Q&A series: STI is up ~14% YTD. Can Singapore maintain this growth in 2025?

UOB Asset Management Ltd (UOBAM), a wholly-owned subsidiary of United Overseas Bank Limited, established in 1986, is a prominent asset management firm with a rich history. With over 35 years of experience, UOBAM oversees more than SGD35 billion in clients’ assets as of 30 October 2024. Headquartered in Singapore, UOBAM's influence extends across Asia, with a network of investment offices in key markets such as Brunei, Indonesia, Japan, Malaysia, Taiwan, Thailand, and Vietnam.

The firm has also forged strategic partnerships, including a joint venture with Ping An Fund Management Company Limited (China) and alliances with various partners. Renowned for its excellence, UOBAM has garnered over 360 industry awards and boasts a dedicated team of more than 80 investment professionals. This team leverages rigorous research to deliver innovative and customised investment solutions for clients across Asia.

In this edition of our Q&A Series, we take a deep dive into the United Singapore Growth Fund. We are pleased to have UOBAM share its insights on Singapore’s economic outlook for 2025, as well as explain how the fund can help investors capitalise on growth opportunities in the local market.

1. Singapore’s economy showed strong growth in 2024. Do you anticipate this trend will continue into 2025?

Singapore’s economy has held up well so far this year and growth indicators as of October remain strong. 3Q24 final GDP is likely to see an upward revision following strong September manufacturing data. Looking ahead, the asset manager expects GDP growth for 2025 to be broadly similar to 2024 at 2-3%. Trade-related and services clusters will remain the major drivers of underlying growth.

That said, the asset manager expects to see some moderation in electronics exports notably in 1H 2025. The electronics export cycle in both Korea and Taiwan which serves as a bellwether for the region seemed to have peaked in 3Q24 and is seemingly on the cusp of a downcycle. This suggests Singapore Non-Oil Domestic Exports (“NODX”) could potentially embark on a similar downtrend in the months ahead. Offsetting this is the gradual easing in financial conditions which would provide support to growth especially in the financial sector, as well as the information and communications technology sector. At the same time, the asset manager is cognizant of downside risks to growth from tariffs and geopolitical risks which could weaken the global trade outlook.

2. Since the fund’s name includes 'growth,' could you elaborate on the specific growth factors you consider in your investment process?

The United Singapore Growth Fund (the “Fund”) invests in companies that offer good growth opportunities and investment value. ‘Growth’ is typically associated with companies that grow at a high compounding rate of change. In the context of Singapore as a developed market where there is often a scarcity of high-growth companies, the asset manager deems companies with strong management execution track records capable of generating a consistent level of earnings, or earnings that exceed market expectations most of the time to be relatively attractive.

The Fund aims to achieve medium to long-term capital appreciation and to pay out regular income distributions. The asset manager’s investment approach is bottom-up in nature and is valuation-driven. A key thrust in the approach is to identify companies that have differentiated themselves in their respective industry groups in terms of operating and financial performance, and which in the manager’s view are undervalued in relation to its internal analysis of the company.

3. Can you identify some stocks that exemplify the growth characteristics you mentioned?

The asset manager views Singapore Technologies Engineering (“ST Engineering”) as a unique growth stock that exemplifies some of the investment characteristics we look for. The stock offers a differentiated exposure to defense-related manufacturing which currently is in a multiyear capital expenditure upcycle, as well as the aircraft maintenance, repair, and overhaul (“MRO”) business. The asset manager likes the strong earnings visibility on the back of sustained order win momentum which drives steady growth on both the top line and bottom line.

4. With nearly half of the Fund’s assets allocated to financials, what is your outlook for this sector in 2025, particularly if interest rates are expected to decline?

The asset manager has a positive view of Singapore banks. Earnings for all three Singapore banks are expected to remain resilient in 2025 despite the declining interest rate cycle. It sees steady pre-provision operating profit growth well underpinned by continued momentum in the wealth management business driving robust fee income growth, and well-contained operating expenses, to partly mitigate a marginal decline in net interest income on lower profitability levels. It also does not expect net interest margins (“NIM”) to collapse given the improved funding mix and loan mix to reduce sensitivity to interest rate cuts.

Also, the banks’ exposure to the commercial real estate sector appears to be at a manageable level. Non Performing Loans (“NPLs”) as at 9M24 are stable at about 1% and the absence of a major deterioration suggests banks’ asset quality is likely to remain largely benign. The stable and improved earnings visibility outlook for banks, combined with prospects for improving shareholder returns through higher dividend distributions or share buyback given banks’ excess capital should be supportive of the banks’ share price performance.   

5. How has the Fund performed this year and since its inception?

The Fund gained 12.68%[1] year-to-date as of 31 October 2024, against its reference benchmark[2] which rose 15.3% in the same period. The underperformance was largely attributed to sector allocation namely overweight on utilities, as well as stock selection in the industrials sector. Since its inception, the Fund returned 6.09%[3] and outperformed the reference benchmark which increased 5.11%.[4] As of 31 October 2024, the Fund had the following sector allocation: Financials (49.96%), Real Estate (20.43%), Industrials (11.43%), Communication Services (7.7%), others (5.11%) and 5.37% in cash.

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6. Are there any additional features or insights about the fund that you would like to highlight? 

The United Singapore Growth Fund is also approved for SRS investments.

Important notice and disclaimers

All information in this publication is based upon certain assumptions and analysis of information available as at the date of the publication and reflects prevailing conditions and UOB Asset Management Ltd (“UOBAM”)'s views as of such date, all of which are subject to change at any time without notice. Although care has been taken to ensure the accuracy of information contained in this publication, UOBAM makes no representation or warranty of any kind, express, implied or statutory, and shall not be responsible or liable for the accuracy or completeness of the information.

Potential investors should read the prospectus of the fund(s) (the “Fund(s)”) which is available and may be obtained from UOBAM or any of its appointed distributors, before deciding whether to subscribe for or purchase units in the Fund(s). Returns on the units are not guaranteed. The value of the units and the income from them, if any, may fall as well as rise. Please note that the graphs, charts, formulae or other devices set out or referred to in this document cannot, in and of itself, be used to determine and will not assist any person in deciding which investment product to buy or sell, or when to buy or sell an investment product. An investment in the Fund(s) is subject to investment risks and foreign exchange risks, including the possible loss of the principal amount invested. Investors should consider carefully the risks of investing in the Fund(s) and may wish to seek advice from a financial adviser before making a commitment to invest in the Fund(s). Should you choose not to seek advice from a financial adviser, you should consider carefully whether the Fund(s) is suitable for you. Investors should note that the past performance of any investment product, manager, company, entity or UOBAM mentioned in this publication, and any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets is not necessarily indicative of the future or likely performance of any investment product, manager, company, entity or UOBAM or the economy, stock market, bond market or economic trends of the markets. Nothing in this publication shall constitute a continuing representation or give rise to any implication that there has not been or that there will not be any change affecting the Funds. All subscription for the units in the Fund(s) must be made on the application forms accompanying the prospectus of that fund.

The above information is strictly for general information only and is not an offer, solicitation advice or recommendation to buy or sell any investment product or invest in any company. This publication should not be construed as accounting, legal, regulatory, tax, financial or other advice. Investments in unit trusts are not obligations of, deposits in, or guaranteed or insured by United Overseas Bank Limited, UOBAM, or any of their subsidiary, associate or affiliate or their distributors. The Fund(s) may use or invest in financial derivative instruments, and you should be aware of the risks associated with investments in financial derivative instruments which are described in the Fund(s)’ prospectus.