Analysts at UOB Kay Hian (UOB KH) are forecasting that the Singapore market will “outperform” even as 2023 looks to be a more uncertain year for the global economy
In a strategy report on Jan 4, analyst Adrian Loh and UOB KH’s Singapore Research Team note that the Straits Times Index (STI) managed a total return of 6.6% in 2022.
This is despite a “bumpy” recovery for the global economy post Covid-19, with concerns such as inflation and higher interest rates dominating the market’s attention.
As such, they are of the view that this outperformance by the STI should continue due to its defensive nature, and also given the prevalence of quality, value and dividend stocks relative to its regional peers.
They say: “Since there will no longer be a synchronous global cycle, country risk will return and our view is that Singapore presents a lower risk vs other countries in the region.”
In 2023, UOB KH forecasts an aggregate 6% earnings per share (EPS) growth in 2023 for the Singapore market with the aviation, financial, and telecommunications sectors leading the way, followed by the consumer and gaming sectors.
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On the other hand, the healthcare, land transport, plantation, property and S-REITs sectors are expected to show earnings declines in 2023.
They also predict that the STI will reach 3,520 points by end-2023, implying an 8% upside from current levels.
Their 2023 STI target is based on 6% earnings growth for 2023, and target PE and P/B of 12.9x and 1.3x respectively, both of which are at about a 15% discount to the index’s long-term average.
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“We believe this is fair given moderating earnings growth and potential recessionary risks to the economy and thus our forecasts,” the team says.
For the Singapore economy, UOB KH is forecasting a “tough year” for the republic, with a projected GDP growth of 0.7% y-o-y in 2023.
This is in contrast to the 3.5% growth shown in 2022, with UOB KH pointing out that near-term non-oil domestic export (NODX) data and the purchasing managers index (PMI) have been weak, with the export and manufacturing sectors negatively impacted by slowing demand from China and the US.
They add that while the “China reopening story” - referring to China recently relaxing its Covid-19 measures - may see a short-term bullish reaction in the market, they believe that recessionary risks persist nonetheless.
In the region, the analysts think that while improved fundamentals have allowed Asean markets to withstand the financial market volatility in 2022, the year ahead is expected to remain uncertain and challenging.
This is amid looming risks with economic recessions in the US and Europe, tightening financial conditions, further straining of US-China relations and the Russia-Ukraine conflict, among others.
“In particular, for an open economy like Singapore’s, the possibility of spillovers from these risk factors cannot be ignored.”
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In light of these, their top picks include stocks like CapitaLand Investment (CLI), DBS Group Holdings, Genting Singapore, as well as Keppel Corporation (see chart for full list)
UOB KH adds that stocks that could see a rebound in the first half of 2023 include Sats, StarHub and ST Engineering, but the analysts have left out any REITs from this shortlist as it appears that the US Federal Reserve will likely continue raising rates in the near term.
