With Singapore actively planning and moving towards an endemic, Maybank sees multiple catalysts for Singapore’s re-rating.
Lead analyst Thilan Wickramasinghe says, “We think Singapore is in a sweet spot in a Covid-endemic 2022 as its ‘old world’, value-oriented sectors benefit from rising rates and a clear path to economic re-opening.”
“At the same time, structural and policy shifts are pointing the economy towards sustainability and new economy sectors through M&A and restructuring. This should fortify Singapore’s investment case regionally,” he adds.
On the back of that, the analyst thinks that banks, consumer, industrials, transport and technology sectors could see the strongest benefit from these forces. Hence, its preferred picks include Bumitama Agri, CapitaLand Integrated Commercial Trust (CICT), ComfortDelGro Corporation, DBS Group Holdings, Frencken Group, Oversea Chinese Banking Corp (OCBC), Singapore Telecommunications (Singtel), Thai Beverage (ThaiBev), United Overseas Bank (UOB) and Wilmar International.
Although Singapore’s current underperformance versus global equities is now worse than during the Asian Financial Crisis, balance sheets are much stronger than back then.
Wickramasinghe opines that the current net gearing of 9% (versus 18% 10-years ago) should temper the impact of rising rates.
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Value stocks have led the bulk of the underperformance. The PE discount of growth to value stocks is the narrowest in four years (4% versus 16%). “We think with markets increasingly weighing in higher costs to risk, Singapore’s value offering is compelling,” says Wickramasinghe.
To that end, Singapore’s cyclical and structural drivers are set to deliver growth.
The country’s high vaccination rate (46% on booster dose) gives it the clearest path to reopening. The government’s pragmatic stance in the face of rising Omicron cases, instead of triggering lockdowns, further points to commitment towards treating Covid as endemic. This should improve earnings visibility and operating leverage for domestic re-opening plays ahead of regional peers.
Separately, deal volumes are now the highest since 4Q2019 with robust valuation premiums. Structural drivers such as responding to permanently altered operating environments, greater focus on ESG should accelerate the pace of M&A and restructuring.
At the start of this year, about US$27 billion of deals are pending. Equally, a renewed policy push towards transforming Singapore’s market from ‘old world’ domination to ‘new economy’ is likely to enhance its relevance for higher investment weightings regionally.
The way Wickramasinghe sees it, the troika of rising rates, re-opening and restructuring puts Singapore in a sweet spot to snap out of its trend of underperformance.
