Singapore equities have delivered 13% in total returns year to date, outperforming most global markets. Despite so, Morgan Stanley has raised its index target for Singapore stocks by 13%, citing the impending implementation of measures to revive the local bourse, which has maintained its reputation as a safe haven amid wider uncertainty.
MSCI Singapore is now seen to hit 2,150 points, based on expectations of 5-8% p.a EPS growth and P/E edging up slightly to an above-trend 15.1x as ongoing active fund outflows reverse on market reforms.
"Even with the recent outperformance, Singapore's current P/E multiples are still at a discount to levels in other major developed markets, while allocations among active funds appear light given outflows since 2022," says Morgan Stanley, whose "focus list" includes Singapore ExchangeGroup, United Overseas Bank, Singapore Telecommunications, CapitaLand Investment and Sea, Singapore-based but New York-listed.
Meanwhile, Singapore's 4% dividend yield and an appreciating Singdollar, versus the USD, offer significant appeal as a safe haven.
"As one of our most preferred markets in Asia, Singapore offers an attractive risk-reward skew amid global market volatility.
"Singapore's safe haven status caps downside risk while ongoing market reforms present upside potential, and we see its outperformance over global equities enduring," says Morgan Stanley.
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As part of a broader set of measures, the Monetary Authority of Singapore is preparing to allocate $5 billion to fund managers to invest in smaller cap companies outside of the Straits Times Index.
"We believe mandates will be handed out by the end of the year, which will be followed by capital flows into the stock market as funds are deployed," says Morgan Stanley.
The US financial institution suggests that within the universe of some 100 SGX listed stocks with market caps ranging from $500 million to $3 billion, the ones with better liquidity are the more likely the targets of "incremental investor attention.
See also: Eight stocks to see 'renewed investor interest' as MAS nears allocation of $5 billion fund: DBS
From this list, Morgan Stanley has excluded REITs, which tend to have bigger market caps and are better poised to grow by secondary offerings, thereby deriving a short list of 20 "largest small cap" stocks.
"As the largest and most liquid non-REIT small caps, these stocks appear better placed to benefit from incremental institutional inflows, in our view," says Morgan Stanley.
These 20 stocks range from financial services provider iFast Corp to property play Hong Fok Corp.
Source: FactSet, Morgan Stanley Research. FY1 Valuations refer to FactSet consensus mean forecasts for the current unreported year. As of 19 May 2025. *Not covered by Morgan Stanley Research
