Morgan Stanley is bullish on Singapore stocks and expects as much as 14% returns for the MSCI Singapore index over the next 12 months.
In fact, investors could increasingly be looking to Singapore as a safe place to invest in as uncertainty roils the region, the investment bank said.
"We could see inflows supported by a growing of perception of Singapore as a safe haven amid geopolitical and economic uncertainties in the region," analysts Wilson Ng and Derek Chang wrote in a report last week.
Covid-19 has ravaged economies worldwide, and Asia-Pacific nations have not been spared.
Singapore, a wealthy city state in the region, has unveiled one of the most generous measures to support its economy – four stimulus packages worth 100 billion Singapore dollars, or almost 20% of the country's GDP.
At the same time, geopolitical tensions have intensified.
Hong Kong's protests reignited again in May after China approved a national security law said to curtail the Chinese city's freedoms. The latest demonstrations come after months of protests last year that crippled the territory's economy.
Singapore and Hong Kong have traditionally been competitors for the status of the top financial hub and wealth center in Asia.
Money flows to Singapore jump
Money has been increasingly flowing into the city state in the past year.
In April, a record amount of money flowed into the city-state's banks, data from Singapore's central bank showed.
Deposits from non-residents jumped 44% year-on-year to a record $62.14 billion Singapore dollars ($44.58 billion) in April — the fourth monthly increase and a trend since 2019.
Markets in Singapore also saw more inflows via passive funds, which have been jumping year-on-year, according to data by Morgan Stanley. Passive investing is a strategy where investors buy an index that broadly tracks the market, such as exchange traded funds. It is increasingly popular among investors, as opposed to individual stock picks.
The perception of Singapore as a safe haven amid the current health crisis and geopolitical uncertainties could drive more high-net worth individuals (HNWIs) to allocate more of their wealth in the countryWilson Ng and Derek ChangMorgan Stanley
The real estate sector is key in driving those gains, according to the investment bank. Singapore, a regional hub for real estate investment trusts, or REITs, has been supported by a sustained low interest rate environment that has fueled a chase for yields, said the investment bank.
REITs are companies that manage a portfolio of properties such as offices, shopping malls, or hotels. Income generated from those assets, after accounting for fees, is distributed as dividends to shareholders. Investors generally find REITs attractive for their dividend payouts.
"We think the growth of the Singapore REIT market, which led to more representation in benchmarks used by expanding passive real estate and yield focused ETFs, was, and will continue to be, a significant factor driving passive fund inflows," said the report.
"The perception of Singapore as a safe haven amid the current health crisis and geopolitical uncertainties could drive more high-net worth individuals (HNWIs) to allocate more of their wealth in the country."
The overall rise in capital inflows "could spill over" into local markets and further drive up demand, Morgan Stanley said.
Singapore stock picks
Valuations for Singapore stocks have bottomed, says Morgan Stanley, but it says that a "sustained rebound is underway."
"High and sustainable dividends" are what differentiates Singapore stocks from other markets, it said.
Here are five stocks that Morgan Stanley predicted will have sustainable dividends, and which fit the theme of cyclical recovery:
- United Overseas Bank, Singapore's second-largest lender, has the "most defensive business mix" of all the domestic banks, said Morgan Stanley.
- Property developer City Developments has a leading share of private home sales in Singapore. Morgan Stanley's Ng predicted that the decline in home prices and sales this year will be milder than expected.
- Ascendas REITÂ is the largest real estate investment trust in Singapore by market capitalization, and has the largest share of business parks and industrial space in the city state.
- Agribusiness group Wilmar, which derived half of its 2019 revenue from China.
- Netlink Trust, a provider of fibre infrastructure to residential premises. Fibre infrastructure will be "critical" to the deployment of smart cities, the report said.