Equities market set to moderate in 2025 on US rate cuts

Experts predict interest rates to settle at 3.50-3.75% by end-2025.

Singapore's equities market will moderate in 2025 amid US rate cuts, experts said.

"The timing and size of the US Fed's interest rate decrease and the prospects for global economic growth will have a stronger influence on Singapore’s equities market," RHB economists said.

RHB economists underscored that the market is dominated by banks and real estate investment trusts, which are affected by rate cuts.

Additionally, banks hold a significant index weightage and contribute heavily to the Strait Times Index (STI) earnings.

RHB forecasts flattish bank earnings in 2025 as net interest margins (NIMs) narrow due to falling rates.

The experts, however, said improved loan growth momentum, healthy fees and normalisation of credit cost run rates will cushion the NIM squeeze.

Positive economic growth in Singapore should help mitigate the effects of the easing interest rate cycle on local banks, RHB added.

Unlike banks, REITs benefit from the easing of interest rates. RHB expects 2025 to be a better year for REITs than 2024.

"In the past cycles, S-REITs have witnessed sharp rallies during turning points in interest rates. The S-REITs’ performances have a high inverse correlation to risk-free rates, ie long-term treasury yields, with particularly high sensitivity at turning points of the cycle." RHB said.

"This was seen in 2012, 2016, and 4Q23 when the market saw interest rates easing, resulting in a 15-40% rebound in the sector," RHB added.

RHB, however, cautioned about share price volatility and short-term fluctuations driven by political and policy risks.

Still, RHB anticipates the S-REIT's distribution per unit (DPU) growth to turn positive in 2025 and accelerate further in 2026.

RHB expects all market sectors, except financial, to deliver earnings per share (EPS) growth in 2025.

The financial sector's EPS growth will turn positive in 2026, added RHB.

Sectors poised for strong 2025 growth include industrial, transportation, and utilities.

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