The analysts particularly identify Indonesian and Singaporean markets for their undemanding valuations.
In Singapore, analyst Shekhar Jaiswal notes that investors should pay attention to yields and stock-picking, as 2024 is not the year of earnings growth.
Amid healthy economic growth and increasing interest rates, Jaiswal believes that investors should focus on Singapore stocks featuring earnings sustainability and higher yields, a point he stressed in his previous report dated April 15.
Excluding the REIT sector, Jaiswal anticipates a 3.2% y-o-y market cap weighted y-o-y earnings per share (EPS) growth for Singapore in 2024, weighed down only by the banking sector. With the market cap-weighted y-o-y EPS growth for 2025 standing at 4.4%, he expects all other sectors to deliver EPS growth in 2024. The banking sector is also expected to see EPS growth in 2025.
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“Impacted by the flattish-to-mildly negative earnings growth expectations for the three banks, the consensus has turned bearish on the Singapore equity market’s 2024 earnings growth as compared to the metric for 2023,” says Jaiswal on April 23.
“Nevertheless, despite the downgrade in EPS growth estimates, the Street has continued to upgrade 2024 net profit estimates for the following sectors: Utilities, transport, and financials. Upgrades to the 2025 net profit estimates are largely for the same sectors,” he adds.
The analysts forecast an impact on Singapore’s domestic inflation from both external and internal factors, resulting in persistent rising inflation in 2QFY2024. They expect core inflation to average at 3.4% in 1QFY2024 and potentially climb to 3.5% in 2QFY2024.
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Following global uncertainties, the RHB economics and market strategy (EMS) team anticipates sustained inflationary pressures driven by domestic factors such as a tight labour market resulting in higher wages and demand-driven price effects.
With Singapore’s interest rates usually mirroring those in the US and with RHB’s expectations that the current federal funds rate (FFR) will peak at 5.25% - 5.50%, investors have remained interested in stocks within the banking sector.
To this end, Jaiswal expects investor interest in banking stocks to continue. This is till the team has clarity on moderation in inflation and the magnitude of the FFR cuts. To date, all three Singapore banks have delivered positive returns. For Singapore banks, DBS remains Jaiswal’s top pick within the sector.
High dividend exposure for non-REITs
Out of the Singapore REITs (S-REITs) sector, Jaiswal is recommending the three banks and Singapore Telecommunications(Singtel) as large-caps offering high yields
Within the small- and mid-cap space, APAC Realty, Bumitama Agri, Centurion, HRnetGroup, Kimlyand StarHubalso offer high dividend yields.
These selections are based on two criteria: the stock has to have a dividend yield of at least 5.5% and has a “buy” or “neutral” rating.
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“Amid the ongoing high volatility in interest rates, we believe investors should take a slightly more watchful approach and gradually add on to high quality, large-cap S-REITs on weakness, in order to benefit from the upside as the interest rate stabilises in the medium term,” Jaiswal writes.
“With the exception of the retail sub-sector, we are overweight on all REIT sub-sectors. Across all REIT sub-sectors, we hold CapitaLand Ascendas REIT(CLAR), Keppel REIT, AIMS APAC REIT (AA REIT), and CDL Hospitality Trusts(CDLHT) as our top picks,” he adds.
With the US Fed likely to cut rates soon, the analyst recommends investors stick with “quality companies” that offer “defensive earnings”.
“We place a high value on investing in companies with proven dividend or profit histories,” he writes, identifying Sheng Siong and Singapore Technologies Engineering(ST Engineering) as examples.
With the return of tourists to Singapore and Asean, stocks in service industries such as retail, food and beverage (F&B), healthcare, land transportation and telecommunications should benefit too, despite a slowing economy and “low customer mood” at home.
According to the Singapore Tourism Board (STB), visitor arrivals are expected to hit fifteen to sixteen million, generating an estimated 24.5 billion to 26 billion in tourism receipts. The RHB team forecasts tourist arrivals to reach 85% - 95% of its pre-Covid-19 levels in 2024. This amounts to 16 million to 18 million, exceeding the STB’s official estimate of 15 million to 16 million.
In Malaysia, the RHB analysts note that the benchmark FTSE Bursa Malaysia KLCI index tracked 5.6% higher ytd, which is in line with expectations even though it stemmed from a lower base last year. The growth put Malaysia in second place among the best-performing markets within the key Asean bourses this year, just behind the Philippines.
One of the reasons behind the growth was attributed to the “encouraging” business news flow, which includes the memorandum of understanding (MOU) on the Johor-Singapore special economic zone (JS-SEZ).
“Developments regarding the JS-SEZ may continue spurring foreign and domestic direct investments in the areas of industrial parks such as the Sedenak Technology Park which houses large-scale data centre providers. Additionally, the anticipated KL-Singapore High Speed Rail and Johor Bahru Light Rail Transit (LRT) are upcoming projects that may not just catalyse Johor’s property market but also keep contractors well-occupied with jobs,” say the analysts.
