2H23 Singapore Market Strategy - UOB Kay Hian 2023-07-06: Still The Place To Be

• In aggregate, our portfolio of key focus stocks outperformed the STI in 1H23 due largely to the industrials sector.
• While the STI’s valuations are not stretched, with a 2023F P/E of 10.7x, P/B of 1.0x and a yield of 4.5%, we have moderated our STI target to 3,240 due to potential economic headwinds.
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Macro issues on our mind.

• UOB Global Economics & Markets Research (UOB GEMR) expects Singapore’s manufacturing sector to contract by 5.4% in 2023 on the back of a 10% y-o-y decline in the non-oil domestic exports (NODX), with a slight improvement expected in late-23. While services has fared better in 2023, due to the continued recovery in leisure and business air travel as well as inbound tourism which has and will benefit in-person services sectors, the extent of services’ improvement may be curtailed by the potential weakness in global growth, banking sector issues and geopolitics.
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No change to expectations for elevated inflation.

• We expect headline inflation to average 5.0% and core inflation at 4.0% in 2023. Excluding the 2023 GST impact (a questionable policy move in our view), headline and core inflation should average 4.0% and 3.0% respectively in 2023, both still above the “standard” 2% objective.
• UOB GEMR has retained its full-year 2023 GDP growth for Singapore at 0.7%, i.e. at the bottom end of the Singapore Ministry of Trade and Industry’s (MTI) forecast range, which reflects its more cautious external outlook. Two downside risks to the global economy highlighted by the MTI are:
  1. tightening of global financial conditions, and
  2. escalations in the Russia-Ukraine war and geopolitical tensions among major global powers.

Forecasting 9% earnings growth in 2023 for our universe of Singapore stocks coverage

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Adrian LOH UOB Kay Hian Research | Singapore Research Team UOB Kay Hian | https://research.uobkayhian.com/ 2023-01-04 SGinvestors.io

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