Singapore market a ‘safe haven' amid global volatility; market reforms signal upside potential: Morgan Stanley

Business Times

23-05-2025

[SINGAPORE] Analysts from Morgan Stanley are strong on Singapore equities, as the market continued to outperform global stocks year to date – with a total return of 13 per cent.
The local market has recorded such outperformance since 2024, pressing on as investor allocations shifted more defensively amid higher global trade uncertainties this year.
'Singapore's defensive qualities and high dividend yields position it well to cope with geopolitical and trade uncertainties that are likely to persist in an increasingly multipolar world,' wrote the analysts in their Singapore Equity Strategy Mid-year Outlook on Thursday (May 22).
Singapore also remains one of their most preferred markets in Asia, with city-state ranking just behind India, in Morgan Stanley's Asia/Emerging Markets equity strategy team's market allocation framework.
Their MSCI Singapore index target has been raised by 13 per cent to 2,150 as well, which implies a 13 per cent upside and 17 per cent total return in the next 12 months.
'We see outperformance enduring, as above-trend multiples are well supported by flights to safety, especially during bouts of market volatility, and on capital inflows driven by ongoing market reform initiatives,' the analysts said.
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Local market reforms offer upside
Several market reforms by the Monetary Authority of Singapore (MAS) are underway, in a bid to strengthen the Republic's equities market and its competitiveness, which include regulatory enhancements and tax incentives.
In particular, MAS announced its plans in February of a S$5 billion injection into select actively managed funds that invest in Singapore stocks, to attract capital from other commercial investors.
'While a direct liquidity boost is a bold, unprecedented move from the local authorities, some investors have raised concerns that S$5 billion – equivalent to just 1 to 2 per cent of annual value traded on the Singapore exchange – isn't particularly large,' wrote the analysts.
Still, they acknowledged how this move by MAS could eventually attract significantly more inflows which cross the S$5 billion mark, with more private capital crowding in and as other measures come into play.
Another initiative highlighted was the Global Investor Programme (GIP), which offers a route to Singapore permanent residency for individuals and their family members. New applicants now have to now deploy part of their family office assets under management (AUM) into Singapore-listed equities.
This applies to eligible applicants with family office AUM of more than S$200 million, who now have to put S$50 million into Singapore-listed equities, compared with a broader range of qualifying investments previously.
'We estimate this alone could drive an incremental S$500 million per annum in inflows to Singapore equities,' noted the Morgan Stanley analysts.
The analysts also stressed that the impact of market reforms such as these are 'far from being fully priced in', as implementation of the first set of measures is still ongoing, with more measures to come in the second half of 2025.
Financial services and communications stocks to benefit; mixed on property sector
In the analysts' view, the Singapore Exchange (SGX) is expected to be a natural winner from higher Singapore equity trading volumes with ongoing local market reforms.
'Market volatility has also been supportive of trading volumes as seen in recent market statistics,' they explained. 'Additionally, SGX's performance is historically negatively correlated with interest rates, which we expect to fall in 2026.'
Local banking stocks are perceived in a similarly positive manner. Nick Lord, director of research for the Asean Research Department at Morgan Stanley, has an 'equal-weight' rating on both DBS and OCBC.
He has placed an 'overweight' call on UOB and a target price of S$38.20, noting its approximate 6 per cent dividend yield in 2025, where the bank has retained its place on Morgan Stanley's Singapore Focus List.
'With the banks' commitment in capital returns sustained through share buybacks and higher dividends, meaningful yield support which limits risks to the downside is offered,' the analysts explained.
Meanwhile, Singtel has risen 23 per cent year to date on more defensive allocations amid escalating trade war risks, they observed.
The telco giant recently swung back into the black with a S$2.8 billion H2 net profit, while unveiling a S$2 billion share buyback programme, in addition to its recent US$1.5 billion sale of a 1.2 per cent stake in Bharti Airtel.
Lee Da Wei, analyst at Morgan Stanley, has an 'overweight' rating on Singtel and a target price of S$4.20.
'As an index heavyweight, the stock is well positioned to benefit from ongoing Singapore market reforms, and offers exposure to artificial intelligence infrastructure through its data centre business,' the analysts said.
Sea is the second best performing stock in the MSCI Singapore Index, up 53 per cent year to date. It has also risen to become the second-largest stock on the index with a weight of 19 per cent, according to the analysts.
'Potentially benefitting from passive index inflows due to Singapore market reforms, the stock also seems well positioned for an expected fall in US interest rates in 2026, and Asean currency appreciation relative to the US dollar,' they wrote.
As for the property sector, analysts are strong on Capitaland Investment with an 'overweight' rating and target price of S$3.55.
'We believe lower interest rates will have a profoundly positive impact on highly interest rate-sensitive asset managers like CapitaLand Investment,' said the analysts.
'The stock has underperformed the broader Singapore index over the past two to three years on a weakening China outlook and higher interest rates, but a reversal of these trends should bode well for the stock.'
Analyst Wilson Ng is 'overweight' on Capitaland Ascendas Reit and Capitaland Integrated Commercial Trust, with target prices of S$3.15 and S$2.05 respectively.
'Our most preferred Reit (real estated investment trust) is CapitaLand Ascendas Reit, which is one of three real estate constituents in the MSCI Singapore index, as it plans for data centre redevelopment works and could offer a meaningful path to dividend growth,' the Morgan Stanley analysts wrote.
However, they also noted how 'potential value traps' exist in Singapore's property space as well.
'Both residential developers City Developments and UOL Group derated to record low multiples after being removed from the MSCI Singapore index last year, and we believe could trade at structurally lower multiples here on,' they warned in their May 22 note.
'We expect Singapore housing market fundamentals to further deteriorate in 2025, and would caution against off-benchmark allocations into developers.'
Other counters in the consumer sector such as casino operator Genting Singapore and Wilmar International face 'uncertain outlooks' to the analysts, due to industry competition and global macro uncertainties.
Both stocks received 'equal-weight' ratings from analysts with target prices of S$0.85 and S$3.50 respectively. Analyst Praveen Choudary cited competition from Marina Bay Sands in the near term and Thailand in the long term as a 'threat' to Genting Singapore, on top of its 41 per cent decline in Q1 earnings.