Singapore a ‘place to be' for equities investors: Credit Suisse

It could deliver as much as 15% earnings growth in 2018, but growth for REITs is limited.

Credit Suisse has picked Singapore as a “place to be” for equity investors amidst market headwinds in the second half of 2018, along with its other picks China and South Korea.

“Singapore is at the epicentre of the world with the high profile meeting between Kim Jong-un and Donald Trump taking place [last] week," Credit Suisse senior investment strategist Eddy Loh said. "In the same vein, Singapore is the ‘place to be’ for equity investors as the market offers a blend of cyclical exposure, is a beneficiary of higher interest rates and trades at an attractive valuation.”

The recent 5% pullback over the last one month has also provided an attractive entry opportunity, he added.

Loh noted that 2017’s rally in Singapore equities was driven by valuation multiple re-rating on recovery in global trade. “Although valuations have de-rated over the past one month with the market now trading at a reasonable 12-month forward P/E of 13.3x, in line with its 10-year average, we believe earnings will do the heavy lifting for the market,” he added.

Apart from the rising interest rate (SIBOR) environment benefiting banks, positive sentiment in the domestic property market and higher oil prices are driving a rebound in earnings, the strategist said. “In fact, Singapore is the only Southeast Asian market, which has witnessed positive earnings revisions over the past three months, and is likely to deliver 15% earnings growth in 2018.”

Also read: Singapore companies' earnings could jump 14% in 2018: Morgan Stanley

Credit Suisse thinks the Singapore market will grind higher and financial stocks could lead the market. “Singapore banks corrected by 6% in May, driven by the decline in the US 10-year Treasury yield from a high of 3.12% to 2.93%; this provides an attractive entry opportunity. The fundamental outlook remains robust given the strong credit growth environment, improving asset quality and margin expansion, leading to ROE uplift,” it added.

SIBOR could also rise over the coming months as the Fed hikes policy rate four times this year, which will lift the ROE of the Singapore banks. “Conversely, rising interest rates are likely to continue to weigh on REITs, particularly given their expensive valuation. As such, the potential for capital appreciation appears limited,” Loh argued.

Property stocks currently appear attractive as current valuations have not yet priced in the robust demand and rising home prices, he said.

Singapore equities are amongst Asian equities have already been showing early signs of that resilience in the recent months to both a stronger USD and rising bond yields, which tend to have negative impact on regional markets through the liquidity channel. “We expect the USD to weaken in the coming months. If this comes to pass, it could trigger a rally in Asian equities as investor positioning is currently very light in the wake of the rather large US$17b outflows year-to-date,” Loh said.