STI profit growth to settle at 4.5% in 2024: RHB

Bank earnings seen moderating.

Investors were advised to maintain exposure to defensive stocks and go with a bottom-up stock picking strategy at the Straits Times Index (STI) next year as corporate earnings growth is seen losing momentum, RHB Group said.

In a recent note, RHB analyst Shekhar Jaiswal predicted STI’s earnings per share (EPS) to rise by 4.5% next year, while the stocks under its coverage are projected to post an EPS growth of 8.7%. 

The outlook has weakened compared to the estimated 14.5% market cap-weighted EPS growth for full year 2023, according to RHB.

“Amid the expectation of moderate index growth, a thematic approach and bottom-up stock-picking will be more relevant for Singapore,” Jaiswal said, suggesting investors to “opportunistically start building positions in REITs (and) exposure to an improving outlook for manufacturing and tech sectors; (as well as look for) high-yield opportunities beyond REITs.”

Retaining exposure to quality companies offering defensive earnings while exploring bottom-up opportunities in small-cap stocks are also some of the investment themes for the first quarter.

All sectors are poised to register faster earnings growth in 2024 except for the banking sector, whose EPS growth is expected to slow down dramatically.

Next year also opens an opportunity to pick up cheap stocks as Jaiswal sees the index’s valuation as inexpensive against its long-term average and when compared to its regional peers. The analyst forecasted STI to close 2024 at 3,380 points.

READ MORE: Investors advised to hold defensive portfolio as STI movements remain erratic.

Meanwhile, RHB expects the Singapore economy to expand by as much as 3% next year, buoyed by improving external conditions, a softening inflation and a reduction in interest rates.

“This will create ample opportunities for investors in Asia’s highest-yielding equity market,” Jaiswal said.

“If our positive view of the economic outlook materialises, we could see some positive revisions to the 2024 STI EPS,” he added.