With the negative momentum from 2018, the STI could remain under pressure despite the strong performance in January 2019, according to RHB. While the valuation and dividend yield of STI makes it compelling for long-term investments, RHB thinks that investors should continue to stay selective in navigating the market in 2019.

RHB recommends four investment strategies that focus on stocks with stable earnings, strong balance sheets and sustainable dividends.

Investors Takeaway: 4 Investment Strategies To Navigate Singapore’s Stock Market By RHB

  1. Rotate Into Defensive Sectors

While RHB notes that the markets could move sideways for now, RHB believes that now is not the time to abandon risk assets, especially for long-term investors. RHB highlights that the current sell-off in the market is an opportunity for investors to buy into defensive sectors. According RHB, defensive plays include companies that have strong balance sheets, stable earnings growth, low historical propensity for big price declines and high but stable dividend yields.

Defensive Stocks: Sheng Siong Group, Wilmar International, ST Engineering

The consumer sector is one of the defensive sectors that RHB recommends. Among the universe of consumer stocks, RHB’s preferred picks are Wilmar International (BUY, TP $3.58) and Sheng Siong Group (BUY, TP $1.27).

The other defensive sector that RHB likes is that defense industrial sector. In particular, RHB likes ST Engineering (BUY, TP $3.97) for its positive share price return in 2018. With the revival of profit growth from increased capacity and capacities from its Aerospace division and smart city-related contracts, RHB foresees ST Engineering’s share price to do well in 2019.

  1. Break The Bank

With an impending economic slowdown in 2019, slowing loan growth, lower-than-expected net interest margin expansion and escalation of non-performing loans are likely to remain a concern for investors. However, with the recent price correction, RHB believes that the negatives have already been priced into bank stocks.

RHB recommends UOB (BUY, TP $30.80) as the top pick in the banking sector compared to DBS. RHB thinks that there is greater scope for UOB to offer higher dividend payout, thanks to its relatively lower valuation and industry leading capital adequacy ratio.

  1. DPU Growth REITs

Although RHB doesn’t expect a broad-based outperformance from the REIT sector, RHB notes that there are still specific investment opportunities that could find favour with investors. In particular, RHB recommends REITs that are: (1) Direct beneficiaries of improving economic activities; (2) have strong balance sheets; (3) or can undertake accretive acquisitions for DPU growth.

RHB’s top picks in this investment strategy are the industrial and hospitality REITs. RHB thinks that these REITs are riding on favourable demand-supply dynamics and attractive valuation. They also offer the best yield spread over 10-year bond yields. RHB’s preferred picks are Ascendas REIT (BUY, TP $2.90) and CDL Hospitality Trust (BUY, TP $1.80).

In addition, RHB also recommends Manulife US REIT (BUY, TP US$0.92) as an overseas REIT play. RHB likes Manulife US REIT for its continuing improvement in the US office market. It is also expected to benefit from organic DPU growth through inbuilt rental rate escalation and strong sponsor support for quality acquisitions.

  1. Opportunistic Small-Mid Cap Ideas

Small and mid cap stocks have largely underperformed against large cap stocks in 2018. However, heading into 2019, RHB believes that there are selective opportunities for investing in small and mid cap stocks that offer strong visibility on earnings growth, sustainable high dividends and/or trading at compelling valuation.

RHB’s top picks in this investment strategy are: Singapore Medical Group (BUY, TP $0.56), Fu Yu (BUY, TP $0.23), Silverlake Axis (BUY, TP $0.65), HRnetGroup (BUY, TP $1.18).

RHB likes Silverlake Axis for its strong earnings growth from existing orderbook while HRnetGroup has potential to offer earnings upside from earnings-accretive acquisitions. Meanwhile Fu Yu stands out for its attractive dividend yield while Singapore Medical Group is undervalued at its current valuation.

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