Amid a better outlook for Asean and Singapore, UOB Kay Hian analyst Jonathan Koh has identified a few stocks for investors to look at.
While economic growth has slowed, tighter credit conditions caused by the mini banking crisis in the US and Europe could help to moderate inflation. Meanwhile, growth in Asean is supported by China’s reopening. In Singapore, Koh likes CapitaLand Ascott Trust (CLAS) HMN as a reopening play. He has a “buy” call and $1.39 target price on the counter.
Koh also sees potential in the energy sector, as he likes Sembcorp Industries U96 . He has a “buy” call and $4.64 target price.
On the other hand, Koh believes that yield plays are beneficiaries with interest rates near their peaks that are likely to recede in 2024. He likes CLAS and Mapletree Logistics Trust (MLT) M44U for their attractive dividend yields.
Singapore outlook
In his April 11 report, Koh observes that Singapore’s services sector drew support from China’s reopening. In 4Q2022, gross domestic product (GDP) growth slowed to 2.1% y-o-y from 4.0% the quarter before, and 0.1% q-o-q seasonally adjusted (SA), with the services sector contributing to the bulk of headline GDP growth, says Koh.
Services were up 4% y-o-y, manufacturing was 2.6% down y-o-y, and construction gained 10% y-o-y.
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“UOB forecasts anaemic GDP growth of 0.7% in 2023 due to broad moderation in external demand,” he adds.
Koh says that the US and European economies are likely to slip into recession amidst aggressive monetary policy tightening which affects manufacturing and externally-oriented services sectors like wholesale trade, transport, and finance & insurance.
But the reopening of China will benefit the services sector as Koh expects to see continued recovery in leisure and business air travel, and inbound tourism.
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“Retail sales are expected to expand 5% in 2023. However, the manufacturing sector is expected to contract 5.4%,” he says.
In addition, the Monetary Authority of Singapore (MAS) has maintained a restrictive stance on monetary policy, which is anticipated to help reduce inflation.
Core inflation was 5.5% y-o-y in February 2022, the highest in 14 years which was driven by food and services. MAS expects core inflation to stay elevated in 1H2023 before slowing more discernibly in 2H2023, and for core inflation to come in at 3.5%-4.5% in 2023 after factoring in higher goods and services tax (GST).
“Assuming contagion risks from failure of US and European banks are reduced, we expect MAS to further tighten by re-centring the S$ NEER (nominal effective exchange rate) policy mid-point higher,” says Koh.
He adds that the three month Singapore Interbank Offered Rate (3M SIBOR) is expected to stabilise at 4.33% in 2023, and the Singapore dollar is expected to mirror the Chinese renminbi, and strengthen to $1.30 against the US dollar by the end of 2023. Currently, the Singapore dollar stands at $1.33 against the US dollar.
Other parts of Asean
Koh has also maintained his “buy” call on other companies in Asean.
The target price are as follows, Genting Malaysia (GENM) at RM3.50 ($1.06), Yinson (YNS) at RM3.95, PTT Exploration and Production (PTTEP) at THB 174 ($6.77), British American Tobacco (BAT) at RM16.50, CP All at THB 78, HM Sampoerna (HMSP) at IDR 1,700 (15 cents) and Kalbe Farma (KLBF) at IDR 2,300.
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The analyst anticipates that growth in Malaysia will be supported by domestic consumption and tourism.
GDP growth in Malaysia moderated to 7.0% y-o-y in 4Q2022, from 14.2% y-o-y in 3Q2022 as the low-base effect waned, with key growth drivers being private consumption, investments and net exports.
“UOB forecasts GDP growth of 4.0% in 2023, which is lower that the official growth target of 4.5%, due to more cautious investment and slower trade performance,” says Koh.
But stronger tourism activities supported by China’s reopening are expected to boost GDP growth by at least 1.0 percentage point (ppt), and private consumption will be boosted by income tax cuts for middle income households and higher allocation for subsidies and social assistance from Budget 2023.
“The ringgit should get a boost as China’s recovery becomes more entrenched in 2H2023.” says Koh, who expects the Malaysian ringgit to reach RM4.35 against the US dollar in 4Q2023.
Similarly, the analyst expects growth to accelerate in Thailand, driven by tourism in 2H2023.
GDP growth in Thailand decelerated to 1.4% y-o-y in 4Q2023 from 4.6% y-o-y in 3Q2022, as growth was driven notably by tourism and augmented by higher private consumption and business investments.
The economy contracted 1.5% q-o-q SA due to a slowdown in export of goods and decline in government expenditure.
“UOB has trimmed its forecast for GDP growth from 4.0% to 3.1% for 2023 due to the unexpected deceleration, although we expect strong growth in services exports, driven by the return of Chinese tourists,” says Koh.
But Koh expects inflation to recede to 2.7% in 2023, within the Bank of Thailand’s (BOT) target range of 1%-3%, as the government continues to subsidise energy costs to support domestic consumption.
“The Thai economy is expected to gain momentum due to negative real interest and the resurgence of tourist arrivals. The Thai baht is expected to strengthen to THB 33.0 (against the US dollar) by end-2023 with a more pronounced pick-up in Chinese tourists in 2H2023,” he says.
Finally, Koh expects a slight moderation in GDP growth in 2023 for Indonesia.
GDP growth was within expectations at 5.0% y-o-y in 4Q2022, from 5.7% y-o-y in 3Q2022, driven by the transportation and logistics sector due to the reopening and lifting of mobility and activity restrictions.
“UOB forecasts slower GDP growth of 4.9% in 2023 due to moderation in commodity prices and negative impact on domestic consumption from higher inflation. We see positive impact from election-related fiscal spending in 2H2023.” says Koh.
Koh adds that Indonesia benefited from strong foreign direct investment (FDI) inflows and easing portfolio capital outflows. Its current account surplus was US$4.3 billion ($5.7 billion) in 4Q2022, which is equivalent to 1.3% of its GDP.
Current account could reverse into deficit at 0.3% of GDP in 2023 due to lower commodity prices, higher import of services and higher primary deficit, says Koh.
However, Bank Indonesia (BI) has introduced foreign currency term deposits (FCTD) as an instrument for exporters to place foreign exchange proceeds of exports since March 1, 2023.
In addition, Koh says that interest rates have peaked, and BI could start to cut interest rates in 1H2023.
“BI believes inflation expectations are anchored and expects the Rupiah to remain stable. The latest government bonds and bills auction saw strong demand from foreign investors. The Indonesian rupiah benefits from the commodity boom and should strengthen to IDR 15,000 (against the US dollar) and below in 2H2023,” he says.
