Singapore shares rose for the third consecutive session and were headed for their biggest daily rise in more than a week, tracking a rebound in global equity markets on easing worries about an imminent end to the Federal Reserve's bond buying.
The benchmark Straits Times Index rose 1.4 per cent to 3,147.28 points. MSCI's broadest index of Asia-Pacific shares outside Japan gained nearly 2 per cent, pulling away from an 11-month low hit earlier this week.
A further drop below 3,000 points would make Singapore stocks a good buy, said CIMB in a research note. It upgraded the Singapore market to "neutral" from "underweight" as valuations have come off with worries about the end of cheap money.
"In a slower-growth world with less impetus for multiple expansion, we look for stocks with earnings growth drivers,"CIMB analyst Kenneth Ng said. He gave preference to banks over REITs (real estate investment trusts), and favoured developers rather than commodity plays.
DBS Group Holdings Ltd is CIMB's top banking pick for its trade finance success and earnings delivery from multiple fee income streams.
CIMB also favours Thai Beverage PCL as it has the best exposure to ASEAN consumers. Other stock picks include UOL Group limited, CapitaLand Ltd, Global Logistic Properties Ltd and Keppel Corporation Ltd.
Rising interest rates will squeeze margins of rig builders, as drilling companies try to pass on increased financing costs to them while the rig building market has become more competitive with Chinese yards churning out more rigs, said Religare analysts.
Federal Reserve Chairman Ben Bernanke said last week that the US economy was expanding strongly enough for the central bank to begin slowing the pace of its monetary stimulus later this year, sending yields of drilling companies' bonds up.
"Given the substantial debt financing involved in rigs, when rates rise then somebody's profitability needs to be impacted and those with the weakest pricing power within the value chain are most likely to be hit," Religare analysts wrote in a note.
"Offshore yards will have much weaker pricing power vs. drillers going forward due to Chinese yards dramatically increasing the supply of rig building capacity."
Singapore's Keppel Corporation and Sembcorp Marine Ltd have seen their profit margins pressured by competition from shipyards in China that are eagerly waiting to enter the offshore oil and gas equipment industry.
Religare maintained a "sell" call on Sembcorp Marine and a"hold" recommendation on Keppel Corporation.
Keppel shares had fallen 1.8 per cent so far this year and Sembcorp Marine was down nearly 7 per cent, lagging behind the 1 per cent loss in Singapore's benchmark Straits Times Index. .