2017 is one of best years in recent history. The STI is already up 13% in less than 6 months. Can bull markets go up forever? Of course not. A correction will happen sooner or later. Are we due for one soon?
Yes, according to DBS. It thinks that the Straits Times Index will consolidate after hitting 3250. But absent a North Korea war, STI should be supported above 3115.
DBS offers 4 strategies to navigate the market.
Strategy #1 – External over domestic
Economic growth will be driven by external trade-related sectors such as IT and electronics. The outlook for Singapore’s main trading partners – US and regional economies are also looking up.
- Prefer Venture Corp and UMS as they will benefit from stronger global demand.
- Muted growth for domestic stocks facing structural challenges such as labour shortage and subdued consumer confidence – Katrina Group, CapitaLand Mall Trust, SPH REIT
Strategy #2 – Focus on stocks with Target Price or Earnings forecast uplift
With growing optimism over economic data, pick stocks with earning forecast or TP uplift.
- Venture – riding on favourable macro tech trends and favourable currency.
- M1 – potential bidders to takeover company could buoy stock prices
- Capitaland Retail China Trust (CRCT) – Market has underestimated potential for positive rental revisions in Xizhimen and Wangjing
Strategy #3 – Interest uptick in Hospitality REITs
- CDL Hospitality REIT stock prices rose after 1Q17 DPU was higher than expected due to contributions from New Zealand and Singapore hotels.
- OUE Hospitality REIT could benefit from acquisition of Crown Plaza Changi Airport extension and new store openings (Victoria Secrets and Michael Kors).
Strategy #4 – Cautious on outperformers
Stocks that outperformed the STI could be ripe for profit taking – City Developments, Keppel Corp and UOB