Market Outlook & Strategy - RHB Invest 2019-12-19: Expecting A Better 2020

2020 Market Outlook & Strategy - RHB Invest | SGinvestors.io APAC REALTY LIMITED (SGX:CLN) OXLEY HOLDINGS LIMITED (SGX:5UX) CHINA AVIATION OIL(S) CORP LTD (SGX:G92) HRNETGROUP LIMITED (SGX:CHZ) TALKMED GROUP LIMITED (SGX:5G3)

Market Outlook & Strategy - Expecting A Better 2020


Moderate recovery in economic growth.

  • We conservatively estimate Singapore’s real GDP growth at 0.8% for 2020 vs. 0.5% in 2019, aided by an increase in domestic investment activity and a bottoming out of the manufacturing sector. Some resolution to trade disputes between the US and China, plus improvements in the global tech cycle, could support a stronger recovery in economic growth.
  • The Ministry of Trade & Industry has a more optimistic 2020 GDP growth forecast range: 0.5-2.5%.



Position for earnings recovery



Stay invested in yields to protect from macro uncertainties

  • We believe there are sufficient macroeconomic headwinds that could derail the expected economic recovery in 2020. Therefore, we recommend investors to balance their portfolios by holding REITs and sustainable yield stocks with growth potential that are trading at reasonable valuations.

Trade-related risk persists.

  • While investors are expecting some easing in the US-China trade dispute from the anticipated Phase One agreement, recent history and President Donald Trump’s mercurial character imply that markets may be less than willing to view it positively until the agreement is finalised. Moreover, there is still scope for a further deterioration in the US-China trade relationship, which could turn business sentiment more bearish and further delay the investment cycle.
  • Beyond the fractured US-China trade ties, there are other related disputes in various jurisdictions that could have a cumulative effect of further slowing down global trade flows.

US politics.

  • The commencement of impeachment proceedings against President Trump by the US Congress adds another layer of political uncertainty, which may ultimately have implications on whether or not there is a resolution to the US-China trade dispute.

Global economic cycle is at a mature stage.

  • We are now in the 11th year of uninterrupted global economic growth. As the late-stage economic cycle becomes extended, the possibility for the next recession becomes greater. With debt at record levels, the scope for a renewed synchronised global fiscal stimulus is limited, while room for monetary policy easing is also lessening due to recent rounds of easing. Policymakers in many major global jurisdictions have limited policy ammunition, should global growth take a turn for the worse.

Accommodative monetary policy in the US.

  • With the US Federal Reserve having delivered a third rate cut as part of its “mid-cycle adjustment”, US monetary policy is already seen as being at accommodative levels and sufficient to support the American economy against trade-related risks and slowing global growth. We expect the direction and magnitude of rate changes to be data-dependent.

Hard landing for China’s economy.

  • A steeper-than-expected slowdown of the Chinese economy could be precipitated by additional tariffs imposed by the US, and a sharper-than-anticipated tightening of financial conditions due to domestic deleveraging efforts. This could, in turn, lead to a sharp fall in Chinese import demand and negatively affect the region’s growth.

We expect the REIT sector to remain in favour in 1H20


Beyond the REITs sector



STI Market Outlook & Valuations

  • The STI outperformed other ASEAN markets in local currency terms. Thailand, Indonesia, and the Philippines delivered 0-4% returns vs. the STI’s 5% during the same period, while Malaysia delivered a negative return of 7%. YTD, in USD terms, the STI has underperformed the Thailand and Philippines markets within ASEAN.
  • Singapore’s stock index returns are closely correlated with the country’s nominal and real GDP growth. With the expectation of an uplift in economic growth in 2020, we believe the STI could generate strong positive returns.
  • We use a top-down method to derive our STI target, based on a P/E on 2020F EPS. The index’s 12.6x 1-year forward P/E sits marginally above its -1SD band, but below its historical average of 13.3x. With expectations of a rebound in GDP growth, we believe there is potential for the P/E to increase.
  • We value the STI based on an average forward P/E of 13.5x. Applying this to our 2020 EPS estimate, we derive an STI Index target of 3,460 pts for end-2020 (+7.6% from 13 Dec’s closing price). Including a 4.2% yield for the market, this implies a total shareholder return of 11.8% in 2020F.
  • The STI is currently trading at a forward yield of 4.2%. This is the highest among all Asian markets, exceeding Australia and Taiwan’s 4.1% yields. We believe such a relatively high yield should provide downside support in case there is a delay in economic growth recovery.

See attached PDF report for complete analysis. 



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Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-12-19
SGX Stock Analyst Report BUY MAINTAIN BUY 0.600 SAME 0.600
BUY MAINTAIN BUY 0.430 SAME 0.430
BUY MAINTAIN BUY 1.550 SAME 1.550
BUY MAINTAIN BUY 0.810 SAME 0.810
BUY MAINTAIN BUY 0.620 SAME 0.620



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