Chew, who heads the research team at the brokerage, laments that he is still hearing people say they prefer to invest in Hong Kong stocks, which have indeed started picking up, but after Singapore left the blocks. Regardless, investors of Singapore stocks should be cognisant of a big push by a particular party. “I want it up; I put money in the stock market; I subsidise investors; I subsidise listings; I fund research reports,” says Chew, channelling what this party is thinking and doing.
In a by now familiar plot, one key reason is the market revival measures, which include the Equity Market Development Programme (EQDP), where $5 billion is to be allocated to fund managers to invest in stocks of smaller cap, sending the Singapore market to a new level of excitement not seen in years. The Straits Times Index (STI) has reached new record levels of more than 4,400 points, and if JP Morgan is accurate, 6,000 points is the target in a bull run. The share price of Singapore Exchange (SGX) itself has similarly reached a new high of $17.53 on Oct 3, a level it has not seen since late 2007, the last bull run a year before the global market downturn triggered by the collapse of subprime bonds hawked by Wall Street.
EQDP plus
Of the $5 billion, Chew figures that just around $500 million has been channelled into the market. This means another wave of liquidity, nine times bigger, is on the way. And if the “crowd in” effect manifests in a significant way, investors, sensing growth opportunities, will invest more money, thereby creating a self-reinforcing virtuous cycle.
See also: Hong Kong’s capital markets resurgence: Asia’s pre-eminent financial powerhouse
Beyond the EQDP, there is also what Chew dubs “EQDP Plus”, which refers to how companies like DBS Group Holdings are committing $3 billion to buy back their own shares, and Singapore Telecommunications (Singtel) is planning its own $2 billion programme. Other index stocks also have their own clearly stated buybacks. In July, Keppel announced plans to buy back $500 million worth of shares. On Sept 18, having sold its subsidiary MCL Land to the Sunway Group for $739 million, Hongkong Land said it would allocate an additional US$150 million to its existing US$200 million ($260 million) share buyback programme. “If you still don’t get the hint, maybe a vulture is needed,” quips Chew.
Other market analysts similarly expect a better showing ahead. Besides $1.1 billion in funds to be allocated by the first tranche of EQDP managers, JP Morgan Asset Management, Fullerton Fund Management and Avanda Investment Management, the government’s announcement of a second tranche of fund managers to receive some of the allocation will be another catalyst, notes DBS Group Research’s Yeo Kee Yan and Foo Fang Boon. Specifically for investors with an eye on this quarter ahead, DBS has another reason to help lend some cheer. Traditionally, the period from November to April tends to be a stronger season.
Safe and liquid haven
The bigger picture is positive, too. Chew notes that many US Federal Reserve watchers have been debating the number of cuts ahead, but he sees no real point in pinpointing an exact number. “The key thing is, directionally, interest rates are coming down.” Jerome Powell, chairman of the Fed, according to Chew, might not get a new term, given how President Donald Trump has repeatedly made it clear his dislike for what the former is doing. “Probably we will have a new Fed chair by May of next year, and the US administration will have more and more influence in the Federal Reserve, which means there is more room for them to cut interest rates,” he reasons.
Here in Singapore, there is a clear and favourable macro trend. The city-state, long regarded as a safe haven, is also emerging as a liquidity haven, attracting substantial global fund flows and accumulating substantial foreign exchange reserves (see Chart 1). Funds drawn here are overspilling into bank deposits, which means that interest rates, which have already dropped ahead of US rates, are being put under further pressure. Amid this backdrop, the current valuations of Singapore stocks appear even more attractive, says Chew.
As an illustration, if interest rates are at just 2% or so but some stocks can yield 7%, that’s a not inconsiderable difference of 5%. Because of the poor returns from interest rates, the most obvious alternative is the stock market, which is still trading at an attractive valuation of 13 to 14 times earnings. With all the liquidity coming in and valuations being pushed to 15 times, that represents an upside of 13% (see Chart 2). “Always remember, the key theme here is ‘I want it higher’,” says Chew.
The Next 50
Another key market development closely followed in the current fourth quarter was the launch of the iEdge Singapore Next 50 Index by SGX, which tracks the next 50 largest stocks outside of the flagship 30-component STI. The Next 50 is intended as part of a policy package to deepen liquidity beyond large-caps, enhance research coverage, and facilitate the development of new products. “These initiatives provide a favourable top-down backdrop for mid-cap benchmarks to gain traction,” says Nirgunan Tiruchelvam of Aletheia Capital.
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To qualify for the Next 50, companies must have a market capitalisation of at least $100 million and a free float of at least 15%. The methodology, observes Tiruchelvam, mirrors established mid-cap benchmarks in other markets such as India’s Nifty Next 50. “By providing a transparent and investable framework, the Next 50 increases visibility for mid-cap stocks. It facilitates ETFs (exchange-traded funds) and mandate creation,” Tiruchelvam says.
More interestingly, members of the Next 50 are spurred to aim for promotion to the big league STI, which makes this both a performance benchmark and a tool for investor discovery in Singapore’s under-researched mid-cap space, he adds.
