They add that size has mattered when generating alpha in Singapore year-to-date, and thus they prefer quality mid-large cap industrial/property stocks.
“While most institutional investors remain focused on index names for their liquidity, SMID stocks have delivered far better share-price returns year-to-date,” the analysts say. This could potentially be attributed to be pre-emptive moves to invest ahead of the (EQDP) fund deployment.
Retail investors are selling large-cap index stocks and are skewed towards less liquid SMIDs, whereas institutional investors are still focused on key index names, they add.
The analysts ranked Singapore’s top 100 stocks in terms of market cap and sorted them into quintiles. Based on unweighted averages of each quintile, the bottom two quintiles have performed the best with a +27% average return year-to-date. On the other hand, the top quintile by market cap has averaged a more modest but decent +15% year-to-date return on an unweighted basis.
“As such, we see a market bias towards SMIDs for alpha,” the analysts conclude.
Furthermore, the EQDP is set to spur on the enthusiasm for SMIDs. The MAS has assigned the first tranche of its $5 billion capital deployment into the market, and the remaining tranches are expected to be assigned by 2HFY2025, with the amount potentially being further augmented by capital raising from the assigned asset managers.
This has raised optimism for the Singapore market, in particular for SMIDs.
“What is uncertain however is if such liquidity will be maintained over the longer-term so as to facilitate eventual exits, especially once the funds are fully deployed,” the analysts caution.
They point to Thailand as an example, where pre-positioning was evident when the Vayupak fund was launched. The Vayupak fund is a state-controlled fund that sought to raise liquidity from domestic retail and institutional investors to shore up the Thai market.
Liquidity and market valuations had initially bumped up once the US$4.4 billion ($5.6 billion) fund establishment had been announced, which continued until the funds were fully deployed. Shortly after, liquidity and valuations normalised.
“As such, unless we see sustained capital inflow, liquidity levels and valuations might not be sustainable, especially with tepid earnings growth seen against 1.2% forecast gross domestic product expansion in FY2026,” they say.
Given potential rate and foreign exchange headwings, as well as the uncertainty surrounding how long the liquidity squeeze might last, Citi analysts remain cautious on the Singapore market.
They predict that the Straits Times Index will outperform the MSCI Singapore index due to its onshore-stock focus where EQDP will be most relevant.
Their preferred stock picks amongst quality mid-large caps are CapitaLand Ascendas REIT, Keppel, Seatrium, Sembcorp Industries and UOL.
They like names like City Developments Limited, Sheng Siong and StarHub amongst smaller-cap stocks, which tend to be better supported by fundamentals.
Lastly, Citi states that they are underweight on banks and overweight for industrials, property and communications.
