Asean is “primed to do better” following the US Federal Reserve (US Fed)’s monetary policy pivot which will be more supportive of the employment agenda and a soft landing scenario, says RHB Bank Singapore analysts in an Oct 21 report.
Singapore and Indonesia are particularly notable among regional equities for undemanding valuations, as the former offers defensive qualities in a volatile environment while the latter goes through a leadership change, analysts Alexander Chia, Andrey Wijaya, Kasamapon Hamnilrat and Shekhar Jaiswal note.
“Prospects for lower rates and weaker US dollar bode well for regional equities,” they note. The analysts spell out their views in the report by country.
For Singapore, the analysts see a moderating global growth, amid dissipating inflation pressures and lower interest rates. This will set the stage for growth moderation in 2025, they say.
The analysts have revised lower US and China gross domestic product (GDP) growth forecasts for 2025; and estimate that the US federal funds rate (FFR) will be cut by 25 basis points (bps) each in November and December, and a 25 bps rate cut for each quarter in 2025.
As such, Singapore’s 2024 GDP growth will likely average 3% in 2024 and in 2025. The analysts say that they anticipate the country’s manufacturing- and trade-related sectors will contribute to overall growth in 2H2024, and inflation should remain steady in 4Q2024. The
The Monetary Authority of Singapore (MAS) will likely keep its current policy parameters unchanged at least into 1H25, they add.
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For banks, lower interest rates will pressure net interest margins (NIMs), but strong loan and fee income prospects are expected as economic activities pick up, the analysts say.
They note that for 2024 net profit estimates, they have seen positive net profit estimate changes for the transportation and utilities sectors. They have also seen positive net profit estimate changes for the telecommunications sector for 2025.
As such, the analysts advise to continue building exposure to the Singapore REITs sector. Such REITs’ performances have a high inverse correlation to risk-free rates, i.e. long term treasury yields, with particularly high sensitivity at turning points of the cycle, seen in 2012, 2016, and 4Q2023 when the market saw interest rates easing, resulting in a 15%-40% rebound in the sector, they note.
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“We recommend investors adopt a slightly more aggressive stance, with a balanced mix of
high-quality industrial (for stable yields), and office (which we believe are undervalued) and
selective overseas REITs to ride on the rebound from the turn in the interest rate cycle,” they say.
They remain overweight on industrial, office and overseas REITs; and neutral on retail and hospitality REITs. RHB’s top picks are CapitaLand Ascendas REIT A17U , Keppel REIT, Suntec REIT and AIMS APAC REIT.
RHB has also named companies that have an improved earnings outlook, such as ComfortDelGro C52 and Singapore Telecommunications Z74 . They note that SATS and Singapore Post S08 , which are outside their coverage universe, see similar opportunities. Meanwhile, City Developments and Thai Beverage Y92 remain undervalued or laggard plays.
On another note, City Developments, DBS Group, DFI Retail Group D01 , Golden Agri-Resources E5H , HRnetgroup, OCBC Bank, ST Engineering, and Wilmar International F34 , are named as beneficiaries of China’s latest stimulus measures.
Finally, on the uncertainty of the outcome of the US elections, RHB analysts advocate for investors “not to lean too much” in either direction of the winner. They say that investors can consider including defensive companies with strong domestic exposure into their portfolio, with their top picks named as Raffles Medical, Sheng Siong, ST Engineering, and UOB.
Meanwhile, on other Asean nations, RHB analysts note that short-term trading calls for Indonesia include oil & gas and metal mining, with a “buy on dips” for banks which are expected to gain from potential further Bank Indonesia (BI) rate cuts.
Auto & autoparts, consumer, and pharmaceutical sectors are also set to benefit from a stronger Indonesian rupiah. The analysts keep their 7,800 percentage points (pts) year-end Indonesia Stock Market (JCI) target, implying 12.3 times FY2025 P/E.
For Malaysia, RHB analysts anticipate that market volatility in 4Q2024 will likely compel investors to consider a two-pronged strategy to protect realized gains made year-to-date, while identifying opportunities to position for 2025.
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“Bursa Malaysia’s relative outperformance indicates that we are not likely to see aggressive window dressing activity towards the year-end,” they say. “Key investment themes include near-term defensive posturing, staying nimble to build positions on broad-based market weakness, a tactical focus on laggards, concentration on stocks with a Johor angle, coupled with a bottom-fishing strategy on small-mid caps.”
Their end-2024 target for the FTSE Bursa Malaysia KLCI is 1,720 pts based on a target 16 times P/E on 2025 earnings.
Finally, on Thailand, the analysts keep their net profit growth forecasts for the Stock Exchange of Thailand (SET) at 7.3% y-o-y for 2024 and 7% for 2025, with corresponding earnings per share growth estimates of 6.5% and 7%. “Many market risks have largely subsided,” they note.
They raise their end-2024 P/E target to 19 times, broadly in line with the SET’s 15-year average of 18 times.
