Singapore companies that are focused on the domestic market as well as cash-rich companies may register growth in 2024, in contrast to companies that are heavily reliant on external demand. The latter are likely to face slower sales going into next year, says OCBC Investment Research (OIR) analyst Carmen Lee.
The property sector, which was negatively affected by the high rates, could enjoy a reprieve as rates are expected to fall in 2024. “In terms of valuations, both real estate and REIT sectors are trading at close to 10-year lows in terms of price-to-book (P/B),” says Lee.
“The underperformance in 2023 is likely to see some reprieve as rates ease off. Based on current level, the estimated yield from the REIT sector is at around 6.0% in 2023 and 6.2% in 2024 – this will start to look attractive once T-bills and other similar products start to adjust down in line with lower interest rates,” she adds.
Singapore banks are also another sector to look at, with DBS Group Holdings and United Overseas Bank U11 (UOB) expected to post record profits in FY2023 ending Dec 31 after their strong 9MFY2023 figures. The strong performances were supported by a few factors but mainly from the spike in net interest incomes (NIIs) due to higher net interest margins (NIMs).
However, the sector may experience risks in 2024 from the projected macroeconomic slowdown, which could affect the outlook for loans growth in the region. As the interest rates are also likely to ease, this could potentially affect the banks’ NIMs, notes Lee.
That said, following their recent share price corrections, the banks’ valuations are inexpensive and are at the lower end of the spectrum at about 1 standard deviation (s.d.) away from their historical 10-year average.
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Singapore’s benchmark Straits Times Index (STI) is also a good addition as it helps stabilise against wide volatility in the global markets, says Lee. To be sure, the STI traded from -11.8% to +9.8% in the last four years, which is “more manageable” than its peers, the S&P 500 Index and the Hang Seng Index. The S&P 500 traded from -19.4% to +26.9% while the Hang Seng traded from -3.4% to -16.6% in the same period.
The STI’s current dividend yield, at around 5.7%, is the highest amongst the regional markets and higher than the 10-year average of 3.8%.
“With rates widely expected to ease off in 2024, at current level and with the attractive dividend yield of 5.7%, this is compelling for medium to longer term investors looking for a steady stream of dividend income,” says Lee.
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Within the Singapore market, Lee’s top picks are: CapitaLand Ascott Trust HMN (CLAS), CapitaLand Investment (CLI), City Developments (CDL), DBS, Frasers Logistics & Commercial Trust BUOU (FLCT), Netlink NBN Trust, Sembcorp Industries U96 , Sheng Siong Group OV8 , Singapore Telecommunications Z74 (Singtel), UOB and UOL Group.
“While banks are amongst our top picks in the Singapore market, the anticipated end to the rate hike cycle is likely to be positive for interest rate sensitive stocks that have been sold down in the past one to two years. As property and REITs have suffered the brunt of the selling pressure, we believe a recovery is possible in 2024,” says Lee.
The STI closed 4.47 points higher or 0.14% up at 3,112.50 points on Dec 21.
