LOCAL stocks are in for a tepid second half-year as the market braces itself for a hike in United States interest rates, a top Standard Chartered analyst has warned.
But Mr Steve Brice, the bank's chief investment strategist for group wealth management, sees good investing opportunities in the local banks.
Overall, Mr Brice gave Singapore equities an "underweight" rating during his market outlook briefing yesterday. "A weaker earnings outlook is an issue, and valuations are also not compelling," he said. "Historically the interest rate hike cycle is not positive for Singapore equities, save a few areas. We'll be watching closely whether the Straits Times Index can hold above 3,300, which will be a good sign for the short term. But we are not going to see a bull market for some time."
The index closed 0.04 per cent lower yesterday at 3,349.87 points.
The US Federal Reserve is expected to raise the benchmark interest rate from its near-zero level in the coming months. The rise this year will likely be 25 basis points, Mr Brice said.
But there are still bright spots to note in the local market against this backdrop, he noted, including banking and property plays.
"One area that we like is Singapore banks, which should benefit from rising interest rates. Property developers are also a potential area to look at, even though their turnaround point is hard to pinpoint. They've been weak in recent times, so valuations are quite cheap," he said.
"We will be looking at the easing of property market restrictions but, without confirmation it can happen in the short term, people should look at the sector with a three-to-five-year view."
Singapore's mixed equity outlook is part of the global uncertainties highlighted by Standard Chartered, which expects a 42 per cent probability for a 5 per cent to 10 per cent pullback in global equities for the next three months.
However, the bank is still bullish on global equities in the second half as its analysis of previous rate-hike cycles showed all major markets would typically rebound three months after a hike.
In Asia, the Chinese markets have yet to see the end of their strong run. "The onshore A- shares aren't cheap any more, but valuations are nothing like the heights in 2007... and we do believe the authorities will continue to stimulate (the economy)," he said, citing China's decision yesterday to remove the loan-to-deposit ratio for commercial banks as the latest example. "The Chinese authorities are not really averse to the equity bull market because it helps them in their focus on deleveraging the corporate sector. So for now, we think A-shares will still go up. But volatility... will also be quite high."
Due to the high risk involved, Standard Chartered prefers the offshore, H-share market in Hong Kong, where risk reward is more enticing as stocks there are trading at a significant discount.