Singapore stocks are extremely cheap, but there’s a catch

Slow growth justifies low valuations, experts say.

Singapore equities are trading at multi-year lows. The benchmark FSSTI is trading at 18% below its long-term mean price-to-earnings ratio and at a 30% discount to its long-term price-to-book valuation, but analysts from UOB Kay Hian warn that this cheapness might be justified given slower earnings growth.

“The FSSTI looks inexpensive but the discounts look appropriate, given the mixed outlook and structurally weaker domestic growth prospects,” said UOB Kay Hian.

UOB Kay Hian also warned that although investors are hoping for an earnings rebound this year, bottomline growth is only likely in the second half of the year as many near-term headwinds persist.

“We forecast 2016 market EPS growth of 8.2% yoy, but see potential downside. Consensus forecasts continue to trend down with a 5.4% EPS growth (-1.8ppt) after a lacklustre 3Q15 reporting season. With limited earnings visibility, growing geo-political risks, rising rates and uneven growth, investors should buy on pullbacks,” UOB Kay Hian noted.