Singapore may be a safe haven in the region if markets see more volatility in the second half of the year, Nomura said, upgrading banks on a steepening yield curve and downgrading commodity plays on a stronger dollar.
Singapore's benchmark Straits Times Index gained 0.6 per cent to 3,172.73 points at midday on Tuesday, giving up all its gains from earlier this year but still faring better than MSCI's Asia-Pacific ex-Japan index, which has dropped nearly 9 per cent so far this year.
"Given that Singapore never really saw the capital inflows which lifted its Asean neighbours over the past couple of years, it may become more resilient should we see another round of re-pricing," Nomura analysts wrote in a research note, arguing that Singapore's valuations are not expensive compared to its Asean neighbours.
They listed a steepened yield curve, strong United States dollar and risk of slower economic growth in China among the main factors that investors should watch out for in the second half of the year.
"We think that a steepening of the yield curve will potentially benefit Singapore banks and increase their treasury activities," they said, giving preference to DBS Group Holdings and United Overseas Bank.
A structurally strong US dollar will weaken prices of commodities, including crude palm oil. Combined with potentially weaker demand from China, it will undermine plantation stocks in the region, as well as shares of Olam International, Noble Group and Wilmar International, Nomura said.