To The Moon

The $Straits Times Index(STI.SI)$ is a well-known index tracking the performance of the top 30 companies listed on SGX. It was among the two indexes trading within the green zone this year in Asia Pacific, along with the Jakarta Composite Index from Indonesia.

Despite the turmoil in the global stock markets, analysts remain bullish on Singapore stocks.

Summary:

• TOP YTD Performances of $Straits Times Index(STI.SI)$
•  Reasons for STI‘s Up in 2022
• 2023 Forecast from Credit Suisse & RHB Group Research
• 4 SGX investment themes in2023

1. TOP YTD Performances of $Straits Times Index(STI.SI)$

As of December 28th 2022，STI 的YTD is 4.49%。

Weekly Chart of STI

Top 10 industries with YTD growth are Commericial Printing(1 stock), Coal &Consumable Fuels(3 stocks), Muti-Utinilites(2 stocks), Office Services & Supplies(2 stocks), Utilities Industry(12 stocks), Application Software(1 stocks), Construction Machinery & Heavy Trucks(11 stocks), Casinos & Gaming (1 stocks), Industrial Conglomerates(3 stocks) and Home improvement Retail(1 stocks)

Source from Tiger Trade，as of December 28th

Each winner of the 10 sectors are:

• $A-SMART HOLDINGS LTD.(BQC.SI)$ (+91.78%),
• $GOLDEN ENERGY AND RESOURCESLTD(AUE.SI)$ (+170.69%), 
• $SEMBCORP INDUSTRIES LTD(U96.SI)$ (+71.88%),
• $VERSALINK HOLDINGS LIMITED(40N.SI)$ (+84.62%),
• $MOYA HOLDINGS ASIA LIMITED(5WE.SI)$ (+44.44%),
• $SILVERLAKE AXIS LTD(5CP.SI)$ (+35.64%), 
• $YANGZIJIANG SHIPBLDG HLDGS LTD(BS6.SI)$ (+119.52%), 
• $GENTING SINGAPORE LIMITED(G13.SI)$ (+26.36%), 
• $KEPPEL CORPORATION LIMITED(BN4.SI)$ (+50.01%)，
• $CHOO CHIANG HOLDINGS LTD.(42E.SI)$ (+25.32%)

2. Reasons for STI‘s Up in 2022

The outperformance sectors within the $Straits Times Index(STI.SI)$ , due to a sharp rise in commodity prices, financial services, as a result of a rise in interest rates, as well as the telecommunications, consumer and transport sectors, due to a revenue boost from the reopening of regional borders.

From a broader vision, since STI has a heavier composition of banks, It turns out the three local banks, namely $DBS GROUP HOLDINGS LTD(D05.SI)$ (YTD 9.29%),$UNITED OVERSEAS BANK LIMITED(U11.SI)$ or UOB( (YTD 19.99%), and $OVERSEA-CHINESE BANKING CORP(O39.SI)$ (YTD 13.4%) take up nearly 46% of the index’s weight. All 3 banks’ share prices should also be buoyed by healthy dividend payments that should be sustained or even increased.

Hence, the fortunes of the trio of lenders will disproportionately influence the direction of the STI this year even next year. And banks would be able to sustain earnings growth in an environment where higher inflation and interest rates would otherwise cut into corporate profit margins.

3. 2023 Forecast from Credit Suisse & RHB Group Research

"Credit Suisse's "2023 Investment Outlook " report pointed out that the Straits Index has been relatively resilient, mainly relying on its value constituents, which are generally more popular in economic downturns. Credit Suisse predicts that Singapore stocks will perform in line with global equities in the coming year.

Credit Suisse expects global equities to be underwhelming in the first half of 2023, with the focus still on the theme of "the Fed keeping rates higher for longer" in an environment of stable earnings, low leverage, and pricing Industries and regions with higher capabilities should perform better. Economic data suggest that the recovery in services should persist even as the goods sector slows.

Credit Suisse Asia Pacific Chief Investment Officer John Woods said at an online press conference a few days ago,

"The central bank's interest rate hikes are expected to end in the first or second quarter of next year. Once we approach the Fed's turning point, interest rate-sensitive growth Sectors could become more attractive again. Singapore's stock market, being heavily weighted by banks, could benefit from a gradual rise in U.S. yields, while SREITS would benefit from a recovery in business travel and other service activity."

