Singapore stocks need a dose of optimism

Expectations were low for Singapore stocks as 2017 began, which could present opportunities if circumstances and sentiment improve, the Singapore Exchange (SGX) said on Monday.

Earnings multiples, fund flows and weak Asian currencies against the US dollar suggest that valuations for Singapore stocks are, at the least, not overpriced, SGX head of research and products Chan Kum Kong said on Monday.

"With improving fundamentals, where funds flow and then you get a little bit of optimism, we hope it will climb back up into a little bit of the positive," Mr Chan said.

"That much we can say, but obviously we don't know which way it's going to turn,"

In terms of valuations, the 12-month forward price-earnings ratio for the Straits Times Index (STI) is now at 13.8 times, just slightly below the eight-year historical mean of about 14 times, SGX director of equities and fixed income Geoff Howie.

Meanwhile, foreign investors have been shifting capital out of Asia and into the United States following the November US presidential election, which has pushed Asian currencies to a 10-year trough against the greenback.

There is hope that some of that pessimism may be tempering, Mr Howie said.

For example, downward revisions to earnings estimates have been shrinking since the first quarter of 2016.

Meanwhile, a recovery in crude oil prices has brought some relief to the maritime and offshore services sector, where valuations are still at trough valuations.

In the commodity space as well, crude palm oil prices are recovering, he said.

The volatility in interest rates expectations could also create trading opportunities in the banking, real estate investment trust, telco and gold sectors.

Whether the muted valuations represent profit opportunities remains to be seen, especially after the post-election bump from the United States.

OCBC head of research Carmen Lee said Singapore stocks are "not expensive" on a historical or regional basis even though multiples today are higher than in the third quarter of 2016.

"There are quite a few quality names in the Singapore market and while earnings growth is likely to be muted and the global uncertainties remain, we believe that at price-to-book of around 1.1 times, Singapore stocks are inexpensive and coupled with a projected dividend yield of 3.8 per cent for the STI component stocks, there is still value in the blue chips," she said.

There could be some profit-taking in the near term with the STI now at 3,025.48, north of the psychologically significant 3,000 mark, but that would be an opportunity to buy for longer-term investors, she said.

OCBC is recommending CapitaLand, Frasers Centrepoint Trust, Fraser Logistics & Industrial Trust, Keppel DC Reit, Raffles Medical Group, Singapore Telecommunications, Sembcorp Industries, Wing Tai Holdings and Wheelock Properties.

RHB head of research Shekhar Jaiswal said the STI has already hit his firm's target of 3,010, but the firm is waiting for the 2017 Singapore Budget and for the Committee on the Future Economy's recommendations before reviewing the call.

However, RHB has raised its GDP growth estimate for Singapore to 1.4 per cent from 1.2 per cent for 2017.

Among Singapore-listed stocks, RHB likes Dairy Farm International Holdings, City Developments, ComfortDelGro Corp, Keppel Corp, Raffles Medical, CapitaLand Commercial Trust, Manulife US Reit, Singapore Medical Group and Spackman Entertainment.

kenlim@sph.com.sg

This article was first published on January 24, 2017.
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