The Straits Times Index (STI) was down 11.8% in 2020, making it the worst performer in Asia, says PhillipCapital’s head of research Paul Chew in its Singapore strategy report for 2021 dated Jan 5.

The index’s poor performance coincided with Singapore’s worst gross domestic product (GDP) contraction on record of between -6% and -6.5% in the same year.

“The pandemic triggered consensus earnings to be slashed around 27% this year. The worst-hit sectors were the pandemic epicentres of transportation (-30%) and hospitality REITs (-20%). Sectors that managed to clock gains were industrials (+9%), industrial REITs (+10%) and healthcare (+30%),” says Chew.

However, all is not lost. Chew says he believes that Singapore’s equity market is in a “sweet spot” as the republic’s containment of the pandemic will lead to an earlier and more pronounced economic rebound, compared to other countries where the pandemic is still ongoing.

Phase 3 of reopening should add to the economic momentum as bigger group activities resume, he notes.

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“Other conditions conducive for an equity rally include low interest rates, undemanding valuations and attractive dividend yields. Vaccines and populist fiscal stimulus offer downside protection to global growth, in our view,” says Chew.


SEE: SGX, UOB are PhillipCapital's top picks in banking and finance sector


The approval of Moderna’s and Pfizer’s vaccines can support 1.8 billion doses for 900 million people in 2021. Should all the 10 leading vaccines be approved, there is capacity for 9.3 billion doses in 2021, which is enough to cover some two thirds of the global population and most of the developed markets, which can bend the curve of infection in 2021.

“Other factors that could unsettle markets are monetary-policy misjudgements by the Fed or foreign policy faux pas by the new US administration. But we think the likelihood of such pitfalls is low,” he adds.

In 2021, Chew says he favours the hospitality, banks and REITs sectors.

“We are taking a longer-term stance on hospitality. Pent-up demand for travel is likely to result in a prolonged upcycle for the hospitality industry,” he says.

He has, however, warned against buying into the steep drops of airline stocks, citing two reasons.

“Firstly, competition in the industry has not abated due to support from governments. Secondly, airlines are now even more leveraged than before the crisis,” he says.

For banks, Chew says he expects multiple headwinds to change direction.

“As our economy comes out of lockdown and loan moratorium ends, we expect the aggressive pre-emptive provisioning to reverse,” he says. “The next positive could be the Monetary Authority of Singapore’s (MAS) removal of dividend caps.”

Where REITs are concerned, both asset values and dividend payments suffered in 2020 as it introduced unusual volatility for risk-averse yield investors.

With global negative bonds at a record US$17.7 trillion ($23.33 trillion), the search for yield remains integral to our equity strategy.

Chew says he prefers US REITs for their attractive 9% yields.


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“While work-from-home trends had already taken root in the US before the pandemic, average leases of five years should anchor near-term yields, even if some tenants shift more aggressively and permanently to home-based work arrangements,” he notes.

Under the Phillip Absolute 10 Model Portfolio, the brokerage has recommended “buy” on Ascott REIT, Asian Pay TV Trust and Manulife US REIT with target prices of $1.15, 15 cents and 92 cents respectively, for their yield, which stands at 3.7%, 8.8% and 8.6%.

PhillipCapital has also recommended “buy” on Frasers Centrepoint Trust (FCT), PropNex and Thai Beverage for their dividend and earnings growth, with target prices of $2.79, 78 cents and 74 cents respectively, with yields of 5.4%, 5.1% and 3.2%.

Stocks with re-rating plays are CapitaLand, ComfortDelGro, Keppel Corporation and Yoma, which the brokerage has given “buy” calls with target prices of $3.82, $1.83, $6.12 and 46 cents respectively.

As at 9.49am, shares in Ascott REIT, Asian Pay TV Trust and Manulife US REIT are trading at $1.07, 11.7 cents and 74 US cents respectively, while FCT, PropNex and Thai Beverage are trading at $2.53, 77.5 cents and 72.5 cents respectively.

Shares in CapitaLand, ComfortDelGro, Keppel Corporation and Yoma are trading at $3.28, $1.67, $5.45 and 29.5 cents respectively.