The upgrades come as the JPM analysts expect a sharper-than-expected decline in interest rates, and expect the SGD to be a safe-haven currency amidst the weakening of the US dollar (USD).
“Since our previous report in June, Singapore rates have continued to trend downwards with the SORA (or Singapore overnight rate average) dropping by another 44 basis points (bps) to below 1.3%,” the analysts write in their July 23 note.
“Note that at our base-case target level, STI’s forward dividend yield is three percentage points higher than the risk-free rate (six-month treasury bills) and still one of the highest yields among developed markets,” they add. “[The] JP Morgan FX team sees the SGD continuing to be supported by inflows and the large stock of US assets held by Singapore entities.”
The upgrade also comes as the team believes the equity market development programme (EQDP) is likely to benefit the equity space, particularly small- and mid-cap stocks with a good track record of growth and quality balance sheets. The Monetary Authority of Singapore (MAS) has also committed $50 million till the end of 2028 to strengthen equity research and listing support, which would improve coverage and investors’ interest in the space, JPM says.
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“We reiterate our view that significant outperformance of small- and mid-caps (SMIDs) versus large caps looks unlikely, due to higher multiples, uncertain profitability, and lower liquidity and growth potential of the group,” says the team. “However, SMID stocks with a good track record of growth and quality balance sheets would likely be the centre of attention due to the influx of capital.”
Real estate upgraded to ‘overweight’; industrials downgraded to ‘neutral’
The team also likes the Singapore real estate sector, as it upgrades its call to “overweight” from “neutral”. Conversely, industrials were downgraded to “neutral” from “overweight”. The shifts were made to focus on the rate beneficiaries in the real estate sector, says the team.
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The drop in SORA and the Singapore yield curve led to a reduced cost of debt in the 1Q2025 results season. Henceforth, JPM expects guidance to be lowered further with Singapore-focused REITs holding a greater portion of Singapore dollar debt.
On the other hand, the team is becoming “more selective” in the industrial sectors after a strong performance year-to-date. Among the sectors, the analysts prefer defence counters and airlines over shipbuilding, noting the USTR (US trade representative) 301 rulings on port fees for China-built vessels. The fees are scheduled to take effect on Oct 14 and would negatively impact shipping companies like Yangzijiang Shipbuilding.
With this, JPM’s top picks among the Singapore stocks include City Developments Ltd, CapitaLand Integrated Commercial Trust, CapitaLand Ascendas REIT, Frasers Centrepoint Trust, Keppel DC REIT, Singapore Technologies Engineering (ST Engineering), Singapore Telecommunications (Singtel) and consumer staple names.
The analysts also believe SMID stocks will be the “centre of attention” in the third and fourth quarters as funds start allocating and research coverage picks up.
