Singapore may have suffered a bigger economic hit than most in the pandemic, but its recovery from such a low base means that the share market here is poised for bumper returns, said Swiss bank UBS.
"Singapore is one of our most preferred markets in large part because of its underperformance," said Ms Tan Min Lan, Asia-Pacific head of UBS Global Wealth Management's chief investment office.
She believes that valuations have already dropped to levels from where the market had bottomed out in earlier crises - such as the global financial meltdown in 2008.
Current market valuations suggest that the downturn has been priced in, even though the pandemic-induced recession is likely to be the deepest ever, she added in a virtual conference call yesterday.
Following the economic slump, the equity market's average earnings per share may drop by as much as 13 per cent this year, Ms Tan noted, but with the phased reopening of the economy, growth and earnings should both start to recover later this year.
Singapore ended a two-month-long circuit breaker on June 1 and is now set to enter its second phase of relaxing restrictions on mobility tomorrow.
Ms Tan expects company earnings to rebound to an average of about 15 per cent next year.
"With the reopening, some of the value markets that have been hurt very much like Singapore will likely play catch-up and there are opportunities for catch-up trades in the Singapore market," she said.
The wealth manager is advising its clients to invest in selective Singapore real estate investment trusts, telcos, land transport operators and banks - sectors that suffered the most from the lockdown and are now at historically cheap valuations.
UBS sees the recent renewed animosity between the United States and China as a risk for the whole of Asia.
"Because of the US-China tensions, every company will have to adopt the China-plus strategy, every company will have to think about diversification of their supply chain," said Ms Tan.
But supply chain diversification may end up benefiting Singapore, she noted.
"One of the things that Singapore has done well is the fact that it has demonstrated itself to be a rather reliable supplier throughout this crisis."
Even as Singapore locked down a large part of the economy to contain the virus, it continued to very specifically identify industries that are key to global supply chains and kept them open, she said.
"In that regard, Singapore has differentiated itself. So that is a plus and will probably count as companies look into strategies on how to diversify their supply chains."
For the Asia ex-Japan region as a whole, Ms Tan sees investment value in beneficiaries of consumption recovery such as the regional auto, consumer electronics, transportation, beverage and retail industries, as well as select casinos.
In the medium term, UBS prefers affordable growth stocks like leading technology platforms and quality cyclicals in the region's insurance and banking industries.
In the longer term, themes like China's intelligent infrastructure and Asean's tech-powered new economy are likely to get a boost from the pandemic.
"We see a lot of new opportunities due to Covid-19, such as sustainable investing by investors and governments, automation and robotics, fintech and healthcare," Ms Tan said.