For all the prevailing gloom, there are still some market watchers keeping an upbeat view. Barnabas Gan of RHB Group Research is one. He sees Singapore’s GDP growing by 2.0% this year, with recovery momentum likely to be observed in 2H2023.

The official forecast, as at May 25, was for Singapore to barely avert a recession with fullyear growth falling between 0.5% and 2.5%. GDP in the first three months of the year barely scraped by with 0.4% y-o-y growth, moderating from the 2.1% seen in 1Q2022, no thanks to manufacturing which contracted 5.6% y-o-y. On a q-o-q basis, the GDP contracted by 0.4%, reversing from the 0.1% growth in 4Q2022.

While Gan expects manufacturing to continue to contract y-o-y for the first half, a gradual uptick is seen in the second half. “Since the start of the year, we noticed that the performance of advanced economies has been relatively resilient, thus translating into the return of global risk appetite and improving momentum in externally-related economic data across most of Asean,” says Gan.

He notes that in Singapore, the decline of non-oil domestic exports (NODX) and industrial production appears to have stabilised and is expected to rise in the coming months. Tourism-related indicators also support Singapore’s growth prognosis in 2H2023, following the uptick in inbound arrivals and recovering hospitality-related sectors such as F&B, retail, hospitality and transport.

With a recovery in sight, Gan maintains his view that Singapore will not see a technical recession this year although the risk of one for 1H2023 has been magnified with the q-o-q seasonally-adjusted contraction in 1Q2023. A technical recession is defined as two consecutive quarters of negative q-o-q declines.

The pressure felt by the export-reliant manufacturing sector is offset by the continued expansion in the services sector, which Gan believes will see a strong recovery in 2H2023, given the potential front-loading domestic retail spending in anticipation of another round of GST rate hike next year and seasonal retail promotion events such as Black Friday, Single’s Day, and the F1 race which typically occurs in September.

See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/news/singapore-economy/local-banks-resilient-2023-mas-warns-deteriorating-asset-quality-climate?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>Local banks 'resilient' in 2023, but MAS warns of deteriorating asset quality, climate transition risks</a>

On the other hand, Gan sees three key catalysts that will support Singapore’s growth momentum in 2H2023. He expects risk appetite to continue to recover. This should happen on the back of near-peak rates seen in developed markets, which is likely to price in some rate cuts next year; higher tourism levels and the resiliency of the overall services sector that should continue to support Singapore’s growth; and recent high-frequency data such as trade and industrial production, which have seen a recovery in momentum.

Inflation and growth decline

However, some downside risks persist, especially if the global external environment remains weak in 2H2023 amid relatively “sticky” inflation in the immediate months. Notwithstanding the recovering momentum in several high-frequency indicators, annual declines are still seen in key growth cylinders like trade and manufacturing. This is in line with the continued global external headwinds seen in demand for selected electronic products, such as integrated circuits, electronic capacitors, personal computers and general consumer electronics.

See also: <a class='gtm_see_also_2_inread' style='text-decoration: underline;' href='/news/singapore-economy/singapores-headline-and-core-inflation-figures-increase-47-and-33-october?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>Singapore’s headline and core inflation figures increase to 4.7% and 3.3% in October</a>

Other global-related uncertainties, which may dampen risk appetite, include the ongoing US debt-ceiling negotiations and the slower-than-expected Chinese economic recovery despite its reopening efforts.

Unfortunately, inflationary pressures will remain high, albeit with some easing. Gan estimates that Singapore’s core inflation momentum will ease 0.1%–0.2% m-o-m in 4Q2023, in line with long-term averages from 2010 to 2019.

In the near term, inflationary pressures should remain sticky because of costlier agricultural produce, worsened by impending unfavourable weather patterns, he says. Also, despite the slowing economy, private consumption is still going strong, with discretionary spending outperforming essential consumption in the second half of the year.

“We observe that official rhetoric is sounding more dovish, citing ‘downside risks’ to inflation on the back of a ‘sharper-than-projected downturn’ in the advanced economies, in line with the recent MAS statement, which added that core inflation is expected to end the year ‘significantly lower’ in 2023,” says Gan, who is keeping his forecast for Singapore’s headline and core inflation at 4.0% y-o-y in 2023, compared to official estimates of 5.5%–6.5% and 3.5%–4.5%, respectively.

With the slowing economy, Singapore-listed companies in general have some wind taken out of their post-pandemic recovery. CGS-CIMB’s team of analysts, in their strategy report on May 16, observes that the 1QFY2023 earnings report card was “lacklustre”.

Of the companies covered by the brokerage’s research team, earnings misses outpaced hits 10 to seven, as external-oriented companies, weak commodities prices and company-specific factors impacted performance.

Nonetheless, the local market is being supported by the inexpensive valuation of just over 10x forward P/E and an attractive dividend yield of 5.3%–5.4%. “While we think market performance will likely continue to be data-dependent in the near term, we think investors are being paid to wait for upcoming tailwinds from a potential peak in the Fed rate hike cycle,” note the analysts led by Lim Siew Khee and Lock Mun Yee.

To stay ahead of Singapore and the region’s corporate and economic trends, <a class='gtm_see_also_3_inread' style='text-decoration: underline;' href='/section/latest?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>click here for Latest Section</a>

CGS-CIMB is keeping its year-end STI target of 3,350 points while suggesting investors stay positioned in the capital goods sector and high dividend yield plays such as the REITs, which recently reported earnings that came in generally in line with expectations. “REITs across all segments reported positive rental reversions with hospitality REITs showing strong RevPAR growth y-o-y. While the outlook has turned a bit more cautious owing to slower macro conditions, most REITs have not lowered their rental guidance,” says CGS-CIMB.

https://s3.ap-southeast-1.amazonaws.com/www.theedgesingapore.com/public/usr/ash5m1/819be1-1090-cover-Singapore-credit-CGS-CIMB.JPG

Here are the stock picks

Besides these stock picks, CGS-CIMB has flagged five other potential turnaround counters, poised to enter their respective inflexion points in earnings recovery or changes in business models.

CGS-CIMB says the worst is over for ComfortDelGro, as the operator of taxis, buses and trains is set to enjoy resumption of earnings growth on stronger taxi earnings and better cost pass-through for its public transport segment. CGS-CIMB expects the company’s current 2QFY2023 earnings to further improve and potentially return to positive y-o-y growth and not merely sequential q-o-q gains.

With China and Hong Kong opening up, the worst is likely over for DFI Retail, which is heavily exposed to the consumption story in that part of the world. However, CGS-CIMB warns that the pace of earnings recovery can be affected by how quickly mainland tourists return to Hong Kong and whether there have been changes in shopping patterns following the pandemic. Another risk factor is the intensifying competition within China’s e-commerce industry hurting its local unit Yonghui’s margin recovery.

Last but not least, Sats, which completed the acquisition of Worldwide Flight Services recently, will need more time to bear fruit, no thanks to the near-term slowdown in the global cargo market that will see volume lower from the peak in 2021 and 2022. “Furthermore, WFS’s business commands lower ebit margins, which could impact profitability ahead, especially with integration costs likely to be incurred within the first few years of business consolidation,” says CGS-CIMB.

Singapore GDP to barely stay positive; stay put with high-yield big caps

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