• 2016 was fairly lackluster
• Some lingering softness
• Still with quality stocks

Brexit & Trump

If we can distill 2016 into just two words, then it has got to be Brexit and Trump. Both events dominated headlines for months and were largely the reason why investors opted to stay on the sidelines while awaiting for clarity from both events, widely seen to have a major impact on global equities. The Singapore market was dragged down by these events as trading was fairly lackluster. The continued weakness in oilrelated stocks, softness in the property sector and higher impairment charges for banks were just some of the factors that dragged down investor confidence.

Hunt for yield

While the benchmark STI was hovering within a narrow band, investors continued to chase higher yielding stocks, leading to the outperformance of high dividend yielding stocks.

Oil was a key drag

Of concern in the Singapore market were the outstanding bonds of Oil & Gas companies as well as the impact on the local banks’ NPLs, adding pressure and volatility to the market.

Privatizations rising…

As a clear reflection of the current inexpensive valuations, several well-established companies were privatized, at double-digit premiums to last traded prices. This reflects the current undervaluation in the market. We believe that the Singapore market offers value to longer term investors. At current price, the STI is trading close to historical 10-year PB of 1.0x, with current PER at about 13.2x and with a decent average dividend yield of 3.9% - level last seen during the GFC in 2008/09, especially for PB ratio.

Diversified stock picks

We expect the lackluster sentiment to continue at least into the 1H17 as corporate earnings and economic outlook remain subdued. Earnings growth is likely to be single-digit in 2017, but still better than the estimated flat growth in 2016. While economic growth is modest, the threat of a full-blown recession is unlikely. Our picks are AREIT, CapitaLand, Frasers Centrepoint Trust (FCT), Frasers Logistics & Industrial Trust (FLT), GLP, Keppel DC REIT, OUE, Raffles Medical, Sheng Siong and SingTel.

Source: OCBC Research - 28 Nov 2016