Morgan Stanley is optimistic about Singapore stocks and expects returns of up to 14% for the MSCI Singapore index over the next 12 months.
In fact, investors may be increasingly looking to Singapore as a safe place to invest, as uncertainty plagues the region, the investment bank said.
“We were able to see inflows supported by a growing perception of Singapore as a safe haven amid the region’s geopolitical and economic uncertainties,” analysts Wilson Ng and Derek Chang wrote in a report last week.
Covid-19 devastated economies worldwide, and the countries of Asia Pacific were not spared.
Singapore, a wealthy city-state in the region, has released one of the most generous measures to support its economy – four stimulus packages worth Singapore’s $ 100 billion, or nearly 20% of the country’s GDP.
At the same time, geopolitical tensions have intensified.
Hong Kong’s protests reignited again in May, after China passed a national security law that reduces the city’s freedoms. The latest demonstrations came after months of protests last year that hurt the territory’s economy.
Singapore and Hong Kong have traditionally competed for the status of Asia’s leading financial center and wealth center.
Money flows to Singapore jump
Money has been flowing more and more to the state of the city in the past year.
In April, a record amount of money flowed to city-state banks, data from Singapore’s central bank showed.
Non-resident deposits increased 44% over the previous year, to a record $ 62.14 billion in Singapore dollars ($ 44.58 billion) in April – the fourth monthly increase and a trend since 2019.
Singapore markets also saw more inflows through passive funds, which have been increasing year on year, according to Morgan Stanley data. Passive investment is a strategy in which investors buy an index that broadly tracks the market, such as exchange-traded funds. It is increasingly popular with investors, as opposed to individual stock choices.
Singapore’s perception as a safe haven in the midst of the current health crisis and geopolitical uncertainties could lead more high net worth individuals (HNWIs) to allocate more of their wealth in the country
The real estate sector is fundamental to boost these gains, according to the investment bank. Singapore, a regional center for real estate investment funds, or REITs, has been supported by a sustained low interest rate environment that has fueled the search for yields, the investment bank said.
REITs are companies that manage a portfolio of properties, such as offices, shopping malls or hotels. The revenue generated from these assets, after accounting for fees, is distributed as dividends to shareholders. Investors often find REITs attractive for their dividend payments.
“We believe that the growth of the Singapore REIT market, which led to more representation in the benchmarks used by the expansion of passive real estate ETFs and profitability, was and will continue to be a significant factor in boosting passive fund inflows,” said the report .
“The perception of Singapore as a safe haven in the midst of the current health crisis and geopolitical uncertainties could lead to more high net worth individuals (HNWIs) to allocate more of their wealth in the country.”
The general increase in capital inflows “may spill over” into local markets and further increase demand, said Morgan Stanley.
Choices in Singapore
Valuations for Singapore stocks have hit rock bottom, says Morgan Stanley, but says “a sustained recovery is underway”.
“High, sustainable dividends” are what differentiate Singapore’s stocks from other markets.
Here are five stocks that Morgan Stanley predicted will have sustainable dividends and that fit the theme of cyclical recovery:
- United Overseas Bank, Singapore’s second largest creditor, has the “most defensive business mix” of all domestic banks, said Morgan Stanley.
- Real estate developer City Developments holds a significant share of private home sales in Singapore. Morgan Stanley Ng predicted that the decline in property prices and sales this year will be milder than expected.
- Ascendas REIT is the biggest trust in real estate investment in Singapore by market capitalization and has the largest share of business parks and industrial spaces in the state of the city.
- Agribusiness group Wilmar, which obtained half of its 2019 revenue from China.
- Netlink Trust, a fiber infrastructure provider for residential installations. Fiber infrastructure will be “critical” for the deployment of smart cities, says the report.