- Singapore economic growth in the third quarter came in better than expected, avoiding a technical recession. While growth remains weak in the present juncture, there is progressively more evidence that conditions are starting to improve.
- Export growth is due for a recovery in the coming quarters, driven by two key catalysts – global semiconductor upcycle and trade re-direction into Asia – that are progressively emerging across key Asian economies. The revitalisation in exports will be crucial in boosting the economic growth of trade-reliant Singapore.
- The manufacturing sector has displayed signs of stabilisation in recent months and is on track for a near-term rebound. Leading PMI indicators are starting to bottom, providing greater optimism to a manufacturing and export recovery for Singapore ahead.
- Singapore equities (STI Index) are cheap at the current juncture, trading at price-earnings ratio of one standard deviation below its ten-year average. With global bond yields set to stay low, we believe Singapore equities will grow increasingly more attractive to investors as an alternative in their search for yields.
- With an appealing upside potential of 26% by end-2021 and high dividend yield of more than 4%, we maintain our 4.0 stars “Very Attractive” rating for Singapore equities. We think that it’s time for investors to accumulate more exposure on the cheap.
Economic growth in the third quarter beats expectation, Singapore avoided technical recession
Chart 1: Economic growth in Singapore is projected to rebound next year
Chart 2: Singapore avoided technical recession in the third quarter this year, for the second time.
Exports slump starting to bottom and is projected to rebound ahead
Chart 3: Cyclical downturn in Semiconductor Industry is projected to reverse strongly in the quarters ahead
Chart 4: The revival in the Electronic trade within the Asian region will drive Singapore exports growth
Manufacturing sector displayed signs of stabilising, lending support to robust economic recovery ahead
Chart 5: Leading indicators such as manufacturing and electronic PMI have shown signs of bottoming in recent few months
Singapore equities likely to remain resilient, cushioned by a cheap valuation and relatively high dividend yield
Chart 6: STI corporate earnings have performed better than expected across all three quarters this year
Chart 7: STI has seen drastic earnings downgrades since April last year, leaving little room for downside adjustments.
Chart 8: STI’s high dividend yield of above 4% is increasingly more attractive in current low yield environment.
Singapore equities: Appealing combination of high dividend yield with strong capital gain potential
|
Singapore Equity Market (STI Index) |
FY2018 |
FY2019 |
FY2020 |
FY2021 |
|
PE Ratio (X) |
13.2 |
13.0 |
12.5 |
11.9 |
|
Expected Earnings Growth %YoY |
12.3% |
1.3% |
4.3% |
4.8% |
|
Earnings Per Share |
243 |
246 |
257 |
269 |
|
Projected
Fair Price |
- |
- |
- |
4,041 |
|
Projected Dividend Yield (%) |
4.4% |
4.1% |
4.3% |
4.4% |
|
Potential Upside from Today (%) |
- |
- |
- |
26% |
|
Source: Bloomberg, iFAST estimates. Data as of Nov 2019. |
||||
Chart 9: Inexpensive valuation – STI is currently trading one standard deviation below its ten-year average
Chart 10: STI is projected to trend upwards with its underlying EPS over the next two years
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