With many global stock markets in a downturn because of surging interest rates, inflation and the war in Ukraine, it is easy to overlook how the Straits Times Index (STI) is one of the best-performing markets in the region in 2022, recording a gain of 4.42% since the start of the year to Dec 15, versus the double-digit drops in many other major markets.
True, the STI’s performance this year has been skewed somewhat by the three local banks, which were riding on expanding interest margins from the US rate hikes, as they account for nearly half the index’s weight. As such, CGS-CIMB has set a 2023 target of 3,350 points, which is not far off from current STI levels.
However, with the most recent US inflation numbers finally slowing, the US Fed looks likely to ease its rate hikes too. One of the key investment themes put forward by CGS-CIMB is to look for sectors that will thus benefit. “We think the time to accumulate S-REITs could be post- or during the upcoming first quarter 2023 results season, as consensus may still need to downgrade earnings to account for higher refinancing costs. The other indicator that we watch out for is the certainty of the Fed Fund rate pause.”
Next, as economies emerge from the Covid-19 pandemic, growing top line and market share and driving cost efficiencies have never been more important. “As such, size and scale matter,” says CGS-CIMB.
Ongoing M&As include that of Keppel Corp’s offshore and marine business merging with Sembcorp Marine, and Sats acquiring Worldwide Flight Services. Within the telco space, which is facing stiff competition, CGS-CIMB has raised the potential of StarHub merging with TPG — a possibility flagged by DBS Group Research too.
CGS-CIMB also recommends investors consider positions in recent “fallen angels” — companies with a strong competitive edge and good growth prospects but are trading at cheap valuations. These include Nanofilm Technologies International, Yangzijiang Financial Holding, Sea and TDCX.
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That aside, CGS-CIMB’s top conviction big-cap picks going into the first half of 2023 are CapitaLand Ascendas REIT, CapitaLand Ascott Trust, Genting Singapore, CapitaLand Integrated Commercial Trust, Raffles Medical Group, Singapore Telecommunications, ST Engineering, Thai Beverage, United Overseas Bank and Venture Corp. Small-cap picks, meanwhile, include UMS Holdings, BRC Asia, Silverlake Axis, Yangzijiang Financial Holding and Boustead Singapore.
If 1992 was “annus horribilis” for Queen Elizabeth II who passed away on Sept 8, Maybank Securities believes that 2022 was similarly so for many investors. “Dislocations brought about by invasion, interest rates and inflation drove volatility and torpedoed valuations. Nevertheless, underneath these headlines there were notable positive developments that promise to drive long-term earnings and valuations higher,” its research team adds.
In picking potential winners, Maybank Securities is taking a longer-term view, selecting them based on their role in three broad structural themes. The first theme: enabling through technology. The local banks, especially DBS Group Holdings, have been investing in AI and big data analytics to reach a point of commercial deployment where “hyper-personalised” services can be offered at scale to boost potential revenue.
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Somewhat along the same theme, telcos are becoming key infrastructure providers as new uses are created for the latest communication systems. For example, Singtel recently completed the first industrial deployment of 5G mmWave technology which is critical for the development of smart cities, IoT and other high bandwidth uses. ST Engineering, another of Maybank Securities’ picks, is actively carving out a piece of the smart cities’ pie too.
The second theme is reorganisation amid deglobalisation. As long-established supply chains are dismantled in favour of new ones, certain companies in the technology manufacturing sector will emerge with larger market share wins and new capacity additions, says Maybank Securities, shortlisting companies such as AEM Holdings, UMS Holdings and Venture Corp.
The third theme is Singapore’s policy shift towards preventative healthcare from reactive healthcare. Raffles Medical, with its wide network of primary care clinics, will benefit from a higher patient load, says Maybank.
Other stocks picked by the brokerage’s research team include Bumitama Agri-Resources, ComfortDelGro, CapitaLand Investment, Frasers Centrepoint Trust, First Resources and Sembcorp Industries. These are stocks “that have the strongest gearing towards these emerging developments and those that can deliver potential upside surprises to ROEs,” says Maybank Securities.