Already, there’s growing interest in this segment, where in the first eight months of this year, institutional investors were net buyers of $425 million worth of small- and mid-caps, while daily turnover grew 50% to $163 million, signalling improving depth.
Companies, when included in indices, may generate a positive impact, as passive funds and ETFs mirror the indices in building their own positions. For example, when Tesla was added to the S&P 500 in December 2020, it triggered a wave of demand ahead of the rebalancing. From the announcement on Nov 17, 2020, to the actual inclusion a month later, Tesla surged by 57%, illustrating the effect of so-called “mechanical buying”, says Tiruchelvam.
Vistra and Palantir were two other recent inclusions into the S&P500. Since their entry in 2024, Vistra is up 25% and Palantir 16%. “This reflects forced index buying and incremental sell-side attention. These effects are typically shorter-cycle and can mean-revert as passive demand is satisfied”, says Tiruchelvam.
The impact is seen in other markets. The inclusion of Adani Green Energy in India’s Nifty Next 50 Index on March 31, 2021, led to a 40% increase in its share price between January and April 2021, driven by strong sentiment around renewable energy and its growing weight in benchmark indices. “The inclusion also brought greater analyst coverage and media visibility, further reinforcing investor confidence,” says Tiruchelvam.
In another example, Saudi equities were added to the MSCI EM index in phases during 2019, which triggered sustained foreign passive inflows. The country’s index weight increased from 1% at entry to more than 4% by 2025.
High ratios
Among the 50 Next 50 stocks, Tiruchelvam has shortlisted five potential “winners” that are supported by their strong fundamentals and relative valuations (See Table 1). These stocks are distinguished by superior return on invested capital (ROIC) over weighted average cost of capital (WACC) ratios, which measure the ability to generate returns above their cost of capital. “High ROIC/WACC ratios indicate sustainable value creation. This factor can attract institutional flows following index inclusion,” he explains.
PropNex, Singapore’s largest real estate agency, is well supported by resilient resale and rental markets. Underpinned by its army of around 13,600 salespersons, PropNex benefits from its dominant market position, scalable franchise model, and lean cost structure. “Its brand dominance, negative working capital, and a healthy dividend yield of around 5.5% underpin its resilience,” says Tiruchelvam. “Expansion into overseas markets and project marketing further diversify earnings streams and offer medium-term growth optionality,” he says, noting that the counter trades at 12.5 times FY2024 P/E with net cash of $150 million.
The next pick is Sheng Siong Group, a supermarket operator with more than 70 outlets, with an ebitda margin of 15% and an ROIC above 20%, which is well above its WACC of around 8%. Tiruchelvam says this company, which trades at 17 times FY2024 earnings with a dividend yield of 4.1%, has vibrant cash generation, efficient cost control, and suburban dominance.
“These factors provide resilience amid consumer downtrading trends. The group’s prudent expansion into heartland areas sustains steady growth. The automation and logistics investments help defend margins. Its net cash balance sheet and consistent execution provide downside protection in volatile retail conditions,” says Tiruchelvam.
Digital wealth platform iFast Corporation operates not just in Singapore but also in Hong Kong and other markets. In its 2QFY2025, assets under administration have reached $27.2 billion, representing a 21.6% y-o-y increase. Tiruchelvam likes iFast for its asset-light, high-margin model. He expects the company’s ebit margin for FY2025 to FY2028 to be 32%, an improvement from 23% in FY2022 to FY2024, due to its scalable infrastructure. iFast trades at 28 times FY2025 earnings, which is a relatively high multiple compared to the market. However, Tiruchelvam believes that even at this level, investors have yet to fully reflect the growth optionality from its Hong Kong government pension platform project and the growing stream of recurring fee income.
Another Alethiea pick is ready-mix concrete supplier Pan-United Corporation, which commands a local market share of around 40%. Over the last four years, its ebitda growth has averaged 20%, driven by cost efficiencies and the adoption of green concrete. According to Tiruchelvam, this company has an ROIC of 14% compared to its WACC of 7%. It trades at just 10 times FY2024 earnings with a 3% yield. “As Singapore ramps up construction activity, Pan-United is poised to capture margin expansion and growth momentum,” says Tiruchelvam.
Last but not least, he likes Boustead Singapore, a diversified engineering, geospatial, and real estate group which is planning to spin off a REIT. Its ebitda margins have averaged 18% in the last three years. Despite a year-to-date gain of around 70%, Boustead Singapore is still trading at 8 times its FY2024 earnings, and at just 0.8 times its book value, offering a 3.3% yield. Tiruchelvam, noting its net cash position of $300 million versus its market cap of just over $920 million, calls this company a “deep-value play”. He likes how the asset-light model and selective property development provide downside protection while generating steady earnings. “The undervaluation and capital management are potential re-rating catalysts,” he says.
