(June 16): Analyst expectations for Singapore equities have yet to catch up with the optimism displayed by some global investors.

Fund managers and strategists at Fidelity International Ltd., Citigroup Inc. and Bank of Singapore Ltd. are bullish on the city-state’s US$393 billion (S$547.62 billion) stock market, citing valuations, fiscal stimulus and the reopening of the economy. The sell side, however, sees only limited upside for the nation’s benchmark index.

The Straits Times Index, which has risen 18% from a low in March on Monday (June 15), is projected to rise another 10% over the next 12 months based on analyst consensus, close to the lowest estimated return since 2018, according to data compiled by Bloomberg. The gauge dropped as much as 1.6% on Monday, set for a third consecutive day of losses, its longest losing streak in more than two weeks.

low expectations

Singapore is “one of the cheapest” markets in Asia and its economy is reopening, Fidelity fund managers, Paras Anand and George Efstathopoulos said in a web briefing on Thursday.

The Southeast Asian nation has started to ease its nationwide lockdown this month after providing stimulus amounting to about 20% of its gross domestic product to contain what may possibly be its worst contraction since independence in 1965. The city-state is on track to lift more restrictions on companies and residents by the end of June.

See: Phase Two to start on June 19; 'we cannot fool the virus' says Gan

The STI is still down about 18% this year and is trading near a record-low valuation of 0.9 times book value, significantly lower than the 2.1 times for the MSCI All-Country World Index.

value play

See also: STI plunges back into the red following second wave of Covid-19 infections and Wall Street selloff, and STI gains on earlier than expected "Phase 2"

For Eli Lee, head of investment strategy at Bank of Singapore, the low valuations for Singapore stocks will work in their favour as “investors are looking to participate by seeking value plays which have lagged,” he said.

The sell side may have limited optimism for Singapore stocks, but the global rotation toward cyclical and value shares will continue to support the local market in the near term, he said.

See also: Pullback in US stocks could be opportunity to add 'structural long-term winners', say Bank of Singapore analysts

Ken Peng, head of Asia investment strategy at Citi’s private-banking arm, said Singapore is among the team’s top picks due to the stimulus given by the nation’s government to contain the damage caused by the pandemic. The bank bought shares of Singaporean companies last month and expects industrial, export and transportation segments to do better than others.