Inflation has not been brought down to desired levels of around 2%. Central banks are therefore expected to keep rates higher for longer, which will extract a cost from earnings by businesses and cause a drag on economic growth. According to a Phillip Securities’ research team at a recent webinar on July 15, for Singapore’s economy, which is heavily reliant on exports, the slowdown means it makes sense for investors to try and “seek shelter” in counters giving relatively high dividend yields while looking for pockets of recovery, or new growth, such as hospitality.
Given the relatively bleak outlook, the biggest worry for investors is whether the three local banks, which together account for nearly half the weight of the Straits Times Index, can maintain their high margins given the compression widely seen. As such, the Straits Times Index (STI) is trading at a multiple that is at its lowest in a decade. “Nobody likes to buy low, everybody likes to buy high,” laments Paul Chew, the brokerage’s head of research.
