UBS boosts conviction in Singapore equities' bull market run

[SINGAPORE] The Singapore stock market's relatively late entry into bull territory could bode well for its staying power even as the rally in global equities starts to look a bit stretched.

The Straits Times Index entered a technical bull market Wednesday, climbing more than 20 per cent from its March 23 low. While the benchmark gauge is still down more than 15 per cent this year, bullish option bets and record flows in an exchange-traded fund tracking local stocks show sentiment is improving.

UBS Group became the latest fan of the South-east Asian nation's shares, upgrading its view to overweight in a report Thursday, citing the reopening of global economies, a recovery in oil prices, attractive valuations and the government's ability to contain the damage caused by the coronavirus pandemic.

Singapore stocks are "somewhat cyclical and should benefit from exports and/or oil prices recovering", said strategists led by Niall MacLeod. The valuations are also "attractive versus the region", the note added.

Global stocks climbed for eighth straight days through Wednesday on optimism for a quick economic recovery from the virus impact. Technical indicators and valuations are flashing warning signs, however, and the possibility of a second wave of infections poses a threat along with renewed US-China tensions and unrest in US cities.

Singapore's gross domestic product is expected to shrink 4 per cent to 7 per cent this year, its worst contraction since independence in 1965, as the pandemic pummels the economy. The Monetary Authority of Singapore has promised to provide sufficient liquidity, while the government has deployed stimulus of S$92.90 billion so far.

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The Singapore government has greater ability than many other nations to support its economy due to its reserves, the UBS strategists wrote in their note. "Therefore non-performing loan risks may be lower than elsewhere."

While the city-state struggles to flatten the curve of the coronavirus pandemic even as it reopens its economy, UBS said that the number of new cases "is slowing and looks manageable".

BLOOMBERG