• Singapore to relatively outperform in uncertain times. Benefits from economic reopening, safe haven status of Singapore as a country and its currency should help the STI outperform most regional markets. We estimate 2022 EPS growth for our coverage universe at 13%, as we expect inflation to moderate by year-end and assess that debt level for stocks under our coverage remains manageable. STI’s forward P/E is below its historical average and its forward yield of 4.3% is still amongst the highest in Asia. We recommend investors to buy banks, build exposure to economic reopening plays, hold stock of companies with resilient earnings, and rotate into defensive REITs.

• Basis for our positive view on the Singapore market. RHB Economics & Market Strategy team estimates Singapore’s 2022 GDP growth at 3.5%, despite a relatively strong base of 2021. We are optimistic of 2022 non-oil domestic exports (NODX) growth to come in ahead of official forecasts and remain positive about a strong boost to the country’s service sectors, thanks to the easing of domestic and border restrictions. While supply constraints and a tight labour market are helping to nudge inflation higher, we expect inflation to moderate by year end. We assess that the debt levels for stocks under our coverage are manageable as corporates have built up sufficient liquidity holdings during post-COVID recovery. The Monetary Authority of Singapore (MAS) has been proactive in managing imported inflation by letting the trade-weighted SGD to appreciate. While we expect MAS to further tighten policy in the upcoming October meeting, if policy tightening is faster or higher than expected, then SGD could outperform the rest of the regional currencies.

• Our themes for 2H22 include: i) Buying banks as a proxy to rising interest rates and for their undemanding valuation; ii) continuing exposure to economic reopening and living with COVID plays; iii) buying stocks of companies that offer defensive earnings outlook; and v) buying REITs that are defensive, and those that will benefit from the economic reopening.

• STI’s valuation is inexpensive. In Asia, the STI was the most defensive developed economy benchmark for 1H22, thanks to the regional economic reopening and the country’s safe haven status. We remain constructive on the STI delivering positive returns in 2022, but believe an upward move for the index will be a slow grind. Our end-2022 STI target of 3,380pts (from 3,460pts) is based on a 12.5x 2022F P/E. This lies between the average forward P/E since Jan 2008 and its -1SD.

• Potential downside risk could arise from: i) Higher-than-expected commodity prices, especially oil, ii) rapid rise in inflation and higher-than- expected rise in interest rates leading to a marked slowdown in global economic growth, and iii) rising global geopolitical risks.

Source: RHB Research - 26 Jul 2022