Stocks headed for moderate growth: S&P

Published February 8, 2006

Market has priced in upside from integrated resorts
BT
By MICHELLE QUAH

AFTER a reasonably strong 2005, Singapore stocks are likely to experience more moderate growth in 2006, with upside from the development of two integrated resorts already priced in by the market, says ratings agency Standard & Poor's.

S&P says Singapore stands to become a world leader in wealth management this year

In terms of credit quality, S&P reckons the strong market positions and solid financial profiles of rated companies means they will continue on a path of steady improvement this year.

In its 2006 Asia-Pacific Financial Markets Outlook released yesterday, the ratings agency says that valuations for the market in general - and the banking sector in particular - have already discounted much of the anticipated improvement in the general business environment.

It expects moderate growth in banking-sector earnings, with improved net interest income and margins partly offset by rising cost pressure, as well as the tapering-off of loan recoveries and provision write-backs.

'The development of two casinos in the city-state continues to be a sentiment driver,' says S&P equity research director Sharon Wong. 'However, the full impact of the casino developments will only be seen in the medium term.'

According to S&P, local property stocks have already largely priced-in the positive news related to the integrated resorts - namely, a stronger take-up of residential units, a rental recovery in the retail and office sub-sectors and development opportunities.

What could provide a real kicker to the property sector this year is if there is a strong recovery in the mass residential market - over and above the expected healthy interest in new project launches in prime areas.

Otherwise, interest in the Singapore property sector will have to stem from more real estate investment trust (Reit) listings, S&P says. It notes that Reits outperformed last year, driven by a slew of domestic acquisitions.

But with limited surplus assets to acquire in Singapore, additional acquisitions will have to come from overseas, and this could be met with mixed reviews, S&P says, causing it to take a more cautious stance on the sector.
In terms of credit markets, S&P believes the outlook for Singapore companies is likely to be one of modest growth this year, affected by how they respond to the challenges of an increasingly competitive and saturated market.

The banking industry, in particular - while sound and stable - must continue to look overseas for opportunities, S&P believes.

'The pressure to expand into the region is strong for Singapore's homegrown banks,' says S&P ratings services credit analyst Adrian Chee. 'It is in this area that they may face risks, depending on how aggressively they pursue strategic acquisitions.'

But there is potential for strong domestic growth in wealth management - an area Singapore banks are already focusing on. A recent BT report said the wealth management headcount at leading private banks here surged 15-50 per cent last year, with further growth in the mid-teens expected this year.

The report said Singapore is growing in importance as an international wealth management hub - buoyed by a wealth explosion in the region where, increasingly, Asians are comfortable with having their assets managed in their own backyard rather than in Europe.

S&P agrees with this view, saying Singapore stands to become a world leader in wealth management this year - which should provide additional income for banks.

Banks aside, corporations pursuing wider growth opportunities in the region face additional risk, S&P warns. 'Corporates that generate substantial cash flow from trades and investments across Asia often finance that expansion with significant bank financing,' says another credit analyst at S&P ratings services, Greg Pau.