Sinking Singapore stocks seen as bright spot on dividends

People walk outside the SGX stock exchange building in Singapore on June 13, 2018. (Photo by ROSLAN RAHMAN / AFP)        (Photo credit should read ROSLAN RAHMAN/AFP/Getty Images)
People walk outside the SGX stock exchange building in Singapore, June 13, 2018. (PHOTO: ROSLAN RAHMAN/AFP/Getty Images)

By Ishika Mookerjee, Yongchang Chin and Abhishek Vishnoi

(Bloomberg) -- Singapore’s stocks may be falling, but some investors say they’re still a bright spot in a global equity market marred by trade tensions and slowing economic growth.

The reason, they say, is the steady dividends paid out by much of the country’s benchmark gauge, which is filled with banks, telecommunication companies and real estate investment trusts.

The Straits Times Index has dropped almost 8% from a recent high on July 25, about twice as much as an index of global shares, as the city-state’s economy and company profits feel the impact of a trade war between its two largest trading partners. But the estimated 12-month forward dividend yield is among the highest in Asia, according to data compiled by Bloomberg.

“Banks, REITs and telcos have a big weight in Singapore’s index, so the overall market should be fine,” said Sat Duhra, who co-manages Asian dividend income strategy at Janus Henderson Investors. “Singapore should remain in the bunch of the highest-yielding markets in Asia.”

The Straits Times Index boasts an estimated 12-month forward dividend yield of 4.3%, the second-highest among major Asian equity markets after Australia, according to data compiled by Bloomberg.

DBS Group Holdings Ltd. Chief Investment Officer Hou Wey Fook recommends an overweight on Singapore stocks, especially REITs in the retail and industrial sector. He cites positive rental revision rates and growth in their distributions per unit, and notes that companies with a fixed dividend policy should offer more solace to investors.

REITs, which dole out much of their profit in dividends, have been a darling of investors. An index of Singapore-listed REITs has surged 17% this year and has an estimated 12-month forward dividend yield of 5.3%, data compiled by Bloomberg show.

To be sure, some analysts are worried that the slowing Singapore economy could hurt earnings, and hence the dividend prospects of some companies. Falling profits will probably decrease dividends, said Jarick Seet, head of Singapore small and mid-cap research at RHB Securities. Daryl Liew, head of portfolio management at Reyl & Cie. in Singapore, expects those downward pressures on dividends to persist until “macro concerns get resolved.”

But against a backdrop of lower interest rates globally, any weakness in the REIT sector should be seen as a buying opportunity, especially for industrial REITs, said Kieran Calder, head of Asia equity research at Union Bancaire Privee Ubp SA. Industrial REITs have the “best combination of size, yield and underlying earnings growth,” which can support an increase in distributions per unit, he said.

“Global monetary easing is back, so if the search for yield continues then Singapore’s REITs and the Straits Times Index should continue to find a bid,” Calder said.

© 2019 Bloomberg L.P.