The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
OCBC Investment Research (OIR)’s Singapore strategist, Carmen Lee, is optimistic about the Singapore market, thanks to steady economic growth and improving sentiment across Asia. According to Lee, the Singapore market is set to deliver "decent" returns, despite the challenges of navigating a rapidly changing investment landscape.
Steady Growth Forecast
Lee points out that Singapore’s government expects economic growth to remain steady at 1% to 3%, driven by improvements in manufacturing and trade-related sectors. Additionally, the resurgence of tourism is boosting the retail and food sectors, leading to higher spending and benefiting payment channels and credit card businesses.
Impact of US Interest Rates
However, Lee warns that high US interest rates could affect industries with heavy borrowing, increasing operating costs and potentially limiting further investments or expansion plans.
Strong Start to 2024
Singapore’s economy showed solid growth in the first quarter of 2024, with a 2.7% year-over-year increase in GDP, supported by the finance, insurance, transportation, storage, and wholesale trade sectors. Lee also notes that improved GDP growth projections for China, from 4.5% to 4.9%, have boosted sentiment towards Asian equities, making the region an attractive investment hub.
Banking Sector Shines
Singapore's banking sector has performed exceptionally well, achieving record profits and paying out large dividends. The Straits Times Index (STI) gained 2.3% in 2024 up to June 24, while the FTSE ST All-Share Financials Index surged 11.5% year-to-date, outperforming many key Asian and global banking indices. This performance is supported by strong net interest margins (NIM) and increased fee income from credit card transactions, boosted by tourism and mega concerts.
Attractive Market for Investments
Lee believes that Singapore remains an attractive market due to its ease of doing business and relative stability amid rising geopolitical risks elsewhere. The STI offers a high dividend yield of 5.8%, providing an 8% return in 2024 so far. The STI is trading at 10.5 times the FY2024 price-to-earnings (P/E) ratio and 10.2 times the FY2025 P/E ratio, with single-digit earnings growth projected for both years. Additionally, the STI is trading at a lower price-to-book (P/B) ratio of 1.1 times compared to its regional peers and its historical average.
Preferred Investment Picks
Lee maintains an overweight position on the Singapore market, recommending investments in banking, tourism-related, domestically focused, and certain industrial stocks. She believes that Singapore banks will continue to leverage regional trade growth and interconnectivity to expand their business reach and capitalize on cross-selling opportunities.
Overall, despite some challenges, Singapore’s steady economic growth and strong banking sector performance make it an attractive market for investors.
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