Singapore Stocks Rally is Pricing in Virus Bottom, Citi Says

The recent surge in Singapore stocks from a bottom at the end of March suggests investors are starting to price in a post-coronavirus recovery, according to analysts with Citigroup Inc.

The Straits Times Index has climbed 17% since hitting its lowest level in more than a decade as recent economic indicators including exports and cargo volumes growth have begun to indicate a year-on-year bottom, Patrick Yau, analyst with Citi, said in a note to clients.

Singapore’s exportsunexpectedly surged in March from a low base in the previous year, with non-oil domestic exports climbing 17.6%, the highest since October 2017, according to data published by Enterprise Singapore.

“A bottoming of activity indicators during SARS in 2003 marked the STI’s bottom,” Yau said. A lifting of stay-home measures targeted for later in April and early May “would imply that activity metrics would essentially bottom.”

Yau has a bottom-up target of 2,771 for the Singapore benchmark, implying about 6% upside from current levels, without specifying a time frame. The index fell to trade at around 0.8 times its book value in late March, the lowest ever. The STI was little changed Monday.

While negative news is baked into expectations at this point, Singapore isn’t out of the woods yet as Yau sees continued downside for earnings this year while dividends remain at risk. The global nature of the coronavirus outbreak also suggests continued risks for Singapore’s trade and open economy. Hin Leong Trading (Pte) Ltd., one of the biggest oil traders in the city-state filed forcourt protection from creditors on Friday as it struggles to repay debts.

“An environment of business failures will keep financial conditions tough,” he said.

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