Investors advised to hold defensive portfolio as STI movements remains erratic

Singapore's market is still defensive with its high yield and low valuation.

Investors are advised to be on the defensive as the Straits Times Index (STI) remains volatile given the uncertainties around China’s economic slowdown and the US interest rate outlook, RHB Group analyst, Shekhar Jaiswal said.

“We could see a re-rating in the equity market closer to the end of the year, supported by the services sector’s resilience, a likely pause in interest rate hikes, and manufacturing and exports sector revival. We continue to recommend investors hold a core defensive portfolio of higher quality companies or REITs that offer secular earnings growth and/or defensive dividends, with selective exposure to topical names and small-mid cap stocks that have strong earnings tailwinds,” Jaiswal said.

According to the research of the RHB Economics and Market Strategy team, they expect that the US Federal Reserve’s Federal Funds Rate (FFR) will rise to 5.50-5.75% with the balance of risks skewed towards a print of 5.75-6% in 2023. 

No FFR cuts are expected well into H1 2024. Meanwhile, retail sales momentum is expected to improve H2 2023, driven by seasonal factors such as the Formula 1 race, Black Friday sale, Single’s Day sale, and Christmas shopping, coupled with front-loading of consumer demand in response to higher GST rates in 2024. 

Jaiswal said investors should stick with industrial REITs as rotation into the REIT sector as in general, it will be time-sensitive. Investors should also take note of and invest in companies that are bound to benefit as Chinese tourists return to the ASEAN and Hong Kong regions.

Additionally, investors should also retain exposure to quality companies offering defensive earnings and/or dividends and buying into small and mid-cap companies with a strong growth outlook.