An improving macro environment and the possible fund flow from bonds to equities as risk aversion shifts a notch lower should underpin equities. However the Straits Times Index looks to underperform the region as Singapore's domestic economy continues its low-growth, high-inflation environment. Still, we see the index on-track to attain 3400 (13.3x on FY14F) as the year progresses.

Technically, we are positive on STI's trend in coming months and see it surpassing the November 9th 2010 peak of 3313. In the short-term, STI's upside looks cap at 3250 or just slightly higher. Pullback should be halted at 3110 before the climb resumes.

Singapore SMCs (small-mid caps) and the DBSV SMC universe have both outperformed the FSSTI's 20% gain in 2012, rising 31% and 39% respectively. But, as SMC's earnings growth is projected to outpace large caps at 13% to 9%, we see SMCs having more legs to run and would continue to beat STI. We pick stocks with exposure to external markets, and also those that ride on China's rebound. O&M interests should also continue to cascade and centre around smaller caps. Our top picks are: Tat Hong, China Merchant, Sound Global, Ezion and Jaya.

CDL Hospitality Trust(CDREIT) surprises with the sale-and- leaseback transaction of Angsana Velavaru Maldives from Banyan Tree Holdings (BTH). While operational performance is expected to be different from its current portfolio of largely city-hotels, we believe that the merits in this deal overweigh potential risks. Incorporating this new acquisition, our numbers are raised by c3.2-3.7% and gearing is likely to remain at more efficient 29%. While share price of CDREIT has underperformed the S-REIT sector of late given worries of slowing RevPAR growth from Singapore, we see this acquisition of Angsana Velavaru as a means of putting the trust profile back into a growth path. Upgrade to BUY, TP raised to S$2.11 (Prev S$ 2.01).

For Banyan Tree, the deal is accretive and BTH will reap a gain of S$14m and c+4% accretion to its NAV, based on our estimates. Our TP is revised upwards to S$0.79 (Prev S$ 0.68) as we roll forward valuations to FY13F given improved earnings visibility. Further re-rating catalysts that we remain on the lookout in the medium term include (i) redeployment of proceeds into other higher sources, (ii) further such sale- leaseback transactions which further lighten the group balance sheet. Maintain HOLD.

CSE Global has secured the third Telecommunication order as part of the Inpex project in Australia. CSE has also recently been awarded a prestigious contract in the UK defence sector; secured due to its ideal locations and capability to provide a full turnkey solution to meet the client requirements. The total value of these projects is approximately S$26m. These projects will have a positive impact on CSE's profit for the 2013 and 2014 financial years.

Ocean Sky International announced it would sell its main apparel business to a subsidiary of Hong Kong-listed apparel provider Luen Thai Holdings for US$55m. Upon completion of the disposal, Ocean Sky plans to pay a tax-exempt special dividend of 1.6 cents per share, amounting to US$5.8m.

China Paper Holdingsis expected to report a loss for the last three months of 2012, according to the company. On a full- year basis, however, the company is expected to report a profit for 2012. The expected loss in its financial fourth quarter is mainly due to a drop in sales and a fall in the average selling price of the group's paper products in November and December amid a slowdown in China's economy. The company added that it had also incurred higher depreciation expenses since the fourth quarter. This was due to its new 50,000 tonnes uncoated paper and 10,000 tonnes paper stationery production lines.

Source: DBSV