RHB Group Research analyst Shekhar Jaiswal is staying positive on Singapore equities in 2023, which he says continues to be a “safe haven” despite slowing gross domestic product (GDP) growth and high inflation next year.

Jasiwal believes the lifting of Covid-19 restrictions will help broaden the earnings recovery to sectors more affected by the pandemic.Although Jaiswal believes investors will continue to be attracted to Singapore given its strong and defensive index earnings growth compared to its regional peers given the STI’s inexpensive valuation, he notes that investors could be concerned about the sustainability of the EPS growth forecast for 2023.

“At this moment, we believe earnings growth, rather than an improvement in valuation multiple, will drive the rise in the STI in 2022. While we are still constructive about the STI delivering positive returns for 2023, we maintain that the upward move for the index will be slow."

Source: www.theedgesingapore.com

4. 4 SGX investment themes in 2023

RHB Group Research names four investment themes for 2023.

To buy bank stocks as a proxy to elevated interest rates and defensive earnings growth characteristics.

RHB Group Research analyst Jaiswal estimates the banking sector’s return on equity (ROE) will improve to 13.6% in FY2023 from 12.0% in FY2022, on a healthy 20% y-o-y growth in net profit. With common equity tier 1 (CET1) ratios at 13% to 14%, banks are well positioned to weather the external headwinds, and he expects a y-o-y rise in dividends.

$Invesco DB Silver Fund(DBS)$ and $OVERSEA-CHINESE BANKING CORP(O39.SI)$ are RHB’s top picks, which he says are still trading at modest valuation levels, and are well supported by their respective 2023 dividend yields of 4.8% and 5.3%.

Second for 2023, the firms with resilient and defensive earnings and dividends will be key in a near-to-medium term future.

Companies with strong financial sheets, pricing power, captive customer bases, recurrent demand and the capacity to pass through increasing costs should be key considerations when choosing stocks. Sectors, such as staples, health care and utilities, will persist in early-2022.

RHB’s stock picks for this theme are $CITY DEVELOPMENTS LIMITED(C09.SI)$, $SHENG SIONG GROUP LTD(OV8.SI)$, $SINGAPORE TECH ENGINEERING LTD(S63.SI)$ and $WILMAR INTERNATIONAL LIMITED(F34.SI)$ .

Next to feature is “selective” exposure to China's imminent economic reopening, with uncertainty remaining over the pace of its reopening.

“The potential beneficiaries of the China reopening will come to those companies which are either beneficiaries of China’s domestic reopening as well as companies that will gain from the return of business once China relaxes border restrictions,” he says.

Within RHB’s coverage, Jaiswal sees DFI Retail Group as one of the key beneficiaries of China’s domestic reopening, while $CDL HOSPITALITY TRUSTS(J85.SI)$, $COMFORTDELGRO CORPORATION LTD(C52.SI)$ , $RAFFLES MEDICAL GROUP LTD(BSL.SI)$ , $SINGTEL(Z74.SI)$ and $THAI BEVERAGE PUBLIC CO LTD(Y92.SI)$ should benefit from the return of Chinese tourists.

One of these is $SINGTEL(Z74.SI)$ , which occupies a 6.76% weight within the STI. The telco reported an increase in core net profit for its fiscal 2023’s first half and also declared a special dividend from the divestment of assets.

Finally, Jaiswal says that industrial REITs could benefit from the pausing of the rising interest rate cycle.

Jaiswal notes defensive REITs, such as those that offer resilient DPS growth and have a strong balance sheet, will deliver outperformance in 1H2023, while REITs that will benefit from strong economic growth and the relaxation of China’s zero-Covid policy will deliver outperformance in 2H2023.

His preferred exposure in the S-REITs sector is $AIMS APAC REIT(O5RU.SI)$ , $CapitaLandInves(9CI.SI)$ and $ESR LOGOS REIT(CGIUF)$ , while there could also be opportunities to rotate into hospitality and retail REITs in 2H2023 if his macroeconomic forecast pans out as expected.

Source: https://www.theedgesingapore.com/capital/brokers-calls/rhb-positive-singapore-equities-next-year-sti-trading-inexpensive-valuation

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