MSCI Singapore Free: Year-in-review

With less than three sessions left to the end of the year, we review the performance of the local 27-company MSCI Singapore Free Index, which is the underlying index for the Singapore Blue Chip on IG. 

Source: Bloomberg

A broad overview sees the index largely thriving in a sideway trade for the majority of the year.

At a year-to-date (YTD) return of -0.5% as of 29 December 2016, the MSCI Singapore Free index sits in the middle of the pack on the Asian equities report card. This pales in comparison to the Straits Times Index’s (STI) near neutral level. Outperformers in the region include Thailand’s SETi and Indonesia’s JCI with more than 10% gains YTD. Meanwhile Asia’s bedrock, China, saw its indices slump. The Shanghai Composite Index and Shenzhen CSI 300 Index were both seen with double digit losses, unable to recover from the crash at the beginning of the year.

Slowing economic growth in Singapore, with 2016 full-year growth expected to arrive at approximately 1.4% year-on-year (YoY) down from 2.0% YoY in 2015, coupled with a series of uncertainties have casted a shadow on the local bourse.

Sectoral breakdown finds positive YTD returns in the majority of sectors with the exception of the industrials, evidently still hard-pressed by the weak global and regional trade conditions in the year. Diving into the industrials, one would find the marine and offshore (M&O) sector weighing the heaviest upon the overall index. 

SG Sectors
Source: Bloomberg

2017 theme and picks

With 2017 shrouded by uncertainty, owing to the incoming US administration’s policies and the outlook for global trade, the market has not been particularly optimistic of the local bourse. The price-to-book, price-to-earnings and EV/EBITDA ratios, have all been expected to moderate by the end of 2017 according to Bloomberg consensus.

Against such a backdrop, light could still shine on the trade dependent Singapore. The main factors that could bring about growth to the local bourse include a projected improvement to US growth and a recovery for the M&O sector post the first OPEC agreement in 8 years to curb crude production. Due concerns should nevertheless be paid to trade relations between US and China as the Trump-administration steps into the oval office in January 2017.

An examination of Singapore’s top export destinations in the previous year finds the United States ranking forth while China and economies closely linked to the former, namely Hong Kong and Malaysia, making the top three. Although an all-out trade war between the two world powers is hardly the base case scenario, tensions have left emerging Asian bourses out cold in the equity rally. 

SG Top Export Destination 2015
Source: Bloomberg

As things stand, sectors including banks continue to be favoured on the reflation theme and higher interest rates that could drive earnings. REITs have also clearly appealed to the market in the defensive play as markets hunt for dividends in the slow growth environment, shrugging off concerns of higher interest rates on demand. These are the themes that could remain into the early part of 2017 before better clarity can be attained.

Singapore Free Constituents
Source: Bloomberg *Market consensus is derived by taking the most popular recommendation based on the response from analysts polled by Bloomberg.

Technical Analysis

An inverse head and shoulder pattern has clearly formed on the MSCI Singapore free index providing a bullish undertone for its outlook. Key support and resistance can be seen at 316.0 and 340.0 levels respectively and a clear breach of either could either undermine or reinforce the bullish trend.

Source: IG

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