RHB Group Research analyst Shekhar Jaiswal believes there are opportunities to accumulate stocks as the Singapore market awaits clarity on the Covid-19 situation.

This comes after the Straits Times Index (STI) recorded a “weak” 3Q2021 performance, declining 1.2% on a q-o-q basis.

Jaiswal anticipates markets to consolidate before moving higher. “We expect the STI will continue moving sideways as investors await the eventual relaxation of current restrictions in Singapore, “ he says in an Oct 7 research note.

See: UOB Kay Hian remains long on equities, with OCBC, SGX, ComfortDelGro among top picks

Viewing the current tightened measures as a “speed bump”, he maintains that a gradual reopening of the economy will happen over the next 12 months. He has maintained his end-2021 STI target of 3,410 points, based on a P/E ratio of 14.5 times.

The analyst believes investors will look out for a ramp-up in healthcare capacity and a decline in Covid-19 case numbers, which in turn will enable the government to relax some of the restrictions in place.

In the meantime, Jaiswal points out that valuations in the market remain compelling, noting that at a forward P/E ratio of 12.9 times, the STI is still trading below its historical average P/E since January 2008. It also has the cheapest valuation among Asean equity markets, while its 4.3% forward yield is Asia’s highest.

“We believe current share price weakness offers opportunities to accumulate stocks that offer an operating leverage to eventual economic re-opening, as well as counters that now offer better earnings visibility – either from business restructuring or structural/inorganic growth,” he remarks.

Jaiswal remains positive on financials, industrials, transport and industrial REITs. 

 “We see Suntec REIT and ComfortDelGro as picks that will see reversal in their share price weaknesses once current restrictions are eased. OCBC Bank and United Overseas Bank are the best proxies to continued economic growth and the expected rise in interest rates,” he highlights.

For REITs, Jaiswal believes that share prices could be volatile amidst expectations of an early rise in interest rates. Nonetheless, he views industrial REITs will continue to outperform. “We recommend exposure to Ascendas REIT, AIMS APAC REIT, and ESR REIT,” he says.

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He also sees integrated players like First Resources and Wilmar International as good proxies for investors to ride the recent wave in crude palm oil price rises, while Singtel remains a good proxy for value unlocking and eventual reopening of regional economies.

Photo: Bloomberg