'Time to catch up': Morgan Stanley projects 16% returns for Singapore stocks in 2021

Published Wed, Nov 18 20208:40 PM ESTUpdated Wed, Nov 18 202011:14 PM EST

(This story is for CNBC PRO subscribers only.) SINGAPORE — Singapore stocks have been among the worst performers in Asia-Pacific this year, but Morgan Stanley says there may be "time to catch up" in 2021. The MSCI Singapore Index is forecast to climb by more than 10% between this month and the end of next year — yielding around 16% in total returns including dividends, the investment bank said in its Singapore equity strategy outlook report on Tuesday. That performance will be driven by three factors: optimism around an economic recovery, growing tech presence in the city-state, as well as a potential rise in participation from both retail and institutional investors, Morgan Stanley analysts said in the report. "We see 2020 under-performers catching up in 2021 as the market factors in a return to normalcy," they said. The analysts picked five Singapore-listed stocks with the best prospects next year. Morgan Stanley's analysts said they favor "value stocks with a cyclical growth angle while remaining cautious on stocks with direct travel exposure." They added that sustainability could be another focus among investors next year, following the attention on tech this year. Here are the Singapore stocks on Morgan Stanley's "focus list": United Overseas Bank , Singapore's third-largest lender; City Developments , a property developer; Ascendas Real Estate Investment Trust (REIT) , with exposure to data centers and the logistics sector; Thai Beverage , a leading drinks producer in Asia; Keppel Corp , a Singapore conglomerate with presence in property, infrastructure, as well as offshore and marine. 'Goldilocks' backdrop Singapore and the rest of Asia (excluding Japan) are poised to enter into a "Goldilocks" phase in 2021, characterized by accelerating economic growth, rising but still-benign inflation, and accommodative monetary policy, said Morgan Stanley. The bank projected that Singapore's economy will grow by 7.4% next year, reversing an expected 5% contraction this year which were triggered by government measures that suppressed economic activity in order to contain the coronavirus pandemic Covid-19 cases have slowed to a trickle in Singapore and most economic activity has resumed. That, coupled with recent vaccine developments, will help boost investor confidence, said the bank. More investors may also be drawn to Singapore stocks given a growing presence of overseas tech companies setting up their bases in the city-state, Morgan Stanley analysts said. That could encourage growth of local tech companies, potentially leading to more tech listings, they said. Singapore is already home to regional headquarters of U.S. tech giants such as Google and Facebook , while Chinese firms Tencent and ByteDance have committed to doing the same, noted the analysts. In addition, there could be greater tech representation on the MSCI Singapore Index as foreign listings will become eligible for inclusion from May 2021, they said. The analysts pointed out that of the six major Singapore-incorporated companies listed overseas, four of them are tech firms: U.S.-listed Sea Ltd and Kulicke and Soffa Industries , as well as Hong Kong-listed gaming companies Razer and Igg . Their inclusion would bring the index's tech weightage — currently at 11% — more in line with the over 30% seen in global and developed markets' indexes, they said. That could help to attract investors to the Singapore stock market, said Morgan Stanley. The city-state's stocks are under-owned by active institutional investors, even though retail investors and passive funds have been buying more, it noted. Risks to outlook Morgan Stanley listed several factors that could affect its forecasts for Singapore stocks: Corporate restructuring activities among listed companies could "lead to substantial share price moves" that may affect the performance of the MSCI Singapore Index. Renewed U.S.-China trade tensions could hit economic growth in Singapore, even though further diversion of trade flows to Southeast Asia could in some ways benefit the city-state. Government policy changes given the "constantly evolving macro situation" could change the trajectory of corporate earnings. A sharp resurgence in Covid-19 cases could stall, or reverse, ongoing effort to reopen the Singapore economy. CNBC PRO subscribers can access live PRO Talks, including our Dec. 2 discussion on opportunities and risks in international markets.

People wearing protective masks walk along the Jubilee Bridge at the Marina Bay waterfront on June 7, 2020 in Singapore.

Suhaimi Abdullah | Getty Images

(This story is for CNBC PRO subscribers only.)

SINGAPORE — Singapore stocks have been among the worst performers in Asia-Pacific this year, but Morgan Stanley says there may be "time to catch up" in 2021.

The MSCI Singapore Index is forecast to climb by more than 10% between this month and the end of next year — yielding around 16% in total returns including dividends, the investment bank said in its Singapore equity strategy outlook report on Tuesday.

That performance will be driven by three factors: optimism around an economic recovery, growing tech presence in the city-state, as well as a potential rise in participation from both retail and institutional investors, Morgan Stanley analysts said in the report.

"We see 2020 under-performers catching up in 2021 as the market factors in a return to normalcy," they said. The analysts picked five Singapore-listed stocks with the best prospects next year.