July 26, 2021: -On Friday, Singapore’s markets look set to benefit as the world has lifted the lockdown and is recovering from the pandemic, according to Nomura’s Chetan Seth.
“We turned constructive on Singapore six, seven months ago,” Seth, Asia-Pacific equity strategist at the firm, told CNBC.
He said Singapore stocks are among the best plays for the reflation, reopening, or recovering trade regionally. Nomura has a neutral call on the country’s market currently.
On Thursday, the Straits Times index in Singapore has risen about 11% so far in 2021. The FTSE Bursa Malaysia KLCI Index in Malaysia has declined by over 6%, while the SET Composite index in Thailand has increased about 7.1%.
Banks in Singapore tend to do well when U.S. 10-year yields rise, Seth said. Domestic works tend to follow, which turned into another tailwind for lenders. This has helped drive the recent outperformance of the country compared with its regional peers, said the strategist.
But Seth said the further road is “a bit tricky” and dependent on the outlook for 10-year yields of the U.S.
In March, the U.S. 10-year Treasury yield increased above 1.7% after the Federal Reserve said it is not planning to increase interest rates anytime soon nor taper its bond-buying program.
Yields have since fallen between concerns regarding inflation and slower growth. The 10-year Treasury yield recently fell below 1.2% before seeing a partial recovery. It last sat at 1.2816%. Yields move to prices inversely, so a decline in the former means investors are buying bonds and pushing prices up.
Looking ahead, Seth said Singapore’s banks could continue to do well if the U.S. 10-year Treasury yield returns to 1.6% or 1.7%.
Seth said Nomura is “underweight” on Malaysian stocks as the structure of the country’s market is “not conducive to sustain outperformance.”
Malaysia was one of the few markets in Southeast Asia that saw growth in 2020. That came as shares of glove makers like Top Glove surged due to pandemic-driven spike in demand. The trend has since reversed. Malaysia-listed shares of Top Glove have tumbled over 30% so far this year.
Looking at Indonesia, Seth said he liked the market over the medium term but warned that the Covid situation of the country remained a near-term risk. Last week, Indonesia reported the newest Covid infections globally, according to the World Health Organization.