The analyst remains “overweight” on the consumer, industrial, REITs (hospitality, industrials, office and overseas sectors) and transport sectors. Meanwhile, he remains “neutral” on the financial, food products, healthcare, manufacturing and tech, real estate, retail REITs and telecommunication sectors.
The RHB economics and market strategy (EMS) team remains optimistic about the outlook for the global economy in 2024, especially for the US (2024 GDP growth of 2.5% y-o-y) and China (2024 GDP growth of 5% y-o-y).
Singapore’s GDP growth should more than double at 2.5% y-o-y this year, from manufacturing and export sector recovery, and tourism-related sectors benefiting from the recovery in visitors from China.
While global economic recovery and higher commodity prices are expected to keep inflation sticky in the near term, these factors, in addition to Singapore’s tight labour market, would likely translate into an average core inflation rate of 3.4% in 1Q2024, which could potentially accelerate to 3.5% in 2Q2024.
The RHB EMS team believes the US Federal Funds Rate (FFR) has peaked at 5.25%–5.50%, and expects two rate cuts in 2024 amidst sticky inflation. However, the team’s forecast model does indicate a material risk for only one FFR cut (or no cuts) in 2024. The SGD, which should remain a relative outperformer in Asean, should move towards 1.29–1.32 relative to the USD in 4Q2024.
As such, Jaiswal has a few investment themes for 2Q2024. First is that investors should keep Singapore banks in their portfolios.
“For Singapore banks, while we expect the sector’s bottom-line growth to stall in 2024, we see upside risks to earnings from better-than-expected net interest margins if US rates stay higher for longer and credit costs are lower than estimated,” says the analyst. As such, DBS remains his preferred pick within the sector.
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Next, investors should build holdings in high-dividend yield exposure beyond REITs. As the Singapore market is predicted to experience moderate earnings growth in 2024 from the three banks’ flattish earnings projection, it will still provide a strong dividend yield of 5.5% and a stable currency.
Jaiswal believes that high yields are sustainable. As the REIT sector yield is approximately 6%, based on the stocks RHB covers, the team screened the stocks within RHB’s coverage to hunt for high-yield options outside of the REIT world, and see the three banks and Singapore Telecommunications (Singtel) offering high yields.
In the small and mid-cap space, Jaiswal sees APAC Realty , Bumitama Agri , Centurion Corp, HRnet Group, Kimly , and StarHub offering high dividend yields.
The analyst continues to maintain his positive stance on exposure to S-REITs, despite the sector lagging the overall market. He believes that the sector’s current share price downturn will be both temporary and an opportunity, as he expects S-REITs to outperform in 2024.
“We continue to propose that investors add REITs to their portfolios during market dips with a balanced mix of industrial REITs for steady yields, as well as a mix of office, hospitality, and retail REITs to ride the recovery and rebound from the interest rate cycle turn,” he says.
Except the retail sub-sector, Jaiswal is overweight on all REIT sub-sectors. Across all REIT sub-sectors, he sees CapitaLand Ascendas REIT (CLAR), Keppel REIT, AIMS APAC REIT (AA REIT), and CDL Hospitality Trusts (CDLHT) as his top picks.
Next, Jaiswal’s investment theme for 2Q2024 is for investors to stick with quality companies offering defensive earnings. To better hedge against such an uncertain macroeconomic environment in terms of interest rates and economic growth, we believe investors should continue to balance their portfolios by holding companies with relatively resilient profitability, he says.
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“We place a high value on investing in companies with proven dividend or profit histories, such as Sheng Siong and Singapore Technologies Engineering (ST Engineering),” says Jaiswal.
In addition, aviation-related sectors and services industries should benefit from the return of Chinese tourists to Singapore — Jaiswal names a few, including CDLHT, ComfortDelGro , DFI Retail group and Thai Beverage among the winners.
Finally, the analyst notes “bottom-up opportunities in the small-cap space”. In RHB’s coverage within the sub US$1 billion ($1.36 billion) market cap range, Jaiswal prefers exposure to Centurion Corp, Food Empire, Marco Polo Marine , and Riverstone. All four stocks have strong earnings tailwinds and delivered strong year-to-date (ytd) returns, he notes.
