Oct 15, 2012

Malaysia - Morgan Stanley Research: Singapore least preferred Asean market

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KUALA LUMPUR: Singapore remains the least preferred market in Asean for Morgan Stanley Research as it continues to underweight banks and maintain a defensive dividend yield strategy.

In its Asean Equity Strategy report issued on Monday, it said that despite the 473 basis points underperformance since the Spanish bank bailout on July 20, 2012, its scenario-weighted target index implied flat performance through December 2012.

“Our observations on key valuation and earnings indicators versus both Asean and Developed Markets reinforce our view that Singapore is a relatively unattractive market,” it said.

Morgan Stanley Research said Singapore's free-cash flow (FCF) yield trailed Asean and developed markets peers and its own historical average while Singapore's return on equity (RoE) was lower than Asean and developed markets peers and had been declining.

Singapore's price-to-earnings ratio (PER) versus MSCI World (developed markets) was close to one standard deviation above its long-term average, it said.

The research house also said Singapore's consensus earnings growth forecast was 300 basis points lower than developed markets while Singapore has witnessed broad-based downward revisions to earnings forecasts.

As for Singapore's 2013 estimated dividend yield, it said it exceeded Asean and developed market peers'.

However, due to the wide dispersion of dividend yields across sectors, it advised investors to be selective in picking dividend yield stocks.

“We recommend Ascendas REIT, Singapore Telecom, Keppel Corp and CDL Hospitality Trusts as defensive dividend yield plays in our focus list,” it said.

Morgan Stanley Research said it had an underweight on banks. It explained the sector continued to be its least preferred, given relatively unattractive valuations and earnings momentum.

Its bank analyst had recently downgraded his view on Singapore banks from in-line to cautious, citing slowing loan growth and falling net interest margins.

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