OCBC optimistic about growth stocks in 2020

Singapore

WHILE 2019 saw investors flocking to dividend stocks on the back of weak business conditions, 2020 might tell a different tale.

With the expectation that policy makers will stimulate global growth, there is more room to take risks and buy into certain growth stocks on top of defensive stocks, according to Carmen Lee, OCBC Investment Research head.

In a media briefing on OCBC's Equity Strategy 2020 on Monday, Ms Lee cited Alibaba, Trip.com, JD.com and Tencent among 2020 stock picks as the e-commerce and Internet sectors are expected to see sustained demand.

This is unlike in 2019 where there was a clear overweight in the banking and property sectors. Financials were left out from the Equity Strategy 2020 stock picks due to concerns surrounding slowing Net Interest Margin (NIM).

"We have left banks out for the first time in many years," said Ms Lee.

While banking stocks continue to enjoy attractive yields of around 3.9 to 4.7 per cent in 2019/20, they will not perform as well as previous years.

"Overall they will still perform but not at the previous double-digit earnings growth; I think this year, banks will at most show single-digit growth," noted Ms Lee.

Reits are starting to look interesting because of recent corrections, she added, citing Ascendas, CapitaLand Mall Trust and Suntec as stock picks in the Reit sector.

Netlink Trust remained a pick for its defensive earnings and good dividend yield.

Singapore Airlines (SIA) also remained on the list - a stock that many people do not seem to appreciate much, according to Ms Lee.

The current environment where oil prices are stable makes it ideal for SIA, she noted.

"In terms of revenue, there are actually a lot of flights going out quite full as the Singapore dollar remains strong, making it cheap to travel," she added.

While Singapore's core sectors in financials, property and Reits have seen strong gains ranging from 9 to 17 per cent, this outperformance is unlikely to carry forward to 2020.

However, quality companies with healthy balance sheets are well-positioned to ride out any potential short-term uncertainty, according to the report.

Despite the brewing trade war, the Chinese market has experienced recovery due to commitments to build the economy through infrastructure spending, Ms Lee told the media.

Having said that, the trade war is unlikely to be resolved soon due to the "complex and deep-seated" nature of the conflict, making a limited deal most likely to happen first.

Earnings growth for 2020 is also starting to look up as the recent three interest rate cuts are expected to lower operating expenses and costs.

Looking ahead, there is a possibility of the economy stabilising next year as "cut in taxes and increased economic stimulus coupled with low interest rate" will give it a boost.

Recovery is expected to start from the second half of 2020 and in the meantime, Asia is believed to be able to withstand the current economic uncertainty, noted the report.