Stockbroking analysts are sounding a more positive outlook for 2014, with leading houses looking for average earnings per share growth of 8 to 13 per cent for key index stocks covered.
This comes on the back of forecast GDP growth expectations ranging from 3 to 5 per cent for 2014.
We highlight below views of three broking houses and their top picks for 2014.
DBS Vickers - Singapore Strategy 2014 Outlook
Janice Chua, Head of Research
Singapore should outperform Asean peers. While Asia markets will still be impacted by the progression of QE tapering in the coming months, we expect Singapore equities to hold up better compared to most of its Asean peers. The combination of a strong current account balance, a resilient Singapore dollar and a low political risk should enable Singapore equities to continue outperforming other Asean markets.
We expect the companies under our coverage to enjoy earnings growth acceleration in 2014. We see earnings (before extraordinary items) jumping 12.8 per cent in 2014F compared with just 0.5 per cent for 2013F.
Key themes for investment are centred on external recovery and global cyclicals, supported by earnings growth drivers in the industrial, oil and gas sectors. As QE tapering progresses, expectations of a steepening yield curve reduces investors' appetite for yield stocks. The rotation from yield sensitive sectors to growth stocks will gain momentum. This being so, we "overweight" banks, industrials, oil and gas, consumer services; "underweight" consumer goods and Reits; and are "neutral" on property and telcos.
With Europe and the US accounting for 23 per cent of Singapore's exports, this will lift Singapore's GDP to its potential growth rate of 4 per cent in 2014. Proxies to global recoveries are Hutchison Port, Goodpack and Venture. With China's outlook stabilising, beneficiaries of China's reform efforts are Midas, Global Logistics and OSIM. Domestic recovery proxies are Genting Singapore, Courts and OCBC.
Rate recovery in the OSV (offshore supply vessels) market will drive a re-rating for the sector, benefiting vessel owners such as Pacific Radiance, while Ezion will continue to thrive on its niche product offerings. Turnaround plays to watch out for in 2014 are Ezra and Vard; resolving their execution issues and a sustainable recovery could see both stocks re-rating. Keppel Corp's order wins have surpassed expectations with more potential orders in the offing, while margins are recovering.
OCBC Investment Research - Strategy and outlook for 2014
Carmen Lee, Head of Research
We expect developed markets' issues which dominated global headlines in the last two years to remain, largely centring on slowing economic growth, debt and high unemployment. However, the recent Q3 corporate results in Singapore point to cautious optimism for 2014, and this could mean high single-digit earnings growth for the benchmark Straits Times Index (STI) stocks. We continue to have an "overweight" rating for the banking and oil & gas sectors, and are selectively positive on certain property stocks and Reits.
While there are larger global issues, mainly from the developed markets, which will continue to dominate headlines in 2014, we believe that the outlook is slowly and gradually improving. The recent Q3 13 corporate results in Singapore also point to a cautiously optimistic guidance from companies and high single-digit earnings growth is likely for 2014. Banks surprised on the upside in Q3 2013 and we are expecting the stronger balance sheets to place banks on firmer footing entering into 2014. For property, the residential sub-sector was affected by cooling measures and we expect prices for mass-market units to drop by 5-15 per cent.
However, developers with strong balance sheets and diversified exposure to the region should be able to differentiate and also tap business or land banking opportunities during a slowdown. The oil & gas sector has consistently been on our favourite list and is entering 2014-2017 with robust order books, especially for the bellwethers Keppel Corporation and Sembcorp Marine.
The Singapore market, based on the benchmark STI, is currently trading at 13.7x FY14 earnings and we believe this is reasonable. The recent historical PER (2007-now) ranges from as low as 9x during the 2008 financial crisis to as high as 18x, but the average is hovering slightly above 14x. In addition, price-to-book is not demanding at 1.35x and average dividend yield is decent at 3.3 per cent.
Our big cap stock picks for 2014 are CapitaLand, CapitaCommercial Trust, DBS, Ezion Holdings, Keppel Corporation, Keppel Land, Sembcorp Marine, Starhill Global, Suntec Reit and UOB. In the mid-cap space, our stock picks are KSH, Nam Cheong and Sheng Siong Group.
UBS Securities - Singapore Analyser/Outlook 2014
Cheryl Lee, Head of Singapore Research
UBS forecasts 4.5 per cent GDP growth for Singapore in 2014, led by a cyclical recovery in global growth. We expect the Monetary Authority of Singapore to continue its policy of nominal effective exchange rate appreciation and estimate 2014 consumer price index growth of 3.1 per cent, with a tight labour market and low unemployment rate.
Three investment themes for 2014:
1) Global cyclical recovery takes shape - stocks we like have business models leveraged to the recovery and a significant proportion of earnings generated outside Singapore.
2) QE tapering commences - we expect short-term Singapore dollar rates to remain low, while the yield curve continues to steepen. We think banks could continue to do well in this environment. We are selective on Reits, preferring those where tapering is priced in, and that provide potential DPU (distribution per unit) upside from a cyclical recovery.
3) China - we like stocks with exposure to secular growth in consumption and potential upside from policy reform.
Our stock picks are CapitaCommercial Trust, CapitaMalls Asia, DBS Group, Genting Singapore, Keppel Corp, Mapletree Logistics Trust, Noble Group, OSIM, Sembcorp Industries, StarHub, and United Overseas Bank. We are "overweight" banks, industrials and commercial real estate; "neutral" on consumer, telecoms and transport; and "underweight" residential real estate, industrial Reits and hospitality Reits.
With short-term rates likely to remain close to zero and an average dividend yield of 3 per cent, we believe valuations are reasonable. We forecast 8 per cent EPS growth in 2014 and set an end-2014 STI target of 3,460.