4 key investment themes for 4Q23 unveiled

Experts are cautious about their near-term outlook for Singapore equities.

Investors must construct a defensive portfolio for 4Q32 as the near-term outlook for Singapore's equities remains “cautious” on the back of the likely rise in global inflation, the timing of the pause in interest rate rise, and the outlook for China’s economic growth.

Amidst the uncertainty, RHB believes four investment themes will prevail in the last quarter of the year.

Retaining exposure to companies offering defensive earnings

RHB believes companies in a net cash position or low gearing will do better in a higher-for-longer rate environment.

“Given the uncertain macroeconomic environment around the outlook for interest rates and economic growth in China, we expect the equities market to be volatile over the short term. This is despite our expectations of moderation in inflation, a pause in the rising interest rate cycle in 2024, and an economic growth recovery in 2024,” RHB said.

“We think that the performances of the market, sectors, and companies will diverge, as returns are influenced by the relative resilience of earnings in the face of an uncertain future,” RHB added.

With this backdrop, RHB advised Investors to take into account the “ability to pass through rising expenses, captive client bases, recurrent demand, and companies with excellent financials” when selecting stocks. 

“We place a strong emphasis on investing in businesses with solid dividend or profit histories. We predict that defensive sectors such as staples, healthcare, and utilities and styles, quality and momentum, will continue to outperform,” RHB said.

“Positive revisions to net profit projections for both 2023 and 2024 have been seen for firms in the transport, utility, industrial, and consumer sectors that make up the STI,” RHB added.

Remaining invested in industrial and office REITs 

REITs as a sector could “outperform amid expectations of the US interest rate cycle potentially peaking in 1H24,” said RHB. 

“We believe investors should continue to stay invested in industrial and office REITs, the two sub-sectors that we have a near-term positive view on,” RHB added.

RHB underscored Industrial REIT, as a sector, remains a defensive haven and offers “earnings stability and stable asset values amidst ongoing interest rate hikes.”

Amongst subsectors, RHB pointed to logistics, hi-tech, and good-quality business parks, saying these will “benefit from the changing market dynamics brought about by COVID-19 and the government’s longer-term push to transform Singapore into a smart nation.”

Meanwhile, RHB said it remains “relatively positive on the long-term outlook for Singapore office demand, as the country remains one of the highest globally in terms of employee return to work.”

Opportunities in the recovering regional tourism theme

The improvement in the number of visitors arriving from China will have a positive impact on service categories such as retail, F&B, healthcare, land transportation, and telecommunications.

“CDL Hospitality Trusts, ComfortDelGro, Singtel, Starhill Global REIT, and Thai Beverage should benefit from the return of Chinese tourists in the ASEAN region,” said RHB.

“Raffles Medical could benefit from a higher influx of medical tourists in Singapore, and its China hospital operations could benefit from the gradual return of expats back to China,” added RHB.

ST Engineering could also see benefits from the revival in Chinese aviation traffic.

Buying into small and mid-cap companies with strong growth 

Amongst sub US$1b market cap range stocks covered by RHB, the expert prefers exposure to Centurion Corp, Food Empire, and Marco Polo Marine.

“All three stocks have strong earnings tailwinds and have delivered strong YTD returns,” RHB explained.

With Singapore’s worker dormitory bed supply remaining tight, RHB expects bed rates to remain positive, which will benefit Centurion Corp.

“We expect the company to win more dormitory projects, with at least seven new purpose-built dormitories, totalling 47,000 beds, planned to be completed over the next five years,” RHB said.