• Stellar gains for equities
• Valuations are not excessive
• Stick with the core names

Equities Had a Good Year

Global equities had a good year, led by optimism of better global economic outlook and supported by healthy corporate earnings growth in a generally benign operating environment. Despite some concern during the year, including North Korea’s missile testing and the Middle East tensions, volatility in the market stayed relatively low and coupled with strong corporate results, most indices piled on strong double-digit gains. The MSCI China Index gained 50% YTD, far exceeding the gains of 19% by the MSCI World Index and the 36% gain by the MSCI Asia Pacific ex-Japan Index. Optimism about China also led to the strong outperformance of the Hang Seng Index and the CSI300 Index.

SG Banks and Property Led Gains

In Singapore, the STI rose 20% YTD. Banks did well as most enjoyed broad-based growth and this led to a 30% gain for the Financial Index. Buoyed by the active transactions in the collective sales market, Singapore Real Estate index also did well, up 28% for the year as the URA Index also posted the first increase after 15 quarters of decline.

Go for Quality

While valuations have moved up this year, earnings have shown good growth. As an example, the S&P 500 is now trading at about 22x versus 21x at the end of last year. In terms of earnings, S&P 500 2017 earnings projections have moved up sharply from slightly above US$106 at the end of last year to an estimated US$142 currently. In addition, earnings are now projected to grow 3.5% to US$147 next year and up 10.3% to US$162 in 2019.

Going into 2018, we do not expect a repeat of this year’s stellar gains, but upside remains. For Singapore stocks, our picks are CapitaLand, City Developments, DBS, Frasers Centrepoint Trust, Frasers Logistics & Industrial Trust, Keppel Corp, Mapletree Greater China Commercial Trust, Sembcorp Industries, SingTel, UOL, Venture Corp, Wheelock Properties and Wing Tai.

In Hong Kong, the recent 6% correction (from Nov 17 high to Dec 17 low) has brought the stocks under our coverage to levels which are attractive to position for better earnings in 2018.

We have BUY ratings on China Merchants Port (144 HK), China State Construction International (3311 HK), COSCO Shipping Ports (1199 HK), CSPC Pharmaceutical (1093 HK), Fosun International (656 HK), KWG Property (1813 HK) and Longfor Properties (960 HK).

Source: OCBC Research - 13 Dec 2017