Singapore Analyser - Outlook 2014
Modest GDP growth outlook
UBS forecasts 4.5% GDP growth for Singapore in 2014, led by a cyclical recovery in global growth. We expect the Monetary Authority of Singapore to continue its policy of nominal effective exchange rate appreciation and estimate 2014 consumer price index growth of 3.1%, with a tight labour market and low unemployment rate.
Three investment themes for 2014
1) Global cyclical recovery takes shape—stocks we like have business models leveraged to the recovery and a significant proportion of earnings generated outside Singapore.
2) QE tapering commences—we expect short-term Singapore dollar rates to remain low, while the yield curve continues to steepen. We think banks could continue to do well in this environment. We are selective on REITs, preferring those where tapering is priced in, and that provide potential DPU upside from a cyclical recovery.
3) China—we like stocks with exposure to secular growth in consumption and potential upside from policy reform.
Our stock and sector preferences
Our stock picks are CapitaCommercial Trust, CapitaMalls Asia, DBS Group, Genting Singapore, Keppel Corp, Mapletree Logistics Trust, Noble Group, OSIM, Sembcorp Industries, StarHub, and United Overseas Bank. We are Overweight banks, industrials and commercial real estate; Neutral on consumer, telecoms and transport; and Underweight residential real estate, industrial REITs and hospitality REITs.
Valuations look reasonable; end-2014E FSSTI target of 3,460
The Singapore market is trading at 13.8x 12-month forward PE, in line with its historical mean. On 1-year forward P/BV, it is at 1.36x P/BV, close to - 1std deviation. We forecast ROE to remain stable at 9.3% for 2013/2014. With short-term rates likely to remain close to zero and an average dividend yield of 3%, we believe valuations are reasonable. We forecast 8% EPS growth in 2014 and set an end-2014E FSSTI target of 3,460.