Could the worst be behind the Singapore market? Despite the worst of regional lockdowns in 2Q2020, only 28% of combined STI and MKE (Maybank Kim Eng) coverage stocks missed Street expectations, with an equal number beating expectations, note Maybank analysts Thilan Wickramasinghe, Gene Lih Lai and Kareen Chan in an August 26 note. 

The analysts posit that the ultra-bearish pre-lockdown EPS cuts in 1Q2020 may not be fully materialising. Indeed, 23% of stocks saw EPS upgrades vs. just 12% in 1Q2020. “Core-PAT fell 58% y-o-y. More than a third of that contraction was driven by industrials, followed by financials. Q-o-q contraction was slower (-31% vs. -46% 1Q2020) & this deceleration may become more pronounced as movement controls are further eased.”

“Fears of a worst-case scenario seem to have overshot lockdown reality, with less earnings misses and higher earnings per share (EPS) upgrades in 2Q2020. Progressive ramp up of regional economic activity in 2H2020 has the potential to strengthen these trends further.”

That said, significant risks still exist, particularly in the form of fresh cases of Covid-19 infections, say analysts. Also on the horizon are the side effects of government stimulus and heightened US-China tensions. 

Further relaxing of Singapore’s safe-distancing restrictions may drive community COVID-19 infections higher, potentially leading to localised lockdowns like those seen in Hong Kong, New Zealand and Australia, say Maybank analysts. 

Continued border closures and vaccine uncertainty may curb inbound travel needed to revive frontline Covid-19 sectors, while the expiry of wage support and regional loan moratoriums may drive higher unemployment, business failures and non-performing loans, note analysts.

In the lead up to the US elections in November, Maybank’s alternative data analysis on bookmaker betting odds points to an improving probability of a second term for President Donald Trump. This may encourage ratcheting up of existing US policies towards the Mainland, say analysts.

“In a backdrop of uncertainty, but also substantial fiscal & monetary stimulus, we seek to balance defence with growth,” write analysts. 

Maybank’s stock picks fall into three broad categories, namely in structural growth, dividend visibility and diversification. 

Within structural growth, Maybank prefers Wilmar (target price $5.24) and First Resources (TP $1.79) for rising calorie consumption in emerging markets, and UMS (TP $1.36) for secular trends in 5G, AI and data-centres.

With supply constraints, rising data centre demand and revenue visibility, Maybank prefers Ascendas REIT (TP $4.00), Mapletree Industrial Trust (TP $3.40), MLT (TP $2.40), Manulife US (TP $1.15) and Netlink NBN (TP $1.07).

Finally, for geographic diversification and incremental business growth from easing lockdowns, Maybank’s stock picks are Comfortdelgro (TP $1.76) and DBS (TP $22.90).