4 crucial factors Singapore investors must watch out for in 2H

They could alter this year's outlook.

According to Nomura, the Singapore market has given up all its gains this year as investors re-price risk globally. We see a low single digit return for Singapore for the rest of the year amidst pedestrian EPS growth.

Relative to its ASEAN neighbours, Singapore has held up in the recent sell-down and is seen as less vulnerable to capital outflows. In an ASEAN context, Singapore might be seen as a safe haven in the near term.

As investors adjust to the prospect of higher long-term rates, Nomura discusses four macro factors that could affect the outlook for the Singapore market in 2H2013.

Here's more:

1. Steepening of yield curve: positive for banks, negative for property

A steepened yield will likely be positive for Singapore banks due to loan re-pricings and increased treasury opportunities. We like DBS and UOB. 

Demand for residential property could be dampened by higher borrowing costs. REITs have corrected to reflect the higher yield expectations but the
outlook is dampened by prospects of further rate adjustments.

2. Strong US$ negative for commodities

Our house view is for a structurally firmer US$ and this could undermine commodity prices and shares of plantation companies and commodity traders. Companies with large US$ revenues like Keppel, ST Eng and SIA could benefit. Lower oil prices could benefit transport companies like Comfort and SIA.

3. China slowdown: red flag for developers with exposure to China

Weaker-than-expected GDP growth in China could impact Singapore’s economy, although this could be mitigated by recovery in the US and a weaker S$. Developers with exposure in China might be directly affected by the slowdown.

4. Singapore – at medium risk for future financial crisis

Private leverage as a percentage of GDP has expanded by 50% points over the past four years, signalling the potential of a financial crisis in future. The authorities have clamped down and recent imposition of stricter lending rules for property should mitigate. Bank lending will likely slow while demand for property should moderate.

Strategy: Staying defensive — we like banks but not commodities

We shift banks (DBS, UOB) to Bullish and reduce commodities to Bearish to reflect the themes of a steepening yield curve and stronger US$. We remain Bullish on Telcos (Singtel) and Conglomerates (Keppel) for their defensiveness and yields.

We are still Bearish on gaming and property and are Neutral on healthcare (Biosensors) and transport (Comfort).