• Stay invested; look for opportunities beyond banks. Banks saw strong returns in 1H24 due to delays in interest rate cuts and upgrades to sector earnings. However, we now look forward to eventually positioning more aggressively in the REIT sector, as the interest rate upcycle nears its end. Given expectations of better economic growth in 2024, we think investors should remain invested in stocks, but slowly rotate into companies undergoing restructuring, offering revenue certainty, laggards, and those trading at relatively low valuations despite a stable or improving earnings outlook. Investors should continue to look for yields beyond the REIT universe, especially in companies offering good earnings visibility.

• Macroeconomic environment is favourable. The Monetary Authority of Singapore (MAS) expects the country's 2024 GDP growth to be near the upper half of the 1-3% range. We estimate Singapore full-year GDP growth of 2.5% in 2024, aided by three factors: i) We still expect resilient global GDP growth led by the US (+2.5%) and China (+5.0%) in 2024; ii) a potential US Federal Funds Rate (FFR) cut in 4Q24 could spur further risk-taking and investment flows into ASEAN (including Singapore), on the back of cheaper cost of funds and a general improvement in risk appetite; and iii) global inflation pressures should gradually dissipate over the same period, leading to Singapore’s import-reliant economy seeing lower producer and import prices, and supporting real rates. We also see strong growth potential for Singapore’s electronic sector in 2H24, as it is expected to benefit from the current upswing in the global tech cycle.

• Earnings growth outlook has improved. For our coverage universe, excluding the REIT sector, we forecast a 5.4% market cap-weighted YoY EPS growth in 2024. This is an improvement from the 3.2% growth we had estimated in early 2Q24. Market cap-weighted YoY EPS growth for 2025, excluding the REIT sector, stands at 5.9% (previously 4.4%). Thanks to changing expectations on the interest rate outlook, we (and Street) have upgraded net profit estimates for banks, for both 2024 and 2025. In the last three months, Street has upgraded 2024 and 2025 net profit estimates for the following sectors: Utilities, transport, industrials, telecom.

• Key themes. Our advice for investors in 3Q24 is to buy into companies based on these investment themes: i) Companies undergoing restructuring or laggard plays with improving earnings outlook; ii) selective exposure to office and hospitality REITs, balanced with positions in industrial REITs, before switching to more cyclical names once there is clarity on interest rate cuts; iii) build holdings in high-dividend yield exposure beyond REITs; iv) buy global industrials, banks with ASEAN exposure, and defensive stocks if Donald Trump becomes US president again; and v) bottom-up opportunities in the small-cap space.

Source: RHB Securities Research - 25 Jul 2024