Singapore's rattled equities may stage January comeback as STI tipped to open strong

The STI has booked gains of 5.8% in January 2017 and 3.9% in January 2018.

Singapore’s rattled equities may be able to eke out short-term gains in January if the past two years are any indication such as when the STI opened the financial year with gains of 5.8% in January 2017 and 3.9% in January 2018, according to OCBC Investment Research.

“If the trend in the last two years continues, there is a possibility of investors welcoming in 2019 with gains for the market, especially after the more than 7% correction seen in 2018,” the report’s authors said.

The STI fell 18.5% from its 2018 peak to trough and down 7.3% YTD as the market tracked the movement of global equities which have gone on a major rollercoaster ride on the back of widespread selling across assets, markets and sectors largely due to escalating trade tensions between the US and China.

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Despite the increasingly tough business environment, OIR observed that Singapore corporate earnings are still intact in Q3 with no obvious cuts in earnings or dividend payouts with CapitaLand, DBS, SingTel, Singapore Exchange, ST Engineering and SATS amongst those that have consistently provided constant and healthy dividend payouts.

Following the Q3 results announcements, a number of STI companies have also resumed share buyback activities. Buybacks skyrocketed 81.67% MoM to $108.8m in November, data from SGX show, with local banks leading the buyback spree.

“Whilst the amount is fairly small versus total outstanding shares, the consistent buyback programmes this year is a positive signal, and typically, share buyback points to management’s confidence in the company’s prospects.”

Given the positive fundamentals, OIR expects the negative adjustments on Singapore corporates to be minor due to their diverse revenue streams. “Whilst most Singapore-listed companies do derive the bulk of their earnings from the domestic markets, overseas markets are important and any slowdown will affect the earnings of Singapore corporates.”

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Market rallies are also notably longer than the down-cycles in the last two decades. For instance, the STI gained 33% in February 2016 to April 2018 compared to the 27% decline in the nine-month period from May 2015 to January 2016.

Overall, upcycles in the Singapore market lasted an average of 31 months since 2000 whilst down cycles averaged 13 months of a ratio of 2.5.

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“Corporate earnings growth for 2019 is estimated at 7.1%, with PER of 12.1x and with an attractive dividend yield of 4.3%. In terms of PER, the STI is currently trading at close to historical trough levels and also -1 standard deviation below 7-year average. At these valuations, we believe smart money and longer term value investors will be re-entering the market soon.”