SINGAPORE (Jan 3): RHB is betting on top picks in Consumer Staples, Healthcare, Land Transport, Offshore & Marine and REITs sectors to hold up well against a weak macroeconomic environment.

RHB says careful selection of stocks will be critical and recommends that investors stay selective within its preferred sectors.

Its economics team expects Singapore to witness another challenging year in 2017, with an expected decline in GDP growth rate, slowdown in exports growth, decline in manufacturing output and moderation in private consumption.

“We forecast GDP growth to slow to 1.2% in 2017, from an estimated 1.4% in 2016. This compares with the consensus GDP growth estimate of 1.5% for 2017. We believe easing of immigration policies and property cooling measures could provide some relief, but both seem unlikely in the near term,” says RHB.

For sustained earnings growth outlook, RHB likes Dairy Farm for its recent efforts to improve operating efficiencies and enhance margins, City Developments for its asset monetisation ability, nimble capital management and continuing acquisition potential and ComfortDelgro for its well diversified business despite rising competition from ride-hailing apps, as well for its gradually increasing dividend payout.

RHB also expects more downgrades to index earnings. The STI’s earnings experienced a contraction in 2016. And although the consensus 2017 index EPS estimate has declined by 15% during 2016, consensus is still forecasting EPS growth of 5% in 2017,

“We believe may be difficult to achieve, if our more bearish view on the macroeconomic drivers holds true,” says RHB. “We estimate 2017 EPS growth at 3.5%, which may also be at risk if there is a sharp deterioration in the economic outlook from current projections.”

REITs is another investing theme and RHB likes CapitaLand Commercial Trust for its resilient office sector portfolio that can weather the near-term sector headwinds. The other favoured counter is Manulife US REIT as it is a proxy to the rebounding US economy and strengthening USD.

For quality small-caps, RHB suggests investors go for Spackman Entertainment and Singapore Medical Group for their strong and almost certain earnings growth potential.

Lastly, Keppel Corp could emerge as a play on recovery in oil prices while Raffles Medical could show strong earnings growth, aided by higher contribution from Holland V and completion of its hospital extension.

RHB expects the benchmark Straits Times Index to end 2017 at 3,010 which offers 4.5% return.

“Amidst the lack of strong re-rating catalysts, we value the FSSTI based on forward P/E of 14x, which is in line with the historical average P/E of 13.9x and also where the index is trading right now,” says RHB.

Including a 3.9% dividend yield for the market, RHB forecast implies a total shareholder return of 8.4% in 2017.