Continued corporate action could support a further recovery in ROE and lead to upside to dividend payout.
In addition, investor positioning does not appear crowded and valuation for MSCI Singapore remains attractive with P/B of 1.35x in line with the 2012-13 lows.
However, there could be rising risks in 2H18 with a slowdown in the global macro momentum.
Domestically, a potential increase in Goods and Services Tax (GST) to be announced in the 2018 budget could dampen a nascent recovery in retail sales.
While our base case is for a sustained recovery in the property market, the government could consider reintroducing cooling measures, should there be signs of overheating.
Stick with overweight in cyclicals for now.
We maintain our preference for cyclicals over defensives in the near term, and are overweight banks, offshore and marine, property and tech. Our top picks are DBS, Keppel, UOL and Venture, all rated 'outperform'.
See also: UOBKH raises TP on SIA to $6.22, FY2026 earnings to see lift on fuel cost savings
"We are underweight in REITs, transport and telcos," says Wong, "Within defensives, our preferred picks are ST Engineering and ThaiBev."
As at 12.28am, shares in DBS, Keppel, UOL and Venture are trading at $25.99, $7.75, $9.13 and $22.12 respectively.
