Find out why Singapore stocks face a bearish outlook in 2H14

The country’s corporate growth is under threat.

Singapore’s event-driven market faces a bearish outlook in the second half of the year, dragged by a lack of market catalysts and unexpectedly weak 1Q14 corporate profits.

According to CIMB’s Asia Equity Strategy for July 2014, value alone is insufficient to drive stocks upward when a slew of challenges threaten the country’s corporate growth.

“While Singapore equities is not expensive, value alone is insufficient to drive stocks upwards when GDP slows and challenges for corporate EPS growth and ROEs remain, stemming from: 1) lower developer margins as restrictions cap volumes and selling prices; 2) industrials’ margins sliding after bonanza years; 3) poor earnings for planters with rising risks from El Nino; 4) a lack of pricing power for airlines and shippers; and 5) domestic cost pressures and slower ASEAN demand, across other sectors,” stated the report.

Here’s more from CIMB:

Commodities remain an Underweight. The likelihood of El Nino contributing to a bumper crop of US soy and the subsequent depressing of CPO prices is lending weight, as Malaysian palm oil inventories rise CPO prices weaken.

The main domestic event in June is the opening of the new sports hub and the announcement of a new public transport ownership structure.

New tourism offerings like the sports hub (new stadium) should keep tourism growth humming, though there is against some slowdown of PRC tourist growth as PRC who take multi-country tours have slowed on 1) Thailand’s political uncertainties, and 2) anger with Malaysia on the MH370 incident.

This has been offset by 1) higher spend by independent travellers, 2) stronger Indonesian arrivals, 3) a strong calendar of events, and 4) positioning of Singapore as a luxury lifestyle destination.

We expect Hospitality and Healthcare (medical tourism) to benefit from increased arrivals and tourist receipts. Public transportation stocks have had a boost, as the loss making segment of bus services will be progressively taken over by the government and run under a government contracting model.