Scope for a broader screen
As even all good horses need a break before going further, there is a recent pullback among some small- and mid-caps. Still, DBS Group Research, citing the additional injection of liquidity via the EQDP, says this is an opportunity to increase exposure, especially to some of the relatively well-covered counters that have been included in the Next 50. “We maintain our strategy of adhering to companies with sound fundamentals, valuations, and compelling narratives,” says DBS, listing counters such as SIA Engineering, iFast Corp, UMS Integration, Frencken Corp, NetLink NBN Trust, and ComfortDelGro. These are companies that should continue to feature favourably under this theme based on conventional growth and income metrics, according to Yeo and Foo of DBS Group Research.
In addition, DBS sees scope for this screening to broaden over time and include less covered but high-quality companies, especially with the rollout of the enhanced research scheme and moves to improve market presence and visibility for smaller-cap stocks. DBS has thus far flagged counters such as offshore and marine player Nam Cheong for its earnings growth and manufacturer Valuetronics Holdings for income generation. Fraser & Neave (F&N), a storied manufacturer of drinks, is flagged too, as is Haw Par Corp, controlled by the Wee family of UOB, which has interests in the bank, properties, and a healthcare products business headlined by the Tiger Balm brand. DBS, F&N and Haw Par are deemed “value-up” plays with more than 10% upside to their fair values.
Singtel, Prime US REIT
Over at PhillipCapital, its research team publishes a quarterly “Absolute 10” portfolio of stocks to keep an eye on. In its most recent iteration, the portfolio has retained eight counters: CapitaLand Ascott Trust, DBS Group Holdings, Stoneweg Europe Trust, Geo Energy Resources, Wee Hur Holdings, CapitaLand Investments, City Developments, and Keppel. Sembcorp Industries has been removed due to concerns that margins generated by the power supplier are lower than expected. And in contrast to Aletheia’s Tiruchelvam, PhillipCapital has also removed PropNex following a recent strong gain that has since exceeded the target price. Replacing them are Prime US REIT and Singtel.
Singtel’s domestic mobile business remains in a tough fight, but its overseas businesses, which contribute the bulk of the earnings, are on an upward trend. PhillipCapital’s Chew is also quick to acknowledge that Optus, Singtel’s wholly owned subsidiary in Australia, is facing a slew of criticisms after a network failure led to a breakdown in emergency phone services, which resulted in several deaths. However, he points out operationally, things are heading up, with average revenue per user heading up in line with the overall industry.
Besides Australia, a similar lift is underway at Bharti Airtel, its associate in India, as the previously hyper-competitive market has seen a significant degree of market stabilisation following the exit of some players. Chew figures that when the mobile operators charge higher rates, “everything goes down to the bottom line”. In addition to earnings growth from stronger operations, Singtel is attractive due to its commitment to delivering higher returns to shareholders, underpinned by its active asset monetisation strategy, which includes regular trimming of its stake in Airtel. “That’s why we are still positive on Singtel,” says Chew.
In contrast to Singtel, which is the third-largest listed company here by market value, at more than $70 billion, another new pick for the Absolute 10 is Prime US REIT, a decidedly small-cap company worth just US$260 million. This REIT, which owns a portfolio of US office properties, has seen its share price drop more than three-quarters from its 2019 IPO price of 88 US cents. The significant decline occurred after 2023, when the REIT began withholding distributions as it prioritised husbanding resources in the face of a challenging post-Covid US office market. Coupled with higher rates, the REIT suffered aplenty.
Despite trading at a discount of just 0.4 times its book value, the REIT has proceeded with a US$25 million placement to a group of institutional investors at 19.35 US cents per share. Based on the information provided, the REIT is experiencing a pick-up in leasing activities. With higher occupancy, more cash is expected to flow in, giving the REIT the confidence to increase its payout ratio from 10% of its distributable income to at least half, starting from the current 2HFY2025 onwards. “So there is a lot of room for growth here,” says Darren Chan of PhillipCapital, who expects the occupancy rate to climb from 80% now to 85% by the end of the year and 90% by the end of 2026. “As cash contributions start to come in, their potential to pay dividends will be higher, and when their DPU actually jumps, the share price will start moving accordingly as well,” adds Chan, referring to this “high beta” pick.
Give it a break
Chew describes the measures to revive the stock market as the opposite of the property cooling measures. As the government attempts to curb excessive gains in the private residential market by introducing a growing list of tightening measures from various directions, money is being invested in the stock market instead.
Geopolitics continue to be an issue. However, the macro environment, according to Chew, is conducive, with stagflation worries dissipating, US rate cuts starting, and overall growth is resilient. “It is a very potent environment for equities,” he reasons. And the big catalyst is that of a discernible gush of liquidity. The fund managers — besides receiving their respective allocation of $5 billion as part of the EQDP — are raising new funds from elsewhere, and depending on their own ability, the total might reach up to $7 billion or so, estimates Chew. The respective buybacks from the likes of Temasek-linked DBS and Singtel further fuel what Chew calls “a massive valuation expansion”.
He acknowledges that there are already sceptics questioning if the current run can continue, given how Singapore stocks were languishing for so many years. Nonetheless, Chew points out that since the last peak in 2007, the STI has gained just 13% after more than 17 years. “So, let’s give it a break, 13% in 17 years. I don’t think the market is really very high at this point in time. We still think there’s upside to the market. And like I said, somebody wants it up.”
