DBS: Singapore shares’ downswing is ‘opportunity, not calamity’

The Straits Times Index’s downswing to 3350 is an opportunity, DBS said in a note last week.

It expected the correction to halt at 3330-3350, which is around a 12-month forward price-to-earnings of 13.6 and a 200-day exponential moving average key support.

“We believe the recent correction is a healthy pullback, allowing the market to take a breather and base build before the next uptrend,” DBS said. “We are looking for indicators from the current full-year results season to support the bull.” It forecasts 2018 earnings growth at 11 percent, compared with 9.9 percent for 2017.

DBS kept its year-end “optimistic” target for the STI at 3800.

While it noted that the recent selloff was partially due to rising U.S. yields and concerns about rising inflation in the U.S., DBS estimated that the rally in the 10-year U.S. Treasury yield was around 75 percent completed.

DBS picks for bargain hunting

DBS pointed to seven STI components to bargain hunt: Sembcorp Industries, Yangzijinag, Singtel, CapitaLand, Genting Singapore, UOL and CapitaCommercial Trust. DBS has rated all of them at Buy and they have more than 20 percent upside to their target prices.

The STI advanced 0.94 percent to 3475.92 by 11:27 A.M. SGT.

DBS also said its market strategy favours banks on earnings growth, rising net interest margins and sustainable loan growth. Its top pick is OCBC.

It upgraded Singapore Airlines to Buy, saying the carrier should benefit from strong travel demand amid a synchronised global economic recovery.

In the oil and gas sector, DBS said it expected the oil price recovery was intact and it was sticking with a Brent price forecast of US$60-US$65 a barrel for this year, which it forecast would support capes growth down the value chain.

“The recent selldown in equities presents an opportunity to accumulate stocks in this sector,” DBS said, adding that its top picks were Keppel Corp. and Sembcorp Marine.