Eyes are all set on China stocks.
As fears of a hard landing for China recede, CIMB analysts had advocated that investors step out of their ‘yield’ comfort zone and stretch for growth. It felt Singapore would lag because it lacked growth, hence the downgrade. "Our bottom-up end-2013 FSSTI target (3,316) remains, implying target 13.2x CY14 P/E. Singapore is rated Neutral.
Here's more from CIMB:
What Happened In our 2013 outlook, we felt a more bullish environment was plausible and thought that Singapore could lag as it is not associated with growth.
We advocated 1) a non-consensus downgrade of REITs, in favour of developers; and 2) a Commodities upgrade. The FSSTI rallied ahead in
Dec-Jan and is now merely 3% below its 4Q09 high (3,314). For the past six weeks, stocks geared to the China recovery theme (Capitaland family,
Jardine family) has done well. Even gaming has done well on strong Macau data points and hopes that the Chinese gambler will revive. Else, tier-2 property stocks have rallied in December on privatisation hopes.
Second-tier O&M plays have joined the rally and commodity traders and processors have soared from low valuations.
What We Think
We think the China-led rally for Asian markets can still go on. There is little reason to doubt that the FSSTI cannot surpass that post-GFC high, now that financial markets look unlikely to break down in a big way. Markets will probably be jittery in February when the US debt ceiling talks come into fore. Once that is settled, slowdown concerns are more long-dated and less disconcerting.
What You Should Do
Our top picks are intact. We maintain that investors should stretch for growth and not hide in no-growth yields. For mega-funds, our top three large-cap proxies are Capitaland, DBS and Wilmar. For investors less constrained by liquidity, our conviction picks are UOL, Tat Hong, CWT.
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