Investors in Singapore equities should maintain a balanced portfolio in 2Q2022. Despite reopening, risks are aplenty, says RHB Group Research analyst Shekar Jaiswal.
“For 2Q2022, Singapore’s equity market outlook will continue to depend on how well stocks and sectors deal with: uncertainty over the inflation outlook, supply chain disruptions because of the Russia-Ukraine war and China’s zero-Covid-19 strategy and general caution ahead of the size of the rate hike at the May Federal Open Market Committee (FOMC) meeting,” writes Jaiswal in an April 19 note.
Jaiswal recommends a barbell portfolio strategy, with a mix of growth and defensive stocks. These include large-cap picks Ascendas REIT, City Developments, DBS Group, Genting Singapore, OCBC, SingTel, ST Engineering, Suntec REIT, Thai Beverage, UOB and Wilmar.
Among the small- and mid-cap names on the Singapore Exchange (SGX) Jaiswal recommends Bumitama Agri, ComfortDelGro, ESR REIT, HRnetGroup, Kimly, Prime US REIT and Raffles Medical.
Singapore’s commitment to live with Covid-19, as well as to keep the economy and borders open, should boost corporate earnings, says Jaiswal. “We see banks, consumer, healthcare, industrials, transport, telecommunications and hospitality as key beneficiaries.”
However, there are growing downside risks, he adds. “A prolonged conflict between Russia and Ukraine risks dragging Europe into recession. This will be negative for Singapore, as c.8% of its trade is exposed to the EU. Rapidly rising global inflation will be negative as well, as the country is a price taker for energy and food inputs. China’s zero-Covid-19 strategy could further disrupt the supply chain and lead to slower economic GDP growth. This will have a trickle-down effect on the rest of the Asian economies as well.”
See also: Test debug host entity
Jaiswal sets out the themes for the second quarter, which are to buy the beneficiaries of the rising interest rates cycle, continue exposure to economic reopening plays, buy beneficiaries or stocks that are defensive against rising inflation and buy defensive stocks that will deliver EPS and DPS growth, net margin expansion and ROE improvement, along with buying REITs that are defensive, and those that will benefit from the reopening of the economy.
Jaiswal’s earnings outlook indicates growth in 2022. “While the outlook remains uncertain, the consensus is forecasting 16% EPS growth for the STI in 2022 (RHB estimate: 15%).”
The Straits Times Index’s (STI) valuation has caught up with the rest of Asia, says Jaiswal. The STI has delivered 6.8% year-to-date returns, exceeded only by Indonesia’s Jakarta Composite Index (JCI).
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
Jaiswal writes: “While we remain constructive on the STI delivering positive returns in 2022, an upward move hereon will be a slow grind, as investors assess the impact of growing risks. The index’s 12.8x forward P/E is below its historical average and it is the second-lowest amongst the Asean indices. However, its P/E has finally caught up with the rest of Asia.”
He adds: “With the expectation of GDP growth slowing in 2Q2022 amidst rising downside risks, the STI’s returns for the rest of 2022 could be stuck in the mid-to low single digits.”
Jaiswal holds an end-2022 STI target of 3,460 points.
The STI closed 4.06 points higher, or 0.12% up, at 3,307.13 points on April 19.
Photo: Albert Chua
