Stay defensive after recent market bounce, investors urged

Stocks are undervalued but growth will stay muted.

After a turbulent couple of months, the benchmark Straits Times Index (STI) has managed to recoup some of its losses and is now trading at its early-2016 levels.

Despite the recent market bounce, however, analysts caution that investors shouldn't be overly excited because global growth prospects remain muted.

"We would advocate stock picking, defensive positions and would look to buy on weakness with a bias for yield stocks," UOB Kay Hian said.

UOB Kay Hian noted that there are certain deep-value stocks in the local market, including selected offshore & marine players, developers, and mid-caps.

"Our study indicates the shipyard/oil services sector is trading at deep value, even after the recent bounce. With a view that oil prices are likely to be higher in 1-2 years’ time, we see selective value in the sector," UOB Kay Hian noted.

The report added that deeply undervalued stocks could be in vogue, with the latest privatisation offer for Osim.

"In our view, several stocks with similar M&A potential, with an added attraction of compelling dividend yield, include Valuetronics and Innovalue," the report noted.

"Lower rates for longer means yield will remain a core holding. Against this background, we believe stock picking in S-REITs could yield handsome returns. Our key picks include K-REIT for deep value and ART as well as MLT, both for diversification. Other than S-REITs, we also favour selected dividend plays such as SingTel and SingPost,"  the report noted.