SINGAPORE: The likes of banking heavyweights, developers and property trusts will continue to lead the charge next year for Singapore’s stock market, which could see gains of as much as 11 per cent, according to market analysts.
Year to date, the Straits Times Index (STI) has raked in handsome gains of about 20 per cent – a better-than-expected performance that has breezed past analyst estimates, thanks to an outperformance in property and bank stocks amid an economic recovery.
For 2018, the benchmark index remains poised to head higher.
DBS Group Research, for example, has a target of 3,688 points for end-2018, but does “not rule out a re-rating catalyst pushing up STI’s target valuation to 3,800”.
That would give the STI an upside of between 7 to 11 per cent from Friday's (Dec 15) closing level of 3,416.94.
Apart from a continued recovery in corporate earnings, analysts noted that a stable currency leaning on the upside amid expectations of monetary policy tightening will be an “added ingredient” for local equities to outperform.
The “stars are aligned” in the Singapore market, which offers the lowest valuation, highest dividend yield and decent earnings growth compared to its Southeast Asian peers, DBS analysts added.
UOB Kay Hian agreed that corporate earnings could continue rising in 2018 which would support the local bourse.
The research house sees the STI touching 3,530 points by the end of next year though "this could stretch to 3,730 if earnings surprised on the upside".
Head of OCBC Investment Research Carmen Lee similarly expects the STI to head north though the rise may be tempered following a boisterous year.
“We see further upside ahead but not in the same quantum as 2017. After a high base, it’s almost impossible for the market to see two consecutive years of strong growth,” she said, adding that the STI is set for gains of between 8 to 10 per cent.
WHERE TO PLACE YOUR BETS
Local developers, which have been among the brightest spot in Singapore equities this year, remain analysts’ favourites.
Maybank Kim Eng analyst Neel Sinha noted “progressively improving” fundamentals in the domestic property market, with the easing of property cooling measures in March as a factor.
Then, the Government, in an unexpected move, relaxed some residential property measures relating to the seller’s stamp duty as well as the total debt servicing ratio framework.
Meanwhile, the revival of the en bloc market has put more vigour into the markets, helping developers such as blue chip UOL Group and City Developments to surge 39 and 47 per cent, respectively, since the start of the year.
These catalysts are likely to continue into 2018, suggesting that the market rally still has legs to go the distance.
“In Singapore, we continue to have a bias for the property sector," OCBC Investment Research said in a note. "While most of our 2017 property stock picks have performed well this year, we are retaining our buy rating and our top picks include CapitaLand, City Developments, UOL, Wheelock and Wing Tai.”
Banks are also likely to extend their strong run into 2018.
Positive factors include an improvement in net interest margins on the back of a sustained rise in the Singapore interbank offered rate or SIBOR, as well as a recovery in loan growth amid positive macro indicators, according to DBS analysts.
Meanwhile, “the worst is over” for the banks’ exposure to the oil and gas sector, while other business units, such as fee income from wealth, credit cards and investment banking, will continue to drive earnings, noted OCBC’s Ms Lee.
Beyond these, analysts have also given an early thumbs-up to selected real estate investment trusts (REITs), such as Frasers Centrepoint Trust, and oil-related names like Keppel Corp. For the latter, oil prices are likely to hover at current levels and most of the negatives have already been priced in, analysts said.
On the other hand, transport stocks and defensive plays, like telecommunication firms, will likely continue to underperform.
“The factors supporting the banking and property sectors remain in place for 2018, and they will help to lead the index higher,” said IG’s market strategist Pan Jingyi. “That aside, there could be volatility coming through for the market and it might take awhile for the market to reach expected levels of around 3,600 to 3,700.”
This could come in the form of policy tightening by central banks around the world and a growth slowdown in China’s massive economy, Ms Pan said.
Other downside risks include headwinds to external growth and trade that might derail industrial production and potential measures to cool the property market in Singapore amid rebounding physical prices and a collective sale fever, noted Mr Sinha.
EXPECT HEALTHY IPO PIPELINE NEXT YEAR
In line with the buoyant market activity, initial public offerings (IPOs) for the first 11 months of the year raised S$4.6 billion, double the amount of money for the whole of 2016, according to figures from the Singapore Exchange.
An improving economic landscape underpinned the healthy growth in IPOs, said CMC Markets analyst Margaret Yang.
“Market sentiment has been quite good this year so companies are more willing to list in a good year for better valuation and more interest from the market.”
And the local bourse is expected to see another healthy year of listings in 2018, with REITs, consumer and some technology-based businesses from Singapore and overseas as potential candidates.
“Many analysts and research houses are revising up their global growth outlook for next year so the outlook remains positive,” Ms Yang said. “Unless there's a systemic market risk event, I would expect the IPO pipeline to remain healthy next year.”
EY’s Asean and Singapore managing partner Max Loh noted that homegrown firm NetLink NBN Trust's US$1.7 billion IPO in July underscored SGX’s “attractiveness and capacity to achieve successful IPOs”.
Apart from Internet-based businesses looking to follow the footsteps of local e-commerce retailer and distributor Y Ventures Group, the Singapore market could be in for a growing number of listings by financial technology businesses supplementing a strong historical pipeline of companies from the property, consumer and industrial sectors, Mr Loh said in a report.