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Looking back at 2019

Jeffrey Tan
Jeffrey Tan • 4 min read
Looking back at 2019
SINGAPORE (Dec 20): Singapore’s open economy makes it vulnerable to the ebb and flow of global trade. This inevitably has an impact on the local stock market.
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STI looks set to end the year higher; both earnings and yield growth expected in 2020

SINGAPORE (Dec 20): Singapore’s open economy makes it vulnerable to the ebb and flow of global trade. This inevitably has an impact on the local stock market.

Throughout 2019, the Straits Times Index has been volatile, hitting several peaks and troughs, amid the heightening trade tensions between the US and China. From a low of 3,012.88 points in January, the benchmark index hit a 12-month high of 3,407.02 points in April, before retreating to close at 3,206.09 points on Dec 16, making a 5.5% gain year to date.

Against this backdrop, CGS-CIMB Research says the Singapore equity market is the cheapest in the Asean region. This is because the local stock market is trading at 12.6 times its 2020 earnings forecast on the back of a core earnings per share (EPS) growth of 3% to 4% in 2019 and 2020. Its regional peers — Malaysia and Thailand — however, have seen earnings decline in 2019, it adds.

DBS Group Research says Singapore is one of the more attractive equity markets in Asia, given its high single-digit EPS growth of 8.1%. It trades at 12.9 times forward 12-month earnings. Its dividend yield of 4.2% is also among the highest in Asia. “We see upward price-earnings rerating potential should the macro headwinds subside,” DBS analysts Yeo Kee Yan and Janice Chua write in a note dated Dec 12.

Singapore’s corporate earnings growth could be explained by its reduced reliance on the domestic economy. According to CGS-CIMB, companies here have been increasing earnings exposure from beyond Singapore, making the health of the local economy increasingly irrelevant — and the well-being of the economies of Asean and Asia relevant. “We have not seen much direct benefit to Singapore from the continual on-off status of the US-China trade talks. In fact, Singapore’s growth in 2019 has been tepid and buffeted by decreased trade flows,” CGS-CIMB head of research Lim Siew Khee writes in a Dec 9 note.

Still, 2020 is expected to be an election year for Singapore. How will this affect the local stock market? CGS-CIMB says there is no correlation between the election results and the investment implications for the city state’s politically linked stocks, unlike other countries. In four out of the last six elections, market reactions before and after were muted, it says. The exceptions were in 2001 and 2006, when global events overshadowed local events, it adds.

Increasing foreign fund flows will also drive Singapore’s stock market. This, CGSCIMB believes, could be due to “some inherent spillover” from the social and political unrests in Hong Kong. This is despite the Singapore authorities’ warning to local corporates “not to be predatory” over the situation in Hong Kong, it says. “We believe the diversion of funds into Singapore was fuelled by investors seeking a safe haven,” says Lim of CGS-CIMB.

According to CGS-CIMB, the domestic banking unit deposits recorded $7.1 billion in foreign currency deposit inflows in 3Q2019 — the largest quarterly increase over the past decade. It reckons that consistent foreign inflows could persist until some resolution to the Hong Kong protests is in sight, though the initial euphoria has since died down, with October foreign inflows normalising to just $579 million.

Increasing tourist footfall is also a positive for Singapore’s stock market. Tourist numbers grew 4% y-o-y in October and 2.3% y-o-y in the 10-month period, notes CGS-CIMB. Chinese tourist arrivals grew 5% y-o-y in October and 4% y-o-y in the 10-month period. Revenue per available room was up 4.2% y-o-y in 3Q2019, compared with 3.4% in the same quarter last year.

CGS-CIMB reckons hotels could surprise on the upside in 2020, with a number of biennial events being held here. In addition, Singapore has retained its No 1 position as the most popular Asian destination for business meetings and events for the fourth year running. CGS-CIMB was citing from venue solutions provider Cvent’s list of the Top 25 Meeting Destinations in Asia in 2018.

So, where are the opportunities in Singapore’s stock market? Maybank Kim Eng says it is “overweight” the banking sector, where loan growth, while slowing, is still in the mid-single digit. Net interest margins should also continue to rise, with loan yields catching up with past rate hikes, it says.

The industrial and transport sectors are also favoured by Maybank KE. The broker says passenger traffic, low-cost carrier fleet growth, the development of secondary aviation hubs and Smart City investments more than offset the current trade tension-related headwinds in cargo volumes.

On real estate investment trusts, Maybank KE says industrial REITs should continue to see favourable supply-demand dynamics, as there is limited new supply coming online in the next 18 to 24 months. Acquisitions and consolidation could be a potential theme, as the larger REITs have clear mandates and substantial debt headroom for such moves, it adds.

In the following pages, The Edge Singapore gives a summary for each sector.

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