■ Poor near-term corporate earnings outlook is widely known and reflected in prices. It is not all doom and gloom. Investing here just needs a longer-term perspective.
■ The positive mega-trends for Singapore/ASEAN are AEC, OBOR and TPP. These will fan the winds of prosperity for ASEAN. Singapore will ride on ASEAN’s coattails.
■ Banks and property will be long-term winners. Balancing the long term, valuations and current headwinds, top picks are CAPL, CIT, DBS, SPOST, IHH and THBEV.
■ Among smaller names, we like CEWL, GLL, HOBEE, IP, MAGIC, TIAN and VMS.
Challenging near-term outlook is priced in
Singapore’s corporate earnings trend is weak. A property-building binge 3-4 years ago is contributing to an avalanche of completed supply. Rents are weak and occupancy is falling. The offshore sector is suffering the aftermath of weak oil prices, with orders getting cancelled. Both oil and gas and property-related NPLs for the banks are on the rise, with the weakness in neighbouring ASEAN countries spilling over.
Focus on the future; AEC provides opportunity to leap out
These challenges are also reflected in share prices; there is no point to be overly pessimistic. However, cheap stocks can stay cheap for a long time, if there are no catalysts. At current valuations, it is sensible to focus on the outlook beyond 2016. Ahead, we think that Singapore will sharpen its edge as a hub city in ASEAN. The first important development is ASEAN’s commitment to move towards a common market.
Singapore to act as a bridge for China’s One Belt, One Road policy
The second notable development is China’s One Belt, One Road (OBOR) policy. China wants to fund an infrastructure buildout of countries along the Maritime Silk Road. Whether the intention is to secure resources, win new friends or export its excess industrial capacity, China’s resources cannot be ignored. Singapore will not be a direct recipient of that buildout but as the only Chinese-speaking country in ASEAN, banks stand as beneficiaries to facilitate that spending across developing ASEAN.
Attracting US MNCs as TPP comes into force
The third notable trend is the recent headway towards forging the US-led Trans-Pacific Partnership. Internationally, the TPP will open up opportunities for companies to enter new markets. In the context of ASEAN, the progressive opening up of markets under AEC and TPP may attract more US MNCs to this region in search of Asia’s new low-cost manufacturing centres in Indochina. Singapore is a useful hub from which US MNCs can manage supply chains; offices, warehouses, logistics and banks stand as beneficiaries.
Longer-term winners are office space, banks and logistics
It is not all doom and gloom
. Now is a good time to position for a future where Singapore stands as a hub to manage supply chains in an emerging, low-cost manufacturing region. During the 15th -18th centuries, the Spice Trade led to European colonial powers fighting over Singapore as a trading port. The 21st century will be a period where the US and China jostle for influence in Singapore as it becomes a gateway to the low-cost manufacturing centres of ASEAN and its potentially sizeable consumer markets. (Read Report)
Source : CIMB Research
Labels: CapitaLand, City Developments, DBS, Equity Strategy, IHH Healthcare Berhad, Singpost, Thai Beverage