Heading into 2025, Macquarie has set a Straits Times Index (STI) target of 4,000 based on its bottom-up stock coverage with an expected 5% earnings per share (EPS) growth, according to its Singapore Strategy and Outlook report for 2025.
In its report released on Dec 2, Macquarie’s Asia equity research team comprising of Jayden Vantarakis, Foo Zhiwei, Rachel Tan and Gilbert Lopez stated that a bull case would result in a 18% upside to 4,410.
On the other hand, a bear case retracing to 10 times price-to-earnings ratio (P/E) would lead to 3,260.
“Practically given the huge weight of financials on the Index (56%), much of the upside hinges on whether the banks continue to rally (we still see the upside),” the analysts add.
While high tariffs imposed on US trade could stifle global trade in the event of a trade war, the analysts expect heightened tensions to fuel two multi-year trends benefiting Singapore: foreign direct investments and wealth inflows.
The analysts expect GDP growth for Singapore to moderate to 2.4% in 2025.
See also: DBS notes a volatile year ahead, sets STI end-2025 target at 3,950
To this end, the analysts remain "constructive” on Singapore equities for 2025, with both banks and Singapore-REITs (S-REIT) in their selection.
They have identified DBS Group Holdings, CapitaLand Ascendas REIT A17U (CLAR) and Seatrium as their top three picks.
The other top Singapore stock picks include United Overseas Bank U11 (UOB), SingTel, DFI Retail Group D01 , Keppel Data Centre REIT (KDCREIT) and ComfortDelGro C52 .
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“Although we see more upside in oversold nearby emerging markets (EM), solid Singapore Dollar-backed yields remain appealing,” the analysts note.
With regards to S-REITs, the analysts prefer higher Singapore contributions and see optionality from further monetary easing.
Given that rate cut expectations have moderated and a higher-for-longer interest rates scenario is back, Macquarie’s top sector preference is industrial REITs followed by retail, office and hospitality.
“CLAR and KDCREIT are our preferences,” the analysts say, noting that CLAR has 64% of its portfolio in local markets.
For financials, the analysts expect flat earnings for banks driven by the 150 basis points (bps) US Federal Reserve (Fed) rate cuts in 2025, with upside if the market’s forward curve expectation of 75 bps to 100 bps proves correct.
The analysts prefer DBS and UOB over Overseas-Chinese Banking Corporation (OCBC) on capital management, while downgrading Singapore Exchange S68 (SGX) to “neutral” following strong outperformance.
DBS remains their top pick given strong fees, a clear strategy to utilise excess management position overlays, announced succession and a broad set of capital management tools.
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Looking ahead, the analysts project an average 0% EPS growth for the banks (7% for UOB) and 13.8% return on equity in 2025.
Within the telecommunication (telco) sector, the analysts continue to prefer Singapore Telecommunications Z74 (SingTel), while anticipating Singapore’s four player telco market to consolidate into three.
In the digital economy, the analysts prefer Sea to Grab. Looking to 2025, the analysts believe that markets will focus on continued margin improvement from core businesses and upside from strong growth of their Fintech businesses.
