Singapore Equities Strategy - RHB Invest 2022-12-20: Staying Positive In 2023

Singapore Equities Strategy - RHB Investment Research | SGinvestors.io (SGX:)

Singapore Equities Strategy - Staying Positive In 2023

  • We are positive on Singapore, which continues to be a safe haven despite the slower GDP growth and high inflation in 2023. A continued recovery in the services sector on the back of sustained travel demand and resilient domestic demand should offset the manufacturing slowdown. Manufacturing and exports will likely see a recovery in 2H23.
  • Singapore should deliver double-digit EPS growth, thanks to strong growth from banks. The Straits Times Index’s (STI) low P/E is reflecting investor concerns about the sustainability of the strong EPS growth forecast and potentially, a recession, which is not the base case.

We are bullish on growth in 2023.

  • The 2023 global asset allocation of our Global Economics & Market Strategy team is overweight equities, market weight fixed income, and underweight cash. The team forecasts Singapore's GDP growth at 3.7% in 2022 and 3.0% in 2023. Although it is not our base case, the balance of risks is tilted towards a technical recession in 2023, which will likely be short, shallow, and orderly.
  • We are more bullish than consensus (1.8% growth in 2023) and the Government’s forecasts of 0.5-2.5% GDP growth in 2023.

In 2023, corporate earnings growth will remain strong, supported by banks.

  • The lifting of COVID-19 restrictions will help broaden the earnings recovery to sectors more affected by the pandemic, and the STI has a heavier composition of banks, which are able to sustain earnings growth in an environment where higher inflation and interest rates would otherwise cut into corporate profit margins.
  • Our top-down EPS growth estimates for 2023 and 2024 are 12% and 8%. The 2023 EPS growth for stocks under our coverage is 19% (excluding the manufacturing and technology sectors). We believe investors will continue to be attracted to Singapore given its strong and defensive index earnings growth compared to its regional peers.

SG stocks investment themes for 2023

  • 2023 investment themes for Singapore stocks include:
    1. buying banking stocks as a proxy to elevated interest rates and defensive earnings growth characteristics;
    2. buying shares of firms with resilient and defensive earnings and dividends;
    3. selective exposure to China's economic reopening; and
    4. buying industrial REITs.

STI’s valuation is inexpensive

  • STI’s valuation is inexpensive, but investors could be concerned about the sustainability of the EPS growth forecast for 2023. The STI now trades at 10.9x (-2 standard deviation) 12-month forward P/E. At this moment, we believe earnings growth, rather than an improvement in valuation multiple, will drive the rise in the STI next year.
  • While we are still constructive about the STI delivering positive returns for 2023, we maintain that the upward move for the index will be slow. Our end-2023F STI target of 3,440pts is based on 11.5x 2023F P/E.
  • Continue to read the report attached below for complete analysis.

Shekhar Jaiswal RHB Securities Research | https://www.rhbgroup.com/ 2022-12-20