The Rooster's pecking grounds in 2017

Singapore

LOW expectations, a bottoming out of the oil slump and positive economic data give hope that the Year of the Rooster will be one to crow about for Singapore stocks, said Credit Suisse in a report.

The Singapore equity market has been near the head of the regional flock since November 2016, with the Straits Times Index climbing 8.9 per cent over the past three months to Friday's close of 3,064.85.

An increase in oil prices, a surprisingly strong GDP expansion of 1.8 per cent in the fourth quarter of 2016 and higher inflation and interest rate expectations in the United States have released the hatches on cooped-up market sentiment, Credit Suisse head of South-east Asia private banking research Kum Soek Ching wrote in a report.

While Credit Suisse expects Singapore GDP growth of 1.1 per cent in 2017, which would be on the low side of the official forecast of 1 to 3 per cent, it has nevertheless observed some spring plumage in the latest numbers.

For instance, industrial activity has been improving in major economies around the world, and in Singapore the manufacturing purchasing managers' index (PMI) has been growing since September 2016. Export data in Singapore, South Korea and Thailand have also shown "nascent signs of a bottoming".

"While the Singapore economy is vulnerable to collateral damage from potential trade protectionism by the US, it could surprise on the upside on a synchronised global trade recovery this year," she wrote.

Corporate earnings could yet hatch some upside surprises.

"Expectations are not high, which limits the risk for disappointment," Ms Kum wrote. "Consensus market earnings growth of 4.8 per cent for 2017 estimated is highly achievable thanks to a low base in 2016, in our opinion, and would mark the first year of earnings growth after two years of contraction."

She expects Singapore banks to benefit more from improved offshore and marine (O&M) asset quality than from higher interest rates, and expects low single-digit earnings per share growth for the sector in 2017.

"We expect the sector to be a market outperformer in 2017 as funds close their underweight position in banks," she wrote. "After the rally in the last two months, a pullback on potentially soft Q4 results due to softness in net interest margins and elevated provisions could be a more opportune time to add positions."

The property market also stands to benefit as supply begins to taper.

"The supply flood is now receding, with the supply peak for residential and industrial properties seen in 2016, while offices and hotels should see supply peaking this year."

While developers could experience a recovery in the property market, real estate investment trusts (Reits) could face headwinds from higher interest rates.

"We recommend positioning in Reits with stable or growing dividends per unit due to their scale or with growth options from acquisitions or asset enhancement initiatives," Ms Kum wrote.