• Opportunities galore, but risks exist. Unlike global economic growth, which is expected to moderate, Singapore’s GDP growth should remain strong in 2025. This optimism is being reflected in the positive revisions to market earnings domestically. While investors continue to build positions in the REIT sector, we also see opportunities to own sustainable, high-yield nonREIT firms (including banks). Opportunities also exist to own restructuring or laggard plays and companies that may benefit from China’s stimulussupported economic growth. In 4Q24, we expect elevated market volatility and foresee downside risks from geopolitical tensions, as well as the likely outcome of the US election. This necessitates investors balancing their portfolios with some defensive names.

• No recession, but moderating global growth. While we remain positive on 2024’s economic growth, in 4Q24 we expect normalisation of global growth, dissipating inflation pressures, and lower interest rates. This will set the stage for growth moderation in 2025. We have revised lower US (2% from 2.7%) and China (4.8% from 5%) GDP growth forecasts for 2025. We estimate the US Federal Funds Rate (FFR) will be cut by 25bps each in November and December, and a 25bps rate cut for each quarter in 2025.

• Singapore's growth to remain robust. Singapore's 2024 GDP growth will likely average 3% in 2024 and in 2025. We anticipate the country’s manufacturing- and trade-related sectors will contribute to overall growth in 2H24. Singapore’s inflation should remain steady in 4Q24. The Monetary Authority of Singapore (MAS) will likely keep its current policy parameters unchanged at least into 1H25, as the country’s strong economic growth and global inflation risks lessen the need for adjustments.

• Positive earnings momentum. Given the large index weight and sizeable earnings contribution from banks, the timing and size of the US Federal Reserve’s (US Fed) rate cuts, and prospects for global economic growth will have a strong influence on Singapore’s markets. While lower interest rates will pressure banks’ NIMs, strong loan and fee income prospects are expected as economic activities pick-up. Over the last six months, Street has upgraded Singapore’s 2024 and 2025 earnings estimates. Excluding the REIT sector, for our coverage universe, we forecast 2024 and 2025 market cap-weighted EPS growth at 4.9% and 4.3%. The REIT sector is expected to see its DPU growth turn positive in 2025.

• Investment themes. We recommend exposure to: i) Industrial, office, and overseas REITs; ii) high dividend-yielding companies (including banks) offering earnings/dividend growth; iii) companies undergoing restructuring, laggards, and those trading at a undemanding valuations; iv) companies that will gain from China’s stimulus-supported economic growth; v) defensive firms to cover for the elevated volatility and uncertainty around the US elections; and vi) bottom-up opportunities in the small-cap space.

Source: RHB Securities Research - 15 Oct 2024