Will the Lion roar this year?

STOCKS listed in Singapore have long been among the most accessible to Malaysian investors. And yet for the longest time, they have only been attracting conservative investors looking for the twin effects of hedging their ringgit and earning a decent dividend yield.

That is probably why when it comes to Singapore stocks, it is their high dividend-yielding REITs which appear to be most compelling. In fact, the Singapore stock market is widely known to be a REIT market, being the largest one in the Asia-Pacific region, ex-Japan.

That said, Maybank Investment Bank’s research unit recently pointed out that the Singapore market, as a whole, is severely undervalued.

“On a PE (price-to-earnings) basis, the market is now at a 59% discount to the US’ S&P 500. This is the biggest discount ever and only touched these levels briefly during the 2020 pandemic,” Maybank Securities head of research Thilan Wickramasinghe says in a report to clients.

Maybank has “buy” calls on several Singapore companies, including CapitaLand Integrated Commercial Trust (the largest REIT in Singapore by market cap), Frencken, ComfortDelGro and DBS Bank.

Still, while the Singapore market is considered undervalued at the moment trading at about 10.5 times forward PE compared to its historical valuation of 13 to 14 times PE, it is important to note that the index’s weight is largely dominated by banks which are trading at low single-digit PEs.

This gives some distortion to the market’s valuation. “Singapore doesn’t really thrive on huge themes like its neighbours,” a fund manager points out.

He says Malaysia has specific plays like Johor (Johor-SG Special Economic Zone) and Sarawak (Hydrogen Economy and Technology Roadmap) while Indonesia has Nusantara, the new city where the country is planning to relocate its capital to.

This year, Thailand too is likely to perform well. The market is set to improve after declining by around 15% in 2023 due to political developments and less-than-expected tourism recovery.

This will be helped by the country’s fiscal stimulus, the THB10,000 (RM1,342) handout to every citizen aged above 16. Combined with the increase in tourist arrivals especially from China after visa waivers, Thailand is poised to experience a consumer boom.

Thus, while Singapore appears undervalued based on PE, its neighbours could hold more upside for investors.

Open economy advantage

Nevertheless, the Singapore market has its advantages. From a macro perspective, it operates within an open economy and may be one of the first to improve when global economic conditions get better in 2024.

An easing of the global interest-rate tightening cycle, for instance, would be positive for Singapore’s economy. The REIT sector will be even more attractive then, given its sensitivity to interest rates.

Aside from the industry’s attractive yield of 5% to 6%, investors may also benefit from lower costs and higher revenue due to improved economic conditions.

In line with China’s gradual recovery, Singapore’s exports are also expected to increase. Semiconductors are likely to see an upturn based on recent data.

Singapore’s technology sector, which is trading at a lower value than most regional markets, may also appeal to investors.

These tech companies mostly have manufacturing facilities in China. Singapore is set to benefit from the relocation of technology manufacturing from China, which is experiencing political-related issues.

Meanwhile, banks in Singapore may see a muted response from investors this year as interest rates come off although analysts think this impact will be minimal as dividend yields should remain decent.

One fund manager reckons he is likely to invest in the Singapore market this year, but only in stocks with defensive earnings and attractive dividend yields.

According to another fund manager, the reason the Singapore market has been performing on a sub-par basis is partly due to the strong Singapore dollar, which may have been deterring inflows due to forex tailwind risks.

He concurs with most fund managers that investors generally look to the Singapore market for dividend-yield plays and REIT offerings. Some companies on his radar include Riverstone Holdings, Thai Beverage and UOB Bank.