GOVERNMENT-LINKED companies (GLC) will continue to play an important role in driving Singapore's equity market over the next one to three years.
Morgan Stanley Research said this in a report last Friday, as it placed an "overweight" rating on Ascendas Reit (A-Reit), Global Logistic Properties (GLP), Singapore Exchange (SGX), Singapore Airlines (SIA) and Singtel.
Restructuring and consolidation, internationalisation and new listings or divestments are three drivers that could drive re-rating of these GLCs, said its analysts Hozefa Topiwalla and Aarti Shah.
Currently, there are a number of GLCs competing within the same sector, a strategy that appears to have been formed with the objective of job creation. But value creation could emerge as a new strategy, resulting in potential consolidation which would bring potential scale and synergy benefits.
"These restructuring initiatives could create large size and scale, potentially giving these companies more leverage to embark on large-scale global acquisitions," said the analysts.
Singapore's GLCs are also focused on internationalisation as well as restructuring through mergers and acquisitions, they observed. This is not just about helping companies invest overseas, but also about helping Singapore companies grow such that they can compete with the best globally.
Lastly, the analysts suggested that Temasek Holdings may continue to divest non-strategic GLCs and reduce stakes in a few of the listed GLCs.
"Actions by Temasek and the government suggest a change in mindset implying that private enterprise - and not the government - is best able to exploit evolving market trends and technologies. Hence, Temasek could reduce its stake in GLCs to drive its objective of total returns rather than being a caretaker of government assets," said Morgan Stanley.