SINGAPORE (Dec 18): Credit Suisse expects the SIBOR to rise to 2% by end of 2016, from 1.1325% now, following the much-anticipated rate hike by the US Fed.

Due to the long lead time before the hike finally kicks in, investors have already priced much of the effect in. MSCI Singapore has corrected 21% from its high, versus corrections of 10-19% during the previous tightening episodes in 1994, 2004, and 2013, notes Credit Suisse analyst Gerald Wong in a Dec 17 note.

“In each of these episodes, MSCI Singapore outperformed MXASJ three-month performance after tightening. Across sectors, banks outperformed MSCI Singapore three and six months after Fed tightening in the 2004 and 2013 episodes,” writes Wong.

Banks are set to benefit from the hike because of higher net income margins. Every 100 basis points in SIBOR, for example, will boost DBS’ NIM by around 15 basis points, or 5-6% of its earnings, estimates Credit Suisse.

“However, asset quality concerns are likely to linger, as there appears to be a wide gap in terms of market perception and bank managements' confidence in the asset quality of their loan books,” cautions Wong.

Meanwhile, while higher rates will be negative for the property sector, the effects will not be “catastrophic”, as mortgage payments remain “manageable” and will not result in significant instances of distressed sales and price declines. “A further property price decline of 5-10% in 2016E could set the stage for a recalibration of stringent property measures in 2H16E,” writes Wong. The top pick among property for Credit Suisse is CDL.

Higher US rates will result in a weakening Singdollar versus the greenback as well. Credit Suisse’s forecast is $1.47 to the USD in 12 months’ time.

Other counters favoured by Credit Suisse are retail REITs like CMT, MCT and FCT; among telcos, SingTel, for least potential hit from possible fourth competitor. Other preferred stocks include SIA, Wilmar, Genting, SCI, SATS, and Raffles Medical.