STI more likely to trade between 2,800-3,200: OCBC

SINGAPORE (Dec 24): OCBC Investment Research is projecting for the Straits Times Index (STI) to trade as high as 4,125 in 2019 in a bull case scenario.

As at Dec 5 this year, the index traded at 3,156, 18% higher than Bloomberg’s target of 3,721.

The research house’s base case is for the STI to trade at around 3,632 with a potential upside of 17% from Dec 5 levels, based on 7% earnings growth and a seven-year historical average price-earnings ratio (PER) of 13.9 times.

However, with current macroeconomic uncertainties and a more downside bias, it believes the STI may likely trade between the 2,800-3,200 levels.

In a Dec 2018 report, Carmen Lee, head of OCBC Investment Research, recommends focusing on value over growth stocks in the year ahead as the STI continues to track bigger markets in the region.

While Lee sees more initiatives arising from Singapore’s efforts to become a smart nation, she believes traditionally-deemed defensive stocks are likely to remain in play.

“At current valuations, valuations for the STI are not expensive versus other regional markets and its own historical trends. At current levels, the STI is trading at -1 standard deviation below the historical average for both price-earnings and price-book,” notes Lee.

“On the global front, several broad themes may continue to play out including digital and mobile payments, gaming and online sports, the popularity of co-working space, heightened defence spending, continued emphasis on education and the environment,” she adds.

As at 11.24am, the STI is trading 1.77 points lower at 3,044.27.