Credit Suisse is turning more cautious on the Singapore market based on its forecast for the city-state’s economic growth to slow to just 0.5 percent in 2019, the investment bank said in a recent research note.
“While we were previously cautious, we had expected attractive valuation and dividend yield to provide support to the market,” Credit Suisse said. “However, we now expect slowing economic growth to drive deeper earnings cuts, with potential downside risk to dividends as a result.”
The investment bank said it estimated the market is currently trading at a price-to-earnings ratio of around 13 times, in line with its historical average and likely pricing in the 7 percent earnings per share (EPS) growth expected this year. The dividend yield of 3.7 percent is above the regional average, but near the historical average, the note said.
Credit Suisse said that in previous periods where gross domestic product growth slowed to less than 1 percent, EPS growth for the market turned negative.
“Currently, consensus is expecting EPS growth to slow to 7.2 percent in 2019 and 6.4 percent in 2020, which may appear high relative to periods with lower GDP growth,” the 5 August note said.
The current consensus expectations are for the Straits Times Index’s total dividends to grow 3.5 percent on-year this year, but the dividend payout may disappoint, Credit Suisse said, projecting just 2.3 percent on-year dividend growth this year as Sembcorp Industries and ST Engineering may come up short.
Based on a more defensive positioning, the top picks are ComfortDelGro, Wilmar and UOL, with the least preferred SATS, CapitaLand Commercial Trust and Venture, Credit Suisse said. Among the banks, it prefers UOB to DBS and OCBC.
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