RHB Bank Singapore is optimistic that Singapore’s GDP for the coming 2024 will be an improvement over this year, thanks to a pick up in external trade led by China, a moderation in inflation and a decline in interest rates.
Singapore’s 2024 is seen to grow 3%, which is at the top end of the 1-3% official forecast.
The better macro picture is seen to provide some support for the stock market, according to analyst Shekhar Jaiswal.
He observes that the Straits Times Index’s (STI) forward price-to-earnings ratio (P/E) of 10x appears “inexpensive” compared to its own long-term average and against regional peers.
Coupled with the pick-up in the economy, there will be ample opportunities for investors in Asia’s highest-yielding equity market. “Amid the expectation of moderate index growth, a thematic approach and bottom-up stock-picking will be more relevant for Singapore,” notes Jaiswal.
He expects the STI stocks to deliver positive returns for FY2024, with earnings per share (EPS) growth at 4.5%.
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“At this moment, we believe earnings growth, rather than an improvement in valuation multiple, will drive the rise in the STI next year,” writes the analyst.
If the economy further picks up, that would mean positive revisions to the FY2024 STI EPS forecast.
Meanwhile, Jaiswal expects the STI to hit 3,380 points at the end of 2024. His estimate is based on a 11.25x P/E multiple applied to FY2025 EPS.
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For the Singapore stocks covered by RHB, Jaiswal is projecting earnings growth of around 8.7% for FY2024, with most sectors, transport, utilities and industrials to see upgrades in earnings estimates.
The financial sector also saw a slight upgrade to earnings after banks reported better-than-expected results in 3QFY2023, while upgrades to FY2025 net profit estimates are largely in the transport, utilities, and REIT sectors.
For the year ahead, Jaiswal has an “overweight” call on the sectors of consumer, industrials, manufacturing and tech, as well as the hospitality, industrials, and office and overseas-specific REITs.
On the other hand, he has a “neutral” call on the financials, plantation-specific food products and healthcare, real estate, and retail-specific REITs.
For the 1QFY2024, the analyst’s investment themes are focused on opportunistically building positions in REITs and high-yield opportunities beyond, the exposure to an improving outlook for the manufacturing and tech sectors, selective exposure to the recovery in Chinese outbound travel and tourism.
RHB is retaining its view that investors maintain their exposure to quality companies offering defensive earnings and lastly, keeping an eye out for bottom-up opportunities in small-cap space.
