Stick with tried-and-tested blue chips as volatility escalates, investors urged

Corporate earnings will be disappointing this year.

Investors should take cover in the safety of large, well-established stocks to escape intensifying volatility and dismal revenue growth, according to analysts.

“With near-term uncertainties including interest rate hikes, Brexit and a presidential election in the US, we expect volatility to remain elevated and would advocate investing in large caps that offer a combination of reasonable valuations, strong financials, earnings resilience and sustainable dividend yield,” UOB Kay Hian said in a report.

UOB Kay Hian reckons that earnings growth will remain lacklustre this year, with the Straits Times Index forecasted to rise by a mere 4% by the year-end.

“Given the limited upside, we urge investors to take a selective and ‘sniper’ approach, targeting specific companies with earnings or dividend surprises,” the report noted.

For large caps, UOB Kay Hian favors companies with strong financials, earnings visibility and sustainable yield, including SingTel, City Developments and DBS, among others.
Meanwhile, DBS Vickers urged investors to bargain hunt for oversold blue chips, particularly property players and oil-related companies. DBS also sees tactical trading opportunities in bank stocks, which will be underpinned by higher US interest rate expectations.

“While acknowledging uncertainties that still exist, we turn from cautious in the past 1-2 months to neutral or cautiously optimistic going forward,” DBS said.