UOB Kayhian shares the consensus view that the Chinese economy will do reasonably well in 2H09 because of three reasons:
(1) Private sector investment will pick up in the coming months, as the booming property market will result in a supply shortage of new homes by the end of 2009.
Thus, property developers have been buying land more actively and new housing starts will soon rebound.
(2) Key leading indicators such as the Purchasing Manager Index (PMI) and Employer Survey Index suggest that the job market is improving.
Together with the positive wealth effect of the strong property and equity markets, private consumption should continue to improve in 2H09.
(3) Exports should stabilize and the economies of China’s major trading partners are likely to show a mild recovery.
Even if exports remain weak, the chances are high that China will make its 8% GDP growth given the strong investment and robust consumption.
OVERWEIGHT coal, consumer, fertilizer, gas distribution, insurance, metal, oil and gas and property sectors.
Credit Suisse “overweight” on Singapore
Following Credit Suisse’ upgrades in May (+1.9%) and June (+1.2%), consensus 12-month forward EPS has been revised up by another 1.8% so far in July. The latest upgrade was driven by across-the-board earnings upgrades for all sectors.
Consumer-related names (Jardine Cycle & Carriage and SPH) saw the biggest upgrades while telecom (SingTel) and property (CapitaLand) saw the smallest.
Stocks covered by Credit Suisse are trading at 17x 2009E and 14x 2010E P/E, versus projected earnings growth of -28% and +19%, respectively.
On a P/B basis, Singapore’s current P/B of 1.59x is just above the -1 Standard Deviation of 1.53x and below the five-year average of 1.87x.Heading back to the five-year average P/B implies an STI of 2,698 (+21%). This could materialize over the next 12 months, says the broker.
Top picks are SIA, SGX and UOB. Its least preferred names are COSCO, ST Engineering and SMRT.
