SINGAPORE – Singapore’s markets are set to benefit from reopening the world and recovering from the pandemic, Nomura’s Chetan Seth said.
“We looked at Singapore constructively six or seven months ago,” said Seth, CNBC’s Asia-Pacific equity strategist, to Squawk Box Asia on Friday.
He said Singapore stocks may be among the best games for reflation, reopening, or cyclical recovery trading at the regional level. Nomura currently has a neutral reputation in the country’s market.
As of the end of Thursday, Singapore’s Straits Times index is up about 11% so far in 2021. In comparison, the FTSE Bursa Malaysia KLCI Index in Malaysia is down more than 6%, while the SET Composite Index in Thailand is up about 7.1%.
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Singapore banks would tend to do well if US 10-year yields rise, Seth said. Domestic yields tend to follow suit, creating yet another tailwind for lenders. This has helped fuel the country’s recent outperformance compared to its regional competitors, the strategist said.
But Seth said the road ahead was “a little difficult” and dependent on the outlook for US 10-year yields.
In March, the yield on ten-year US Treasuries surged to over 1.7% after the Federal Reserve announced that it would not raise interest rates or discontinue its bond purchase program anytime soon.
Yields have since fallen on concerns about inflation and slower growth. The 10-year government bond yield recently fell below 1.2% before recovering partially. Most recently it was 1.2816%. Returns move inversely with prices, so a decline in the former means investors are buying bonds and driving prices up.
Looking ahead, Seth said that Singapore’s banks can continue to do well if ten-year US Treasury bond yields return to 1.6% or 1.7%.
Outlook for Indonesia and Malaysia
Seth said Nomura is currently “underweight” Malaysian stocks as the structure of the country’s market is “not really conducive to sustainable outperformance”.
“If you look at the past year, Malaysia has been one of the toughest markets in Asia because parts of the market – let’s say glove manufacturers – have done very well,” he said. “That trade has reversed, right? I think that could continue to weigh on the overall market.”
Malaysia was one of the few markets in Southeast Asia to see growth in 2020. It did so when the stocks of glove manufacturers like Top Glove rose on the pandemic-induced surge in demand. The trend has now reversed. Top Glove’s Malaysian-listed shares are down more than 30% so far this year.
Turning to Indonesia, Seth said he likes the market in the medium term, but warned that the country’s Covid situation remains a short-term risk. In the past week, Indonesia reported the most new infections with Covid worldwide, according to the World Health Organization.
“We have to see the mood on this front improve a bit, but we like the story (Indonesia),” he said.
– CNBC’s Jeff Cox contributed to this report.