As Singapore gradually relaxes the Covid-19 restrictions from June 14 onwards, cyclical names should experience a return to growth after an expected weak 2Q2021, according to RHB Group Research analyst Shekhar Jaiswal.
“With 75% of the population expected to be fully vaccinated by October, a gradual, controlled return of tourists could begin by year-end – offering earnings growth to companies dependent on the resumption of international travel,” writes Jaiswal.
The planned inoculation of 75% of the population could see a gradual but controlled return of tourism by year-end, which could be positive for the aviation and hospitality sectors.
On this, he recommends a balanced investment strategy, with higher exposure to cyclical stocks as a proxy to the expected economic recovery.
In a previous report, Jaiswal estimates to see a “temporary speed bump” in the 2Q2021 for corporate earnings.
That said, the weakness in share prices in cyclical sectors are an opportune time for investors to accumulate shares in companies that should benefit from a sustained economic recovery over the next 12 months.
The economic reopening will come with frequent Covid-19 testing, to which Raffles Medical Group (RMG) will be a key beneficiary.
Jaiswal has also identified his top picks for the economic reopening as DBS Group Holdings, Oversea-Chinese Banking Corporation (OCBC) and Singapore Exchange (SGX) in the financial sector; ComfortDelGro (CDG) in the transport sector; and Suntec REIT among the S-REITs sector.
He also believes REITs with earnings and dividend growth potential will continue to outperform, despite the expectation of higher interest rates.
“Near-term outperformance could come from office and retail REITs, amid a cyclical rotation. To cover for downside risks from uncertainties related to the reopening of international borders and an uneven economic recovery, investors should stick to high-yield stocks that offer visibility on earnings and dividend growth. We keep our top picks unchanged, for now,” says Jaiswal.
At 12.8 times FY2022 price-to-earnings (P/E), the Straits Times Index (STI) still has one of the cheapest valuations in the Asean market.
“Its 4.0% forward yield is the second highest in Asia. Our end-2021 STI target is 3,280 points,” he writes in a June 14 report.
“After outperforming Asean peers in USD terms and delivering around 11% year-to-date (y-t-d) return, we expect the STI to consolidate at current levels before moving higher. Given its strong control in managing COVID-19 infections and better-than-expected economic rebound vs Asean peers, Singapore should continue to offer the most comfort to foreign investors,” he adds.
The STI closed 26.29 points lower or 0.8% down at 3,117.87 on June 21.
Photo: Bloomberg
