Amid a combination of inexpensive market valuations and economic growth uncertainty, investors in Singapore stocks should rotate into defensive sectors, RHB said in a note on Wednesday.
“While stocks could certainly move lower-to-sideways from here, we believe this is not a time for investors with long-term horizons to abandon risk assets,” RHB said. “We view the current sell-off in the Singapore market as an opportunity to buy into defensive sectors – we define defensive stocks as ones with strong balance sheets, stable earnings growth, high but stable dividend yields, and low historical propensity for big price declines.”
RHB said it preferred consumer stocks with earnings visibility, with its top picks Sheng Siong and Wilmar, while it also liked Genting Singapore and Delfi.
Its defensive industrial stock pick was ST Engineering, pointing to expectations of a profit growth revival amid increased capacity in the aerospace division, the delivery of smart-city-relate contracts and defense-related contracts, RHB said.
It also tipped buying banks for steady earnings growth and consistent dividends, adding that concerns about slowing loan growth and narrower-than-expected net interest margin expansion were likely priced in by recent stock-price declines.
RHB said it preferred UOB to DBS for relatively lower valuations and stronger capital adequacy ratio, which could spur higher dividend payouts this year.
Select REITs, particularly in the industrial and hospitality segments, also made RHB’s list, mainly on favorable demand-supply and attractive valuations. It tipped Ascendas REIT and CDL Hospitality. It tipped Starhill Global REIT for office REIT exposure, but noted that the office segment was likely to perform better in the second half of the year, when the positive effects of rental rates begin to show in distributions per unit.
For a play on the U.S. office market, RHB pointed to Manulife US REIT.
In the small-to-mid-caps, RHB tipped Silverlake for strong earnings growth, HRnetgroup for earnings upside from acquisitions, Fu Yu for a more than 8 percent dividend yield and Singapore Medical Group for the lowest valuation among Singapore healthcare plays.
Why not the index?
It noted that the Straits Times Index was trading at 12.6 times one-year forward price-to-earnings.
“Compelling valuations, along with expectations of a moderate appreciation in the Singapore dollar, should bring long-term investors back into the market,” it said.
But it added that it would likely be difficult for the STI to rally as it tends to track gross domestic product (GDP) growth, which RHB was forecasting to slow in 2019 and 2020. It set an index target of 3300 for end-2019.