RHB Bank Singapore analyst Shekhar Jaiswal is favouring a defensive Singapore equities portfolio for 4QFY2023, with a mix of high yields from banks, industrial REITs, office REITs as well as exposure to companies offering visible earnings growth.
In his Oct 18 Singapore equity strategy note, Jaiswal says he expects the equities market to be volatile over the short term given the uncertain macroeconomic environment around the outlook for interest rates and economic growth in China. This is despite RHB’s expectations of moderation in inflation, a pause in the rising interest rate cycle in 2024 as well as an economic growth recovery in 2024.
“We think that the performances of the market, sectors and companies will diverge, as returns are influenced by the relative resilience of earnings in the face of an uncertain future. Investors should prioritise making it through these tumultuous times. The ability to pass through rising expenses, captive client bases, recurrent demand and companies with excellent financials should all be taken into account when selecting stocks.”
To this end, Jaiswal says he places a strong emphasis on investing in businesses with solid dividend or profit histories. RHB believes that defensive sectors and styles will continue to outperform.
Jaiswal’s top picks include Delfi P34 , Sheng Siong OV8 , Thai Beverage Y92 , OCBC Bank, Golden Agri-Resources E5H , Raffles Medical BSL , ST Engineering S63 , Citi Developments C09 , Centurion Corp OU8 , Food Empire F03 , Marco Polo Marine 5LY , Singtel Z74 and ComfortDelGro C52 . His top picks for REITs include AIMS APAC REIT O5RU , CapitaLand Ascendas REIT A17U and Keppel REIT K71U .
For 2023, RHB forecasts 17% market cap-weighted y-o-y EPS growth for stocks under its coverage. The key sectors that will contribute to positive earnings growth are banks, industrials, telecommunications, land transport and consumer goods. Healthcare earnings are expected to moderate coming off a Covid-19 high base, while plantation earnings will moderate on the back of lower crude palm oil prices.
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While RHB is expecting more sectors to deliver positive EPS in 2024, the overall EPS growth for its coverage universe is expected to drop to about 7.9% amid a sharp deceleration in earnings growth for the banking sector, which has a large weight in the Straits Times Index (STI) and in its coverage universe.
Although the STI’s 10.3x P/E remains quite compelling, it is likely to stay range bound amid ongoing volatility, especially in the higher-for-longer interest rate regime, says Jaiswal. Using a top-down approach and a target P/E multiple of 11.5x applied to 2024 EPS, RHB predicts that the STI could hit 3,300 points by the year's end.
