SINGAPORE (Jan 20): Daiwa Capital Markets says banking on Singapore banks could be investors’ best play amid global market jitters as Donald Trump begins his presidency on Jan 20.

“Donald Trump’s trade and economic policies are the key external factor that could drive the direction of the Singapore stock market over the coming year,” says Daiwa lead analyst Ramakrishna Maruvada in a Singapore strategy report on Thursday.

“We think being long the banks is the best way to play the early phase of Trump’s presidency,” he adds.

Daiwa is maintaining its “overweight” rating on Singapore banks.

Having underperformed against the benchmark ST Index for most of 2016, Singapore banks had rallied following the US presidential election result in November to finish the year as market outperformers.

Singapore’s largest bank, DBS, led the way with post US election gain of 13.1%.

“The catalyst for the rally was probably the market’s perception that global interest rates could rise faster and higher under a Trump administration,” says Maruvada.

According to Daiwa’s US chief economist Mike Moran in a Dec 2016 report, the Federal Open Market Committee (FOMC) is forecast to hike interest rates three times in 2017 and another four times in 2018.

In another report, Daiwa economist Kevin Lai warns that potential capital outflows on the back of a strong US dollar could be a key concern for Singapore and other Asian economies.

As such, Maruvada expects that the Singapore economy is likely to face a rising domestic interest-rate environment; a depreciating Singapore dollar against the US dollar; and a weak economy with GDP growth forecast of 1.4% in 2017.

“We believe such an operating environment is positive only for the banks,” Maruvada says.

The analyst says rising long-term bond yields would lessen the relative appeal of yield stocks such as REITs and telcos, while property developers could see demand for physical property dampened as the rise in SIBOR increases mortgage payments.

“Bank shares could be a safe haven in the market in an environment of rising interest rates,” Maruvada says.