Morgan Stanley expresses optimism about Singapore stocks and anticipates as much as 14% returns for the MSCI Singapore index over the next 12 months.
The investment bank claims investors could be further eyeing Singapore as a safe place to invest in despite uncertainties in the region.
“We could see inflows supported by a growing of perception of Singapore as a safe haven amid geopolitical and economic uncertainties in the region,” analysts Wilson Ng and Derek Chang wrote in a report last week.
The coronavirus crisis has devastated economies around the world, and Asia-Pacific nations were badly hit.
Singapore has announced one of the largest measures to support its economy: four stimulus packages worth 100 billion Singapore dollars or almost 20% of the country’s GDP.
Meanwhile, Hong Kong’s protests resurfaced again in May after China imposed a national security law on the city-state which is said to control the Chinese city’s freedoms. The latest protests come after months of demonstrations last year that affected the territory’s economy.
Singapore and Hong Kong have traditionally been rivals in terms of being the top financial hub and wealth center in Asia.
Money flows in Singapore
Money is reportedly flowing into Singapore in the past year. In April, a record amount of money was stored in the city-state’s banks, according to the data from Singapore’s central bank.
Deposits from non-residents increased by 44% year-on-year to a record $62.14 billion Singapore dollars ($44.58 billion) in April. This is considered the fourth monthly increase and a trend since 2019.
Markets in Singapore recorded more inflows through passive funds, which have been increasing year-on-year, according Morgan Stanley. Passive investing takes place when investors purchase an index that broadly follows the market, such as exchange traded funds.
Morgan Stanley claims that the real estate sector is critical in driving those gains. The investment bank stresses the impact of a sustained low interest rate environment that has fueled a chase for yields on Singapore as a regional hub for real estate investment trusts, or REITs.
“We think the growth of the Singapore REIT market, which led to more representation in benchmarks used by expanding passive real estate and yield focused ETFs, was, and will continue to be, a significant factor driving passive fund inflows,” said the report.
“The perception of Singapore as a safe haven amid the current health crisis and geopolitical uncertainties could drive more high-net worth individuals (HNWIs) to allocate more of their wealth in the country.”
Valuations for stocks
Morgan Stanley says valuations for Singapore stocks have bottomed. However, it says that a “sustained rebound is underway.”
The investment bank favors five stocks that are predicted to have sustainable dividends:
- United Overseas Bank, Singapore’s second-largest lender
- Property developer City Developments, which has a top share of private home sales in Singapore
- Ascendas REIT, the largest real estate investment trust in Singapore by market capitalization
- Agribusiness group Wilmar, with half of its 2019 revenue from China
- Netlink Trust, a provider of fibre infrastructure to residential premises and may perform a critical role in the deployment of smart cities, according to the report.