• Trade tensions led stocks down
• Earnings growth pared down for 2019
• But valuations are inexpensive

Rollercoaster Ride

Global equities had a major rollercoaster ride this year, from heady highs earlier in the year to panic lows by the last quarter of the year. While there were the usual pockets of geopolitical tensions and politically tense situations, trade tensions and tariffs between the US and China hogged the limelight, and escalated in 2H18. Selling was widespread, across markets, assets and almost all sectors, share price fluctuations were wide. US equities bucked the downtrend, while Asia bore the bulk of the selling pressure.

Cautious Outlook

There was no refuge from the selling pressure this year and there was a flight to defensive sectors and safety as investors focused on some of the core holdings offering stable earnings and strong balance sheets. Fortunately, 3Q corporate earnings were fairly in line with expectations and there were minimal earnings shocks or cuts. In general, guidance from listed companies was muted and earnings outlook for 2019 was pared down in anticipation of slower growth next year.

Pricing for Pessimism; Time to Shop

With the price correction in 2018, current valuations have become attractive. Corporate earnings growth for 2019 is estimated at 7.1%, with PER of 12.1x and with an attractive dividend yield of 4.3%. In terms of PER, the STI is currently trading at close to historical trough levels and also -1 standard deviation below 7- year average. At these valuations, we believe smart money and longer term value investors will be re-entering the market soon.

As the global outlook is still uncertain currently, we prefer a stock pick strategy with the only overweight on the banking sector.

Our 2019 stock picks are CapitaLand, DBS, Frasers Centrepoint Trust, Frasers Logistics & Industrial Trust, Keppel DC REIT, Mapletree North Asia Commercial Trust, NetLink NBN Trust, SATS Ltd, Singapore Airlines, Singapore Technologies Engineering, SingTel, UOB and UOL.

Source: OCBC Research - 6 Dec 2018