On the other hand, a bear case retracing to 10 times price-to-earnings ratio (P/E) would lead to 3,260.
“Practically given the huge weight of financials on the Index (56%), much of the upside hinges on whether the banks continue to rally (we still see the upside),” the analysts add.
While high tariffs imposed on US trade could stifle global trade in the event of a trade war, the analysts expect heightened tensions to fuel two multi-year trends benefiting Singapore: foreign direct investments and wealth inflows.
The analysts expect GDP growth for Singapore to moderate to 2.4% in 2025.
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To this end, the analysts remain "constructive” on Singapore equities for 2025, with both banks and Singapore-REITs (S-REIT) in their selection.
They have identified DBS Group Holdings, CapitaLand Ascendas REIT (CLAR) and Seatrium as their top three picks.
The other top Singapore stock picks include United Overseas Bank (UOB), SingTel, DFI Retail Group , Keppel Data Centre REIT (KDCREIT) and ComfortDelGro .
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“Although we see more upside in oversold nearby emerging markets (EM), solid Singapore Dollar-backed yields remain appealing,” the analysts note.
With regards to S-REITs, the analysts prefer higher Singapore contributions and see optionality from further monetary easing.
Given that rate cut expectations have moderated and a higher-for-longer interest rates scenario is back, Macquarie’s top sector preference is industrial REITs followed by retail, office and hospitality.
“CLAR and KDCREIT are our preferences,” the analysts say, noting that CLAR has 64% of its portfolio in local markets.
For financials, the analysts expect flat earnings for banks driven by the 150 basis points (bps) US Federal Reserve (Fed) rate cuts in 2025, with upside if the market’s forward curve expectation of 75 bps to 100 bps proves correct.
The analysts prefer DBS and UOB over Overseas-Chinese Banking Corporation (OCBC) on capital management, while downgrading Singapore Exchange (SGX) to “neutral” following strong outperformance.
DBS remains their top pick given strong fees, a clear strategy to utilise excess management position overlays, announced succession and a broad set of capital management tools.
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Looking ahead, the analysts project an average 0% EPS growth for the banks (7% for UOB) and 13.8% return on equity in 2025.
Within the telecommunication (telco) sector, the analysts continue to prefer Singapore Telecommunications (SingTel), while anticipating Singapore’s four player telco market to consolidate into three.
In the digital economy, the analysts prefer Sea to Grab. Looking to 2025, the analysts believe that markets will focus on continued margin improvement from core businesses and upside from strong growth of their Fintech businesses.
