For the first time in many years, Singapore’s economy expanded at the top end of Trade & Industry Ministry’s growth prediction, i.e. 3.5 percent in 2017. In 2018, RHB believes that Singapore’s GDP will grow by three percent in 2018. On the back of stronger economic data, the Straits Times Index (STI) rose by 27 percent.
With the expected slower GDP growth, the question is whether STI can replicate its stellar 2017 performance in 2018. To achieve alpha in 2018, RHB recommends taking a top-down investment approach.
Investors Takeaway: RHB’s Preferred Sectors To Invest In 2018 For Alpha Returns
Within the consumer sector, RHB recommends investing in companies that have regional exposure. RHB has little preference for firms with a Singapore-only exposure due to their weak long-term growth outlook. Among consumer companies, RHB rates Dairy Farm and Food Empire as its highly preferred stock picks.
Dairy Farm International: BUY, TP US$9.53
Food Empire: BUY, TP $1.00
REITs have been chosen as a preferred sector by RHB with hospitality and industrial REITs as the preferred sub-sectors. RHB notes that two types of REITs will outperform in 2018: REITs that are direct beneficiaries of improvements in economic activity and REITs with strong balance sheet that can undertake accretive acquisitions. Ascendas REIT and OUE Hospitality Trust are RHB’s top picks for the REIT sector.
Ascendas REIT: BUY, TP $2.90
OUE Hospitality Trust: BUY, TP $0.91
The hospitality sub-sector is a key beneficiary of a 3 to 7 percent rebound in revenue per available room (RevPAR) in 2018. Following its cheaper early debt refinancing, RHB has raised the target price of OUE Hospitality Trust to $0.91. Moving forward, higher corporate demand from more events in 2018, tapering of hotel supply and Changi Airport’s continued rise as a regional hub are seen as key catalysts for OUE Hospitality Trust share price.
While RHB has given the banking sector a neutral rating, RHB has signalled that investors can find alpha in some bank stocks. Among the three local banks, UOB is RHB’s top banking pick given its large exposure to the residential market and strong balance sheet. RHB believes that the positive impact of the interest rate up cycle on earnings cannot be taken lightly.
UOB: BUY, TP $28.88
In 2018, RHB expects property prices to rise by 3-7 percent as it continues its rebound. RHB is confident that the price rebound would be aided by the improving job market, strong surge in the enbloc sales, and falling inventory levels.
CapitaLand: BUY, TP $4.20
Following the group’s recent divestments of non-core retail assets in China and India, RHB believes that CapitaLand has the right ingredients to deliver long-term growth. CapitaLand’s growing business presence through management contracts, rising recurring income base and focus on asset light strategies have been identified by RHB as the right ingredients to drive long-term growth. The company’s share price has been lagging its peers, which gives rise to opportunities for CapitaLand to outperform in 2018.