2018 will be the year where Singapore’s economy recovery will broaden from the manufacturing sector to the rest of the economy, according to DBS. DBS believes that this turn in tide for Singapore’s economy is both powerful and sustainable.
Thus, to help investors make better portfolio allocation in 2018, we highlight four sectors that DBS recommends adding exposure to in a year of broad-based growth.
Investors Takeaway: 4 Sectors DBS Would Want Exposure To In 2018
The past two years for the banking have been plagued by woes in the oil and gas sectors. While a recovery of the oil and gas sector might be too early to call, banks have largely provisioned for its risks in the sector.
Moving forward, DBS highlights that one of the growth factors for banks in 2018 is loans growth. Loans growth has surprised on the upside in 2017 and DBS expects the growth momentum to continue into 2018. Moreover, with three rate hikes expected in 2018, net interest margin for the banks should accelerate.
DBS has a BUY rating on both Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB). However, DBS has a stronger preference for OCBC for a few reasons. OCBC has a better ability to maintain lower-than-peer credit cost trends and also serves as a better wealth management play. Moreover, there could be possible earnings surprises from its insurance business in a rising interest rate environment.
Recommendations: OCBC, UOB
- Consumer Goods
Central to DBS’ recommendation of the consumer goods sector is the belief of stronger bottom line growth on improved economic prospects and pick-up in sentiments. Going forward, DBS is optimistic of Singapore consumer companies’ outlook. DBS believes that upward revision in Singapore’s GDP growth will translate to better prospects for domestic consumer companies. Furthermore, improvements in the global macro outlook should also support and accelerate earnings growth for consumer companies in 2018.
The property sector is probably one of the hottest discussed sector in Singapore right now. DBS highlights that the property sector is on a multi-year recovery trend with luxury properties leading the market. With only 2,700 unsold residential units in 3Q17, the sector is also driven by its lowest supply in recent years.
DBS also notes that developers will continue to look at opportunities to landbank. Currently, there is an ongoing pipeline of reportedly 40 further enbloc projects, coupled with various sites on the government land sales.
Among the property plays, DBS recommends property developers who have increased leverage into the recovery of the Singapore property market, ahead of the current red-hot demand for sites.
- Offshore & Marine
Oil prices appear to be firming up, driven by robust oil demand, a likely extension to OPEC cuts, and stalling of US shale productivity gains. DBS forecasts oil prices to hit US$60-65 per barrel for Brent in 2018, predicting that oil demand would grow at around 1.4-1.5 million barrels per day in 2018 at the same time where there is lower supply-side pressure from US shale drillers. OPEC also appears to be willing to extend its oil production cuts to lend support to oil prices.
The easing of supply glut in the oil industry and DBS’ anticipated bottoming out of demand could spark off a long and gradual recovery in the OSV space. For rig builders, brighter prospects have emerged from a breakthrough into high-value non-crude solutions. The improving rig market could also “motivate” rig owners to take delivery of existing orders and facilitate the disposal of cancelled units in the second-hand market to remove a key overhang on Singapore rig builders.