SINGAPORE (July 10): Credit Suisse says the Singapore market is the “place to be” for investors given it is trading at favourable valuations, offers a blend of cyclical exposure and is a beneficiary of higher interest rates.

At present, the Singapore market has a 12-month forward P/E ratio of 12.4 times which is below the 10-year average of 13.3 times, thanks to the recent pullback.

“Rising interest rates and higher oil prices are driving a rebound in earnings growth (15% in 2018),” notes Credit Suisse in a media statement on Monday.

“In terms of sectors, we expect banks to lead, given strong credit growth, improving asset quality and margin expansion, leading to an uplift in return on equity (ROE). Conversely, rising interest rates are likely to continue to weigh on real estate investment trusts (REITs),” it adds.

The bank has added Singapore to its preferred markets alongside China and South Korea, and remains negative on Thailand, Malaysia and India. 

As for currency, the bank is maintaining its positive view on the SGD and forecasts the USD/SGD at 1.31 over the next 12 months, supported mainly by robust economic growth.

It also expects a strengthening of the EUR could work in the SGD's favour, given the positive correlation observed between the USD Index and the USD/SGD.

On a global scale, Credit Suisse expects equity markets have upside potential in 2H18 with strong economic growth expected to boost earnings, as it believes trade fractions are likely to have micro rather than macro implications.

The bank continues to favour equities over fixed income, but recommends active equity investment strategies to limit exposure in the event that volatility returns. It also expects to continue its implementation of more rotations across sectors and regions in 2018 than before, with sector preferences including energy, technology and financials.

Noting “clear signs” that economic growth is set to accelerate across major regions in the second half of 2018, John Woods, CIO, Asia Pacific, Credit Suisse, believes this will create a favorable climate for equities and certain commodities.

However, he cautions that investors should remain alert to the potential impacts of trade frictions and other political and policy risks.

“We strongly recommend a well-diversified investment portfolio and an active investment strategy to ensure flexibility in periods of volatility. In this environment, we also expect central banks in the US and Europe to take further steps towards normalising monetary policy,” says Woods.