• Investing in Singapore amid trade uncertainty. Rising global tariffs pose risks to Singapore's trade-reliant economy, prompting a cautious investment approach. We have downgraded GDP forecasts for the US, China, and Singapore, with Singapore's 2025 growth now projected at 2.0%. With the Singapore Overnight Rate Average (SORA) expected to remain low or fall further in line with anticipated US rate cuts, industrial and office REITs can be seen as relative defensive plays. Focus should be on sectors with stable earnings and sustainable dividends - such as consumer staples, healthcare, land transport, telecommunications and domestically oriented firms - alongside select small-cap growth plays.
• Deteriorating macroeconomic environment. We expect rising US tariff risks in 2H25, with universal tariffs potentially reaching 20%, dampening global trade sentiment. As a result, we have revised down US GDP growth to 1.5% (with downside risk to 1.0%) and China's to 4.0%, supported mainly by loose monetary policy. Singapore, given its trade exposure, may be hit harder. We have cut 2025 GDP growth to 2.0% and slashed NODX growth to 0%. Key export sectors - machinery, chemicals, and manufacturing - remain vulnerable. However, Singapore retains room to buffer the negative impact through monetary easing and targeted fiscal support.
• Rotation into REITs from Banks. SORA has declined in 2025, and is expected to remain low or fall further in line with anticipated US rate cuts. We expect three US Federal Funds Rate (FFR) cuts by end-2025, with the first reduction to materialise in Jun 2025. In this environment, REITs could be a relatively defensive play, with expectations of DPU recovery driven by falling rates and positive GDP growth - industrial and office REITs are preferred. Singapore banks (SG Banks) could face pressure on operating income from weaker loan demand and slowing global growth, still, dividends offer some support.
• Lower STI target. The STI outlook has weakened amid downgraded GDP growth forecasts for Singapore. Our revised 2025F GDP of 2% has potential downside risk to as low as 0.5%. SG Banks, the largest STI component, could see earnings pressure from slowing loan growth and falling rates. Broader STI sectors have also seen profit estimate cuts, except for telecommunications, transport, and utilities. As a result, the STI's year-end 2025 target is lowered to 3,910 pts from 3,940 pts. Our STI target is based on a 11.3x P/E applied to 2026F EPS.
• Tilting towards a defensive portfolio. We recommend investors to prioritise defensive companies that offer sustainable earnings growth in an uncertain environment. Defensive plays (consumer staples, healthcare, land transport, telecommunications and REITs with stable cash flow) offer resilience during downturns. REITs are favoured given sector DPU recovery potential and expected interest rate declines in 2025. Outside of REITs, high-yield dividend plays that offer earnings and/or dividend stability should see greater investor interest, while small-cap names like APAC Realty, Centurion Corp and ISO Team provide bottom-up growth opportunities.

Source: RHB Research - 24 Apr 2025