Singapore companies' earnings could jump 14% in 2018: Morgan Stanley

An equity strategist forecasted that he added that it could grow further by 10% in 2019.

Singapore, up 4% year to date, offers the highest earnings growth in Asia for 2018 at 14%, Morgan Stanley equity strategist Sean Gardiner said in a report. He added that it could grow further by 10% in 2019, which can help nudge up multiples to 13.5x over the next three to six months.

Gardiner noted that Singapore has outperformed MSCI AxJ by 320bps year to date. "We think outperformance can continue through year-end since earnings growth remains solid. We acknowledge that NTM earnings growth is currently peaking. But we think with a further 9-10% growth to come in both 2019 and 2020 the market can show further multiple expansion. Another driver to support an uptick in P/E from current levels is improving RoE – we see this rising from 8.5% for the market in 2017 to 10.5% by 2020," he added.

Singapore remains highly geared into what is still an improving global GDP backdrop for 2018, he added. "This suggests we could continue to be positively surprised on some of the high-frequency data points through year-end. Importantly, that could feed into bank earnings from a loan growth perspective."

Morgan Stanley considered stocks of banks, real estate firms, and industrials overweight, whilst telcos and staples underweight. Banks are bolstered by "improving loan growth, rising NIM, and cleaned loan books," real estate firms are experiencing "a skew towards developers as the residential recovery continues," and industrials are "on a cyclical rebound in order books as oil prices remain elevated."

Meanwhile, telco stocks are considered underweight due to "new mobile competition" and staples "which is essentially agricultural businesses in Singapore," it said.