The Straits Times Index has gained 16% year to date, proving to be a "valuable volatility hedge". The three banks, the index heavyweights, drove a third of those gains. More broadly, the other Singapore listed counters have enjoyed the benefit of favourable forex and have shown to be able to pay out generous dividends with yields at 5.3% seen for FY2025, says Macquarie.
The listed companies here have also generated average ROEs of 11%, which puts them well above pre-pandemic levels.
With such momentum, Macquarie now expects Singapore equities to generate earnings growth of 7% for the current FY2024 under its base case scenario, and to grow by a further 7% in the coming FY2025. It was previously projecting Singapore earnings to grow by just 3% for FY2024.
Macquarie says that Singapore banks are in the ‘goldilocks’ zone, with investors discounting an average six further Fed rate cuts.
In the coming FY2025, Singapore's wealth management activity is seen to continue rising, especially amid rising geopolitical tensions and volatility. DBS Group Holdings, the largest bank in Asean, is "best placed" to capture this growth, says Macquarie.
“Strong fees, a clear strategy to utilise excess management provision overlays, announced succession and a broad set of capital management tools means the stock should remain most favoured,” says Macquarie, which has identified DBS as its top pick with a target price of $45.50 along with its “outperform” call.
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Next, while the outlook for interest rates is less certain following the Republican sweep in the US, leading to potential for higher inflation, Macquarie expects rates to still head lower.
As such, with S-REITs as a sector back at pre-rate cut levels, it will be an opportunity for investors to re-enter the sector, suggests Macquarie. Among S-REITs, the analysts prefer higher Singapore asset contributions and see optionality from further monetary easing.
Macquarie has identified CLAR, which has 64% of its portfolio in the local market and they expect resilient distribution per unit (DPU) growth this year extending to FY2025 to FY2026E. Macquarie’s target price for this stock is $3.28.
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Within industrials, Macquarie prefers Seatrium for its potential to win more new orders given the "probable pivot back to higher production under Trump 2.0".
If Seatrium can sustain its earnings growth and hit its ROE target of more than 8% ahead of its own FY2029 schedule, that will be a catalyst for this counter to re-rate, says Macquarie, which has a $3 target price for this stock.
Asean cheer
Beyond Singapore, Macquarie is upbeat on Asean’s prospects. The team of analysts comprising Jayden Vantarakis, Ari Jahja, Gilbert Lopez and Kaushal Ladha expect Asean to capture diverted investment trade-flow opportunities under Trump 2.0 given how this regional grouping is “geopolitically neutral”.
They note that during Trump’s first stint, Asean benefitted in terms of total trade with the US, through global growth and aggregate trade appeared to slow in 2018 to 2019 in response to the US-China trade war.
Macquarie forecasts a 4.8% GDP growth in Asean-5 for 2025 and 10% earnings per share (EPS) growth, although a large trade shock could reduce GDP by 0.1 to 0.2 percentage points (ppt) and EPS growth by 2% - 3%.
The analysts have identified Bank Central Asia, Astra International, Banco de Oro, Jollibee Food Corp, Sime Darby, YTL power, CLAR, DBS, Gulf Energy Development and Amata as top picks heading into 2025.
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The analysts note that financial market impacts have likely played out.
Macquarie’s Quant Strategists highlight that developed versus emerging market (EM) performance and a strong USD persisted for three months and one month following the 2016 elections.
Similarly, volatility (Vix) has already likely peaked around the election date, mirroring that of 2016.
Indonesia and Philippines experience higher financial market shocks due to foreign exchange (FX) and liquidity, but these economies are less trade exposed with larger domestic markets.
As rising oil net importers, they also benefit at the margin from Macquarie’s Desk Strategy’s bearish oil forecast.
The analysts pivot their top-down market allocations to Indonesia, Philippines, Malaysia, Singapore and Thailand.
“We now favour markets impacted most by USD strength, but with strong nominal growth prospects and larger domestic markets; Indonesia and the Philippines fit the bill,” they add.
Furthermore, the analysts note that the recent outperformance around the US elections, their top-down factor model tactically allocates from Singapore into the Asean EMs.
Although they retain their cautious view top-down on Thailand, bottom-up the analysts have identified stocks including GULF, AMATA and thematically in the hospitals (BDMS).
