“We think that the performances of the market, sectors and companies will diverge, as returns are influenced by the relative resilience of earnings in the face of an uncertain future. Investors should prioritise making it through these tumultuous times. The ability to pass through rising expenses, captive client bases, recurrent demand and companies with excellent financials should all be taken into account when selecting stocks.”
To this end, Jaiswal says he places a strong emphasis on investing in businesses with solid dividend or profit histories. RHB believes that defensive sectors and styles will continue to outperform.
Jaiswal’s top picks include Delfi, Sheng Siong, Thai Beverage, OCBC Bank, Golden Agri-Resources, Raffles Medical, ST Engineering, Citi Developments, Centurion Corp, Food Empire, Marco Polo Marine, Singteland ComfortDelGro. His top picks for REITs include AIMS APAC REIT, CapitaLand Ascendas REITand Keppel REIT.
For 2023, RHB forecasts 17% market cap-weighted y-o-y EPS growth for stocks under its coverage. The key sectors that will contribute to positive earnings growth are banks, industrials, telecommunications, land transport and consumer goods. Healthcare earnings are expected to moderate coming off a Covid-19 high base, while plantation earnings will moderate on the back of lower crude palm oil prices.
See also: OCBC’s CEO change ‘earlier’ than expected; Citi stays ‘neutral’ with target price 6.8% under
While RHB is expecting more sectors to deliver positive EPS in 2024, the overall EPS growth for its coverage universe is expected to drop to about 7.9% amid a sharp deceleration in earnings growth for the banking sector, which has a large weight in the Straits Times Index (STI) and in its coverage universe.
Although the STI’s 10.3x P/E remains quite compelling, it is likely to stay range bound amid ongoing volatility, especially in the higher-for-longer interest rate regime, says Jaiswal. Using a top-down approach and a target P/E multiple of 11.5x applied to 2024 EPS, RHB predicts that the STI could hit 3,300 points by the year's end.
