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THE Singapore stock market is well-positioned for two contrasting themes in 2014: improving global economic growth, and currency and interest rate volatility concerns from a US taper, said Credit Suisse in a Singapore market strategy report released yesterday.
"With a stable to strengthening currency, inexpensive valuations, and yet with strong global linkages, we believe Singapore equities offer a unique, low-volatility exposure to potential growth improvement," the bank said.
Credit Suisse expects global gross domestic product (GDP) growth to exceed its 30-year average of 3.5 per cent because of a rebound in developed markets. This is because of various factors, such as global manufacturing orders picking up, the global financial system becoming stronger, and monetary and fiscal policies remaining loose, the report said.
It added that Singapore should benefit from global growth due to its trade and export links, with small and mid-cap companies, some commodity names, and banks benefiting.
While talk of US tapering had caused funds to flow out of emerging markets such as Indonesia and India, Credit Suisse said Singapore's financial stability also makes its equities "a 'safe' way of gaining exposure to global growth". Investors should pick stocks with earnings growth and exposure to a global economic improvement, it said.
The Singapore market is currently trading in line with or slightly below long-term average valuation measures, such as price-to- earnings or price-to-book. Credit Suisse's end-2014 Straits Times Index (STI) target is 3,350 points, an upside of about 8.5 per cent from current levels. The bank's top stock picks include DBS, Keppel Corp, CapitaLand, M1, OSIM, and First Resources.
Owing to the possibility of increased loan growth and lower loan losses, banks may be the best large-cap stocks to buy to position for a Singapore GDP surprise, the report said.
DBS remains Credit Suisse's top bank pick for its inexpensive valuation - its price-to- book of 1.2 times is the lowest among its local peers. Analyst Anand Swaminathan said the bank's net interest margins could stand out next year partly due to its "comfortable" Singapore dollar loan-to-deposit ratio (LDR) of 73 per cent compared to the other two banks, and it having proactively reduced its US-dollar LDR from 161 per cent a quarter ago to 133 per cent in the third quarter ended Sept 30. This reduces risks from a spike in US dollar funding costs, he said.
Where property is concerned, three rounds of property cooling measures this year had hit the market, in addition to risks of higher interest rates weighing on developer costs. Singapore is unlikely to be exciting and developers with overseas exposure and less residential exposure are preferred, said analyst Yvonne Voon. Hence her recommendation on CapitaLand and CapitaMalls Asia to outperform: "Both provide proxy to China's consumption-led demand growth, yet earnings are relatively supported by a recurring income base from rental income and management fee businesses."
On real estate investment trusts (Reits), Ms Voon said because the rate-sensitive sector might be volatile, defensive picks in retail and logistics plays like CapitaMall Trust, Mapletree Commercial Trust and Mapletree Logistics Trust could work.
On telcos, M1's highest exposure to the domestic mobile segment relative to its peers could see it benefit from improving data monetisation, said analyst Chate Benchavitvilai.