• Opportunities exist, but investors should be selective. Amid expectations of improved economic growth in 2024, higher-for-longer interest rates, and the SGD being a relative outperformer in ASEAN, we recommend that investors focus on stocks that feature earnings sustainability and offer high yields. From a short-term perspective, we like the banking sector as a proxy for higher-for-longer rates. We also like companies with strong and visible earnings outlooks. In addition, we believe investors should accumulate stocks that offer dividend yields that are higher than the market average. Despite the recent underperformance, we expect REITs to outperform in 2024, aided by interest rate cuts, and recommend that investors regard price dips as stock accumulation opportunities.

• Market outlook. The RHB Economics & Market Strategy (RHB EMS) team remains optimistic about the outlook for the global economy in 2024, especially for key markets such as the US (2024F GDP growth of 2.5% YoY) and China (2024F GDP growth of 5% YoY). Singapore’s GDP growth should more than double at 2.5% YoY this year, supported by the continuous recovery of externally oriented industries, ie manufacturing and exports. Tourism-related sectors should still benefit from the continuous pick-up in tourist inflows amid a recovery in visitor arrivals from China. The global economic recovery and higher commodity prices are expected to keep inflation sticky in the near term. These factors, in addition to Singapore’s tight labour market, would likely translate into an average core inflation rate of 3.4% in 1Q24, which could potentially accelerate to 3.5% in 2Q24. The RHB EMS team believes the US Federal Funds Rate (FFR) has peaked at 5.25– 5.50%, and expects two rate cuts in 2024 amidst sticky inflation. However, the team’s forecast model does indicate a material risk for only one FFR cut (or no cuts) in 2024. The SGD, which should remain a relative outperformer in ASEAN, should move towards 1.29–1.32 relative to the USD in 4Q24F.

• 2Q24 investment themes. These are: i) Risks of higher inflation and (possible) delays in interest rate cuts should keep Singapore banks in investors’ portfolios; ii) build holdings in high-dividend yield exposure beyond REITs; iii) regard price dips as stock accumulation opportunities in REITs, with exposure in office and hospitality REITs balanced with positions in industrial REITs; iv) retain exposure to quality companies offering defensive earnings; v) exposure to beneficiaries of the continued revival in Singapore’s tourist inflows; and f) bottom-up opportunities in the small-cap space.

• Key risks include a sharp slowdown in global economic growth, global trade flows, sustained high inflation, and intensifying geopolitical tensions.

Source: RHB Securities Research - 15 Apr 2024