Daiwa says investors should take advantage of divergent outlooks within the sectors as upside to the STI remains limited.
The research house has a new STI target of 3,285 for mid 2018 based on 13.1 times 15-year average forward earnings.
In a Monday report, analyst Ramakrishna Maruvada picks banks for their above-market earnings growth potential due to the prospect of Fed rate hikes, property developers which is seeing prices recover amid improving demand, exporter stocks and corporate restructuring and M&A plays with robust fundamentals.
On the other hand, the analyst says investors should avoid telecoms, supermarket operators, land transport and the power sector as mid-2018 market liberalisation would only compound sector woes.
Sector-wise, Maruvada has upgraded property developers to “overweight” as it believes residential property prices have bottomed after four years of soft-landing.
He is also downgrading consumer services to underweight, reflecting poor outlook for its constituent stocks.
Meanwhile, the analyst remains overweight the banks, underweight the telecoms and oil & gas sectors, and neutral on consumer goods and industrials.
Daiwa’s revised top index picks are DBS, UOB, City Developments, CapitaLand, ST Engineering, SATS and Wilmar.
Its revised out-of-index picks are Raffles Medical, Accordia Golf Trust, Starhill Global REIT, Frasers Centerpoint Trust and SIA Engineering.
