UOB Kay Hian remains bullish on Singapore equities despite a potentially bumpy 2H2021 ahead.
“Although the Asian region faces a more bumpy recovery post Covid-19, we believe the STI has tailwinds from Singapore’s robust GDP growth and positive sentiment from the re-opening,” says analyst Adrian Loh and the Singapore research team in a June 28 research note.
The UOB Kay Hian team highlights that the Singapore market has performed “extremely well” year to date, having increased 8.8% as of June 22, compared to mixed performances from other regional Asian markets, with the exception of Thailand. They expect this upwards trend to continue as the global economic backdrop picks up and Singapore's restrictions ease.
To that end, the team remains long on equities and has upgraded its end-2021 STI forecast slightly to 3,456 points from 3,450 points previously.
Supporting this is their view that Singapore market valuations remain inexpensive in contrast to US and European stocks. “Closer to home, the STI is the most inexpensive on a P/B basis and relatively inexpensive on a P/E basis. In addition, the STI has one of the highest yields in the region with potential upside from banks and REITs,” the team adds.
The team also expects long-term bond yields to remain low for the next 12 months, given the US Federal Reserve’s statement at the June Federal Open Market Committee meeting that interest rates will remain close to zero, with rate hikes signalled to happen in 2023. “The potential rate hikes (as well as tapering) in 2023 means that for 2021 and well into at least 1H2022, equities will continue to be favoured over bonds, in our view,” the team comments.
In addition, the team expects a V-shaped recovery in earnings for Singapore companies in 2021. “With the exception of a small earnings decline for healthcare, most sectors are expected to see core EPS growth in 2021 and 2022 with shipyards, telecoms and land transport exhibiting the highest delta vs 2020,” they say.
See also: UOB Kay Hian remains long on equities, sees tailwinds for STI despite bumpy regional recovery in 2H21
Given the outlook, the team continues to like financials, selected re-opening plays, and Covid-19 resilient sectors.
Top stock picks include OCBC and SGX for financials and ComfortDelGro, Frasers Centerpoint Trust, Genting Singapore, Lendlease Global Commercial REIT, and Thai Beverage for re-opening plays.
For Covid-19-resilient sectors, the team likes tech companies Nanofilm Technologies and US-listed Sea, as well as healthcare companies including Riverstone and industrial REITs such as Ascendas REIT and Frasers Logistics Trust.
In addition, UOB Kay Hian is bullish on companies whose earnings are predominantly from China where the Covid-19 situation has been contained, such as Yangzijiang Shipbuilding. The team also likes companies undergoing significant strategic transformation, such as Sembcorp Industries.
The STI closed 0.2% lower at 3,124.19 on July 1.