Opportune time to accumulate high-quality Singapore blue chips: OCBC

Singapore banks’ high dividend yields will provide price support.

Although Singapore equities have been sold down in the last two weeks and are set to head into the third straight month of declines, this is broadly in line with most of the equity markets, OCBC Investment Research analyst Carmen Lee notes in her Oct 25 report.

The benchmark Straits Times Index (STI) was down 4.2% in August, 0.5% in September and is now down 4.2% so far in October. Since the start of the conflict in the Middle East on Oct 7, the STI has shed 2.9%, Lee points out.

Sector wise, the worst Singapore-listed performers were energy (down 7.8%), industrials (down 6.9%), basic materials (down 5.8%), healthcare (down 5.1%) and consumer discretionary (down 4.8%). Interestingly, the financials sector was only down 1.7%, outperforming the 2.9% decline for the Straits Times Index, Lee highlights.

While the outlook is uncertain, the underlying support for the market will come from the high dividend yield of the STI component stocks, Lee notes. This works out to an estimated average of 5.5% in 2023 and 5.8% in 2024 — still attractive even under the current weak market environment.

As such, she believes that the current weakness is an opportune time to accumulate high-quality Singapore blue chips for investors with a long-term investment timeframe. These investors can enjoy a steady stream of good dividend income while riding out the medium-term uncertainties.

Highlighting Singapore banks' resilience, Lee points out that DBS D05 traded within a narrow band from a low of $32.87 to a high of $34.20 or an average of $33.44. Within this trading band, the estimated dividend yield is around 6.0% to 6.2% — higher than the broader market of 5.5% for the STI, she adds.

“This is similarly the case for UOB U11. The stock traded within a narrow band, from a low of $27.56 to a high of $28.85 or an average of $28.12. Dividend yields ranged from 5.9% to 6.2% — again, this is higher than the dividend yield on the STI.”

To this end, Lee has an overweight on the Singapore banking sector, with “buys” on both DBS and UOB.

Meanwhile, high oil prices could dent the performances of oil-related sectors in Singapore. This includes companies which are highly dependent on oil consumption such as aviation, transportation and certain heavy industries. These companies are likely to see higher operating costs in the coming months if oil prices head higher, Lee says.

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