Singapore stocks to rally as foreign funds flow back

Institutional investors are buying again.

Large foreign funds have dumped Singapore stocks in recent months, but analysts say that the local equity market is finally headed for a rebound as institutional investors strike back.

A report by RHB Research said that large funds have been mostly net sellers for Singapore over the past six months, but this trend is likely to be reversed soon due to the recent improvement in risk appetite.

The improvement has been mostly driven by the continued optimism of further easing in China and the stabilisation of crude oil prices, RHB said.

In terms of valuation, the Singapore market is painfully cheap, having fallen by a staggering 20.2% from its previous peak in April 2015.

However, RHB Research cautioned that bullishness could be tempered by weak domestic earnings growth and the possibility of an easing in Monetary Authority of Singapore's upcoming policy meeting. RHB also noted that within the ASEAN, investor interest is still weighted toward Indonesia and Thailand.

"Nonetheless, we expect the market to progressively post a rebound on the back of Singapore’s safe haven status and laggard play. We expect the recovery plays in Singapore’s large cap companies to step up first, before the upswing percolates down to small-mid caps,” RHB Research said.