Singapore 2021 Equity Outlook - RHB Invest 2021-01-04: Keep A Fine Balance In Your Portfolio

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CAPITALAND LIMITED (SGX:C31) CDL HOSPITALITY TRUSTS (SGX:J85) CITY DEVELOPMENTS LIMITED (SGX:C09) DBS GROUP HOLDINGS LTD (SGX:D05) SINGTEL (SGX:Z74) ARA LOGOS LOGISTICS TRUST (SGX:K2LU) FU YU CORPORATION LTD (SGX:F13) PRIME US REIT (SGX:OXMU) RIVERSTONE HOLDINGS LIMITED (SGX:AP4) SHENG SIONG GROUP LTD (SGX:OV8) SINGAPORE TECH ENGINEERING LTD (SGX:S63)

Singapore 2021 Equity Outlook - Keep A Fine Balance In Your Portfolio

• The STI, with significant weighting towards cyclical sectors, should find favour among investors on growing optimism on the pick-up in economic activity, better private consumption, Singapore’s efficient management of COVID-19 infections, and business confidence as the vaccination drive gathers pace in late 2H21F.
• Still, the global COVID-19 situation remains fluid and economic recovery may be uneven. Selectively add positions in domestic consumption recovery cyclical plays, while staying invested in defensive picks, to cover downside risks.

Domestic recovery theme to play out first, vaccine-dependent sectors to recover in 2H21.

• Amidst expectations of an improvement in private consumption, we favour initiating positions in cyclical growth counters with greater exposure to the domestic demand recovery. At the same time, investors should remain cautious on global cyclical stocks that are vaccine-dependent.
• Our domestic consumption recovery picks are
  • China Aviation Oil (SGX:G92),
  • ComfortDelGro (SGX:C52),
  • Dairy Farm (SGX:D01),
  • Suntec REIT (SGX:T82U) and
  • Thai Beverage (SGX:Y92).
• In our base case, global cyclical stocks or sectors that are directly vaccine-dependent will only start seeing earnings recover towards the end of 2021.
• Our long-term cyclical recovery plays include
  • CapitaLand (SGX:C31),
  • CDL Hospitality Trusts (SGX:J85),
  • City Developments (SGX:C09),
  • DBS (SGX:D05) and
  • SingTel (SGX:Z74).

Cover downside risks with defensive sector exposure.

• Inability to control COVID-19 infections in countries that are Singapore’s key trade partners, or countries that account for the highest number of tourist inflows, could derail expectations of an economic recovery that is currently in place. In addition, there are external risks stemming from the continued deterioration of US-China ties. To cover for downside risks from an uneven and uncertain economic recovery, we recommend that investors stay invested in high-yield stocks that offer some growth visibility.
• Our defensive growth and/or high-yield picks are
  • ARA LOGOS Logistics Trust (SGX:K2LU),
  • Fu Yu (SGX:F13),
  • Prime US REIT (SGX:OXMU),
  • Riverstone (SGX:AP4),
  • Sheng Siong (SGX:OV8) and
  • ST Engineering (SGX:S63).

Market valuations remain compelling.

• At 13.8x 2021F P/E, the STI is the cheapest market in ASEAN. Its 4% 2021F yield is the highest in Asia. The persistence of almost-zero interest rates, elevated global liquidity, and the reversal of funds flowing into Asia should bring investors to high-yield markets like Singapore.
• Our end-2021 STI target of 3,144 points is based on a 13.5x forward P/E.

Continue to read..

• See our previous reports for detailed analysis on Singapore Market Outlook for 2021:
  • Investment Thesis For Singapore In 2021 - RHB Invest 2020-12-14: Rising Optimism Comes With Some Risks.
  • Singapore Market Strategy - RHB Invest 2020-12-14: Key Themes In 2021 & Stock Picks.

Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-01-04

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