JP Morgan’s equity macro research team — Khoi Vu, Rajiv Batra, Mervin Song, Terence M Khi and Harsh Wardhan Modi — sees selective opportunities emerging in Singapore equities as interest rates decline.
In their June 15 report, the team notes that while Singapore banks may face pressure from narrowing net interest margins (NIM), sectors with resilient yields and stable cash flows, such as Singapore-focused REITs and leveraged companies, are poised to benefit from falling borrowing costs.
The Monetary Authority of Singapore’s (MAS) $5 billion Equity Market Development Programme (EMDP) is also expected to drive flows into quality mid-cap stocks and companies with asset recycling potential.
The team points out that the S$NEER’s 100 basis point decline year-to-date has translated into 80-100 bps cuts in SORA and T-bill rates, lowering funding costs. This environment favors Singapore REITs, which are shielded from challenges faced by global peers such as rising vacancies, falling asset values, and forex losses.
At the same time, companies with higher leverage can also capitalize on reduced interest expenses. However, broad-based monetary easing remains a headwind for banks’ profitability. “We remain neutral on both sectors given that the yield differential is not significant enough to drive strong outperformance, and macroeconomic uncertainties persist,” writes the team.
On the outlook for interest rates, the team does not expect a sharp reversal anytime soon, citing persistent hedging flows from US asset holdings by Singapore’s public and private investors. With the USD index remaining weak, JPM’s forex and rates team stays neutral on SGD rates for now.
The MAS’s $5 billion allocation, expected to be deployed by 3QFY2025, may favor small and mid-cap stocks, which have lagged large caps by over 30% in the past two years. Yet, the team cautions that a strong outperformance by small/mid-caps remains unlikely due to valuation, profitability, and liquidity concerns.
Instead, stocks with consistent earnings growth, quality balance sheets, and those trading below book value are likely to attract incremental flows.
JP Morgan’s top Singapore picks include:
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CapitaLand Integrated Commercial Trust (CICT)
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CapitaLand Ascendas REIT (CapitaLand Ascendas REIT)
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Keppel DC REIT (KDC REIT)
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Frasers Centrepoint Trust (FCT)
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Singapore Telecommunications (ST)
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Sea Limited (SE)
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Singapore Technologies Engineering (STE)
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