodation
Centurion Delivers Robust Growth in FY 2024
In its FY 2024 Annual Report, Centurion Corporation (S$1.23) highlighted the positive demand-supply conditions across its operating markets, enabling high financial occupancies and healthy rental rate revisions in both its Purpose-Built Worker Accommodation (PBWA) and Purpose-Built Student Accommodation (PBSA) segments. 2
As a result, the Group achieved significant growth in revenue and profits, as well as steep fair value gains reflected by a strong growth in Net Asset Value per share.
Key Highlights:
Financial occupancy of the Group’s PBWA portfolio held steady at 94% for FY 2024, driven by strong demand for dormitory beds.
Financial occupancy of the PBSA portfolio rose to 97%, as PBSA beds continued to be in short supply in both the UK and Australia.
Revenue climbed 22% to S$253.6 million, with Net Profit from Core Business (excluding Fair Value Adjustments) soaring 45% to S$110.8 million.
The Group recorded fair value gains of S$219.1 million in FY 2024, a 158% leap compared to FY 2023.
Centurion’s Growth Pipeline and Strategic Initiatives
Looking ahead, Centurion expects positive market conditions to continue, with high occupancies and healthy, though moderating, rental revisions. To maintain its strong growth momentum, the Group has a pipeline of new bed capacities to enlarge its revenue streams in the coming years. 2
Key projects in the pipeline include:
New 1,650-bed PBWA in Singapore, Westlite Ubi, which became operational in December 2024
Redevelopments of Westlite Toh Guan and Westlite Mandai, adding approximately 1,764 and 3,696 beds respectively
New 732-bed PBSA in Sydney, Australia, expected to be completed in November 2025
Redevelopment of dwell Village Melbourne City’s carpark, adding a new block of approximately 600 beds
In addition to portfolio growth, Centurion has focused on innovating and enhancing its specialized accommodation product and management capabilities to maintain market leadership. This includes ensuring its new developments comply with evolving regulatory standards.
Valuation and Recommendation At S$1.23, Centurion is capitalized at S$1 billion and trades at 9.8x forward P/E and 0.9x P/B with a dividend yield of 2.8%. With a positive market outlook, a strong pipeline, and strategic initiatives to enable AUM growth, the Group is well-positioned to deliver continued performance and value to shareholders.
Lim & Tan Securities have an “Accumulate on Weakness” recommendation on Centurion, with a consensus target price of S$1.45, representing an 18% potential upside. 2
China Ramps Up Debt Issuance to Boost Growth Amid Trade Tensions
Beijing Accelerates Bond Sales to Counter Economic Headwinds
China has ramped up its debt issuance this quarter, a move that signals authorities’ priority on stimulating growth and preventing a repeat of an overheated bond market, according to BCA Research. 3
The finance ministry has raised a net 1.45 trillion yuan (S$268 billion) via sovereign notes so far this year, triple the amount for the same period a year ago and marking a record for any first quarter. 3
The spike in debt financing underscores Beijing’s urgency to expand fiscal spending to cope with housing woes, deflationary pressures, and trade tensions with the U.S. It also helps to take more heat off the bond market, whose stunning rally last year raised concerns about long-term financial risks. 3
Key Drivers of China’s Debt Binge:
Need to raise funds earlier and speed up fiscal spending to counter the impact of tariff policies from the U.S.
Desire to boost liquidity and support the economy amid a mixed bag of economic data, including consensus-beating industrial output and investment but persistently weak property sales and loan demand.
Potential Risks and Market Implications
The surge in government bond issuance could push the yield curve higher due to the increased debt supply, but the risks are “relatively controllable,” according to Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group. 3
The PBOC is expected to coordinate by keeping liquidity ample to mitigate the potential disruption from the expanded sovereign bond issuance. However, the supply pressure and a pivot of funds into Chinese tech stocks have already helped trigger a sell-off in bonds since early February. 3
BCA Research remains cautious on the U.S. equity market, expecting a recession this year. However, the research firm also highlighted several upside scenarios that could push stocks to new highs, including a potential curbing of Trump’s tariff policies if equity weakness persists. 3