UBS upgrades Singapore's shares to 'overweight', on reopening of global economies, recovery in oil prices, and attractive valuations

UBS Group AG became the latest fan of the Southeast Asian nation’s shares, upgrading its view to overweight in a report Thursday, citing the reopening of global economies, a recovery in oil prices, attractive valuations and the government’s ability to contain the damage caused by the coronavirus pandemic.

Singapore stocks are “somewhat cyclical and should benefit from exports and/or oil prices recovering,” said strategists led by Niall MacLeod. The valuations are also “attractive versus the region,” the note added.

Global stocks climbed for eight straight days through Wednesday on optimism for a quick economic recovery from the virus impact. Technical indicators and valuations are flashing warning signs, however, and the possibility of a second wave of infections poses a threat along with renewed U.S.-China tensions and unrest in U.S. cities.

Singapore’s gross domestic product is expected to shrink 4%-7% this year, its worst contraction since independence in 1965, as the pandemic pummels the economy. The Monetary Authority of Singapore has promised to provide sufficient liquidity, while the government has deployed stimulus of S$92.9 billion ($66 billion) so far.

The Singapore government has greater ability than many other nations to support its economy due to its reserves, the UBS strategists wrote in their note. “Therefore non-performing loan risks may be lower than elsewhere.”

While the city-state struggles to flatten the curve of the coronavirus pandemic even as it reopens its economy, UBS said that the number of new cases “is slowing and looks manageable.”