RHB Bank Singapore is recommending investors to “stay defensive” on the Singapore equities, given that struggle to find a clear direction amidst broader macro uncertainties.
Official forecasts of Singapore’s GDP growth outlook this year has dimmed.
Traditionally, the GDP numbers have a positive correlation with expected EPS growth for the Straits Times Index component stocks. However, this relationship seems to have broken down recently.
“We believe there could be a downside risk to STI's corporate earnings growth, especially for the banking sector,” writes RHB analyst Shekhar Jaiswal in his April 26 strategy note.
Jaiswal believes that the STI is still at inexpensive levels, with a forward PE of just 10.8 x.
However, there’s a lack of near-term catalysts, with the unfavourable macroeconomic environment, uncertain interest rate outlook and even a potential index earnings downgrade weighing down investors’ sentiment and therefore make embedding any improvement in the P/E multiple difficult, he writes.
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Jaiswal’s year-end target for the index, 3,440 points, is pegged to 11.5x 2023F P/E, which lies between -1SD and -2SD of its forward P/E mean since Jan 2008.
For this current 2Q2023, RHB suggests that investors focus on companies that are higher quality in nature, backed by more secular growth, and/or that can offer better relative value.
RHB’s investment themes for Singapore include buying shares of firms with resilient earnings and dividends; buying industrial and take on selective exposure to China's economic reopening plays.
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The brokerage’s top picks from the consumer sector are Far East Hospitality, Sheng Siong Group and Thai Beverage. Within the financial sector, RHB likes DBS Group Holdings and Oversea-Chinese Banking Corp.
RHB likes Wilmar International and Golden Agri Resources within the food products sector; Raffles Medical Group among the healthcare stocks; ST Engineering is the preferred name for industrials names; City Developments for real estate; Capitaland Ascendas Trust and AIMS APAC REIT among the REITs; ComfortDelGro Corp as the transport play.
