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Singapore remains a safe haven despite growing macroeconomic concerns: RHB

RHB believes the STI will deliver positive returns in 2022, but an upward move for the index will be a slow grind.

RHB Group Research analyst Shekhar Jaiswal remains positive on the Singapore market despite growing macroeconomic concerns.

In his Singapore strategy note, Jaiswal says the country’s economic situation should provide assurance to investors of positive growth in 2022.

“Retail sales are rising and we expect it to grow 10% in 2022, aided by a tight labour market and higher tourism-led spending. Estimates from the Ministry of Manpower suggest that total employment in 2QFY2022 rose and unemployment rate fell to 2.1%, which is at pre-Covid-19 level,” he adds.

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While inflation has been elevated, RHB expects it to moderate by year end. Jaiswal anticipates the Monetary Authority of Singapore — which has been proactive in managing inflation — to further tighten policy in the October meeting.

He adds that if the policy tightening is faster or higher than expected, the Singapore dollar could outperform the rest of the regional currencies. “Thanks to sufficient liquidity built up during post-Covid-19 recovery, we assess the impact of higher interest rates on corporate earnings to be manageable.”

The RHB Economics & Market Strategy team has lowered Singapore’s 2022 GDP growth to 3.2% from 3.5%. This compares to the government’s GDP forecast at the lower half of 3%-5%.

The team is expecting manufacturing to expand 5.5% in 2022 compared to 7.5% previously, as the momentum of industrial production in 1HFY2022 slowed at a faster rate than expected. Nevertheless, Jaiswal highlights that services growth was revised higher to 3.3% as the services industries should benefit from the easing of domestic and border restrictions.

He adds that Straits Times Index’s (STI) EPS growth has a positive correlation with the country’s GDP growth expectation. “Given the expectation of moderation in economic growth, it will be safe to assume that EPS growth will also moderate. In the last six months, 2022 growth forecast for our coverage universe has been lowered to 13% from 16%.”

RHB believes the STI will deliver positive returns in 2022, but an upward move for the index will be a slow grind.

The firm’s Singapore equity investment themes include buying banks as a proxy to rising interest rates; continuing exposure to economic reopening and living with Covid-19 plays; buying stocks of companies that offer defensive earnings outlook; as well as buying REITs that are defensive and will benefit from the economic reopening.

In terms of sectors, RHB is “overweight” on consumer, financials, industrials, manufacturing & technology, S-REITs and transport. Meanwhile, it is “neutral” on food products (plantations), healthcare real estate, and telecommunications & media.

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