IN the year ahead, the cheap valuation of the Straits Times Index (STI) and its attractive dividend yield of 3.7 per cent could provide downside protection, said Credit Suisse in a research note released to the media on Tuesday.
Kum Soekching, head of South-east Asia research, wrote that she expects single-digit percentage returns for the index much like the year before.
She said that Monday's board lot size reduction for Singapore Exchange (SGX) stocks from 1,000 shares to 100 shares could boost market liquidity as retail participation, which accounts for about a third of market volumes, increases.
Retail participation was 45 per cent in 2013 according to SGX, she noted.
"We expect this development to benefit higher-priced blue chips, such as the banks, SIA, Keppel Corp and City Developments, at the expense of penny stocks," she said.
Looking ahead, she expects various existing tax concessions for Singapore real estate investment trusts (Reits) to be extended beyond their end-March expiry date, "in order to preserve Singapore's status as an Asian hub for Reits".
She added that the government is unlikely to relax curbs on residential property purchases in the near term. But if home price declines accelerate, a partial relaxation could provide a strong sentiment boost to the market, she said.
This could "drive a re-rating of property developer stocks that are currently trading at an average price to book of 0.82, one standard deviation below its average, which reflects the very low expectations for developers".