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Singapore's virus-hit small caps set for big gains, says top analyst

·3-min read
This photograph taken on May 6, 2019, shows people walking near the central business district in Singapore. (Photo by Roslan RAHMAN / AFP)        (Photo credit should read ROSLAN RAHMAN/AFP/Getty Images)
Central business district in Singapore. (PHOTO: ROSLAN RAHMAN/AFP/Getty Images)

By Abhishek Vishnoi

(Bloomberg) -- Rising global optimism about a coronavirus treatment is prompting a top Singapore analyst to take a bullish view of pandemic-hit small stocks in the city-state.

Newsflow related to the development of a vaccine can stoke long bets on Covid losers, according to Jarick Seet, who was ranked by the Asiamoney Brokers Poll as Singapore’s top researcher for small-cap shares in three of the last four years. His top picks include staffing firm HRnetgroup Ltd., property developer Oxley Holdings Ltd. and event-organiser Unusual Ltd., which are all down at least 21% this year and have a market cap of less than S$1 billion (US$735 million) each.

“Vaccine optimism can make some smaller companies generate exponential returns versus large caps,” said Seet, the head of small and mid-cap research at RHB Securities. “Some money has already started shifting to Covid-hit sectors from stocks such as makers of personal protective equipment.”

In recent weeks, promising updates by a number of companies that are in the race to develop a vaccine have encouraged some investors to pivot to stocks tied to the global economic recovery and normal functioning of businesses. At the same time, Asian small-cap stocks have outperformed their larger peers this month, paring some of the latter’s dominance over the first seven months of the year.

Seet said he also remains bullish on Singapore’s technology stocks.

“Semiconductor stocks will continue to rally as a lot of their clients are looking to upgrade their systems,” he said. His top picks in the sector include Avi-Tech Electronics Ltd., UMS Holdings Ltd. and Frencken Group Ltd.

Meanwhile, shares of some companies linked to the pandemic that have skyrocketed this year appear to be losing steam. Medical apparel maker Medtecs International Corp. has fallen about 18% from its record earlier this month after jumping more than 4,500% for the year. Glove maker UG Healthcare Corp. has dropped around 34% from its all-time high.

That said, the pandemic is still widening. Global cases have topped 24.4 million and several nations are battling a resurgence in infections, threatening a rebound in business activities. As for Singapore, the city-state is attempting to cautiously restart its economy after earlier entering a two-month lockdown designed to stem the spread of the virus. Gross domestic product shrank a record 13.2% year-on-year in the second quarter.

Officials are “quietly confident” in the economic recovery through year-end, with fiscal stimulus helping to support domestic consumption and enable businesses and workers to shift to new industries, Trade & Industry Minister Chan Chun Sing said in an interview with Bloomberg Television on Friday.

“Covid-19 losers have already been punished a lot while the winners have surged a lot,” Seet said. “The risk-reward is attractive.”

READ: Singapore Stocks Shine in Asia Boosted by U.S. Yields

© 2020 Bloomberg L.P.