BankBazaar Singapore – January 5, 2018
SINGAPORE: With GDP flash numbers (based on an incomplete set of data) for the fourth quarter of 2017 beating street estimates handsomely, expectations are flying high for the Q4 results to be published by most companies in January.
A report from DBS Group Research has pegged the near-term support level for the Straits Times Index at 3,420. The company sees a much better near-term future for the domestic service market with the investment climate for the local manufacturing sector improving simultaneously.
It needs to be noted here that although the high-growth economy lost momentum in the final quarter of 2017 and expanded at a rate of 3.1% (according to advanced estimates), most experts see it as a technical payback rather than an actual slowdown. The overall growth for the year was brought down to 3.5%. The result seems to be moderately good when compared to the last quarter of 2016, especially because the base was really high during that period.
However, the pace of growth was slower when compared to the previous quarter, which grew at 5.4% y-o-y. According to advanced estimates, the trade-dependent economy rose by 2.8% q-o-q on a seasonally adjusted annualised basis, managing to beat the consensus estimate.
While the manufacturing sector expansion rate of 6.2% y-o-y fades in comparison to numbers seen in the last quarter, it still indicated a positive turnaround for the economy. The sequential decline in manufacturing numbers, by 11.5% between Q3 and Q4 against a rise of 38% between Q2 and Q3 of 2017, was attributed by experts to technical adjustments.
DBS has noted in its research report that the domestic service sector will play a key role if the growth momentum has to be sustainable. Among all the sectors, only the service sector managed to register y-o-y and q-o-q growths, making stocks of companies in this sector the most attractive going forward.
DBS has predicted a re-rating of the major bank stocks in Singapore on the basis of an uptick in the economy, more demand for loans, lower provisioning for bad assets and higher upside potential for net interest margin (NIM) figures.
NIM is the difference between the income from interest-generating assets for banks and the expenditure on the same (interest paid to lenders).
With 3M SIBOR and 12M SIBOR rates jumping by 25 basis points and 29 basis points respectively over the last one week, the company feels that NIM earnings for OCBC and UOB could rise by 2% and 1% respectively, if the current short-term and long-term SIBOR growth rate is sustained. Keeping this in perspective, DBS has raised the target for OCBC to S$14.00 and UOB to S$29.5 for the whole year.
With sweeping tax reforms in the U.S. and lowering of corporate tax rates from 35% to 21%, Singaporean companies with major presence in the U.S. could benefit. This is because the country doesn’t have a tax treaty with the U.S. and so these companies weren’t eligible for lower tax rates earlier. This means that these companies could see a further improvement in their earnings.