PhillipCapital’s head of research Paul Chew has kept his Straits Times Index (STI) target unchanged at 3,400 points for the FY2021.

In a Singapore strategy report dated Oct 8, Chew says he remains positive on the re-opening trade.

“Covid-19 is now a pandemic for the unvaccinated. Vaccinations globally could hit 50% by year-end, with developed countries leading the way at 65%-70%,” he writes.

 “Countries are cautiously re-opening borders for the vaccinated. Domestic travel and hospitality should enjoy a huge rebound when travel is relaxed. As vaccinations expand globally to include the young and anti-viral drugs are approved for use, we expect even more aggressive global re-openings,” continues Chew.

In his outlook statement, Chew says inflation is increasing in the global economy, especially in the US.


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“Major inflation indicators are at decade highs with little signs of abating. Even after three rounds of quantitative easing (QE) from 2008 to 2012, money supply hardly budged,” he says.

The current QE4 paired with fiscal stimulus has resulted in an “unprecedented” spike in liquidity into the real economy, he adds. “Cost pressures are building up for manufacturers and consumers, from commodity prices, PMI inputs, transport and energy. While not runaway, inflation is likely to be higher than market expectations.”

Furthermore, Chew sees upside risk for interest rates. Currently, bond yields are “historically too low” compared to the core inflation in the US.

“Since the 1960s, investors have been demanding real returns in interest rates that exceed inflation (or CPI). The repricing of higher interest rates forms the macro backdrop for our equity strategy,” he says.

“Prime beneficiaries of higher interest rates will be financials: banks for their variable-rate loans and excess deposits, and SGX for its collateral float from derivatives clearing members of $13 billion,” he adds.

For investors, Chew says he prefers financials, as asset reflation, economic recoveries and rising interest rates will be “major tailwinds” for banks.

Another preferred sector is property, with rising residential property prices in Singapore backed by affordability, still-low interest rates and increasing replacement costs.

“The property price index has risen around 7% over the past 12-months, a shade below its high-single-digit growth before cooling measures kicked in. Furthermore, over the past eight years, the index was only up 6.7%,” notes Chew.

As such, Chew’s pick among the sector is City Development Limited (CDL), which is the largest-listed residential developer in Singapore.

“Its stock has been languishing at multi-year lows despite a S$3bn pipeline of residential projects, a potential recovery for its 152 hotels and the potential monetisation of UK commercial assets through a REIT,” he says.

Chew has given CDL a “buy” call with a target price of $9.19.

Ultimately, the largest catalyst for the STI will be a complete re-opening of borders, says Chew.

The number of tourist arrivals in 2021 stood at 153,000, significantly lower than the 19 million arrivals in 2019, pre-Covid-19.

Many sectors will enjoy an uplift upon the return of travellers, he adds, with primary beneficiaries being the hospital and travel sector, malls, and even telecommunications.

“We recommend investors to stick to this theme, despite the disappointment so far. High vaccination rates have not resulted in “freedom days”. Instead, the recent spike in cases has placed a huge burden on the country’s healthcare infrastructure. This is being addressed, with living with an endemic Covid-19 being the goal,” he writes.

Touching on PhillipCapital’s recent initiation of HRnetGroup, Chew notes that the company has a rare return on equity (ROE) of above 100%, net cash of $300 million and a dividend yield of 4%.

“It is also benefiting from an upswing in job hirings. Scale, track record and balance sheet are its competitive advantages over smaller peers,” he says.

In the same report, Chew notes that the 3Q2021 was a “sluggish” quarter for the index, with a 1.4% decline q-o-q.

Despite 82% of the population being vaccinated from the Covid-19 virus, the number of cases in the city-state spiked to record highs in September.

Due to the rising cases, dining and office restrictions returned.


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The virus, which triggered a record high number of cases in Southeast Asia, hurt regional consumer stocks on the STI, namely the Jardine group.

Of the 30 constituents in the index, only nine made gains in the 3Q2021.

Restructuring themes such as CapitaLand Investment (CLI) and Singapore Telecommunications (Singtel) outperformed, he says.

The STI closed 11.66 points higher or 0.38% up at 3,112.81 points on Oct 8.

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