Singapore's GDP and earnings lag Asian peers.
According to DBS, reduced risk from Eurozone, ultra loose monetary policies and green shoots of recovery will tilt the balance towards risk and cyclical plays. However, Singapore’s GDP and earnings growth pales in comparison to regional counterparts, as it struggles with restructuring pains.
Here's more from DBS:
Domestic sectors under siege. While the upside for the Singapore market is capped by lackluster earnings growth, there are bright spots for outperformance vs the broader market. We expect the Singapore market to trade range bound in the near term before progressing to 3400 as the year rolls on.
Domestic proxies are projected to generate earnings growth of 4%vs 12% for non domestic sectors. As such, we expect domestic sectors to underperform. Underweight banks, which is expected to post the lowest sector earnings growth of 2.6% in 2013 as banks enter a low NIM and low loan growth environment in 2013.
China the brightest spot. Our investment themes are centred on companies thriving on external growth, particularly growth from China. China offers the brightest spot as it steps up GDP growth after a successful handover. Urbanisation is the Chinese government’s new strategy to spearhead investment growth. Beneficiaries riding on China’s recovery are Midas, Capitamall Asia, Perennial China Retail Trust, Sound Global, United Envirotech and China Merchants.
Hunting for Yield + Growth. The hunt for yield continues, supported by a strong S$ and decent yield spread of 4.5%. We focus on yield plays offering growth, either organically or via acquisitions - Mapletree Commercial Trust, Far East Hospitality Trust and China Merchants.
Hutchison and Religare offer the highest dividend yield with upside growth potential. Ezion stands out among the highest 3-year EPS CAGR of 41% in our coverage, yet trading on undemanding PE of 10x. Petra should be re-rated as a pure consumer play with a leading market position in fast growing Indonesia, after divesting its cocoa ingredients business.
Bomb out cyclicals. Higher risk appetite will drive capital inflows into cyclical stocks, ahead of recovery. NOL and Jaya are cyclical recovery plays, riding on improved freight rates, cost control measures and strategic repositioning.
The worst is over for Wilmar, earnings recovering on capacity expansion in Indonesia, improved refining margins in Malaysia while crushing margins have stabilised in China. Noble’s earnings will rebound on healthier commodity demand and margin normalisation.
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