There’s still a reason to be bullish on extremely cheap Singapore equities

Low valuations don’t do justice to sound fundamentals.

Singapore’s stock market has been swimming in a sea of red in recent weeks, but Morgan Stanley believes that there are still plenty of reasons to remain upbeat on local equities.

Morgan Stanley said that cheap stock valuations in Singapore do not accurately reflect companies' sound fundamentals.

“We believe that stock valuations in Singapore, both on an absolute and relative basis compared to history, have undershot fundamentals. We see a relatively favorable investment outlook for Singapore, based on its attractive valuations combined with trough cyclical profitability, potentially reduced economic and currency volatility,” said Morgan Stanley.

The report also noted that there is a “reasonable probability” that Temasek-owned firms will undergo substantial restructuring and internalization in coming years.

“We believe that although performance of GLCs [Government-Linked Companies] alone is less likely to drive the market over the next couple of decades, GLCs will likely continue to play an important role in driving Singapore’s equity market over the next one to three years,” Morgan Stanley said.