Banking, transport and oil stocks may offer opportunities next year

SINGAPORE — Driven by the cross-currents from an uneven global economic recovery, the expected rise in United States interest rates and weak oil prices, the Singapore share market is headed for a volatile year in 2015, with analysts saying banking, oil-related and transport counters may offer good investment opportunities while property stocks will remain under pressure.

The benchmark Straits Times Index (STI) closed flat at 3,366.11 yesterday, taking the year-to-date gain to 6.4 per cent. DBS Vickers Securities analysts Janice Chua, Yeo Kee Yan, and Ling Lee Keng have a target of 3,600 for the STI by the end of next year, or an upside of about 7 per cent from the current level.

With the US economy expanding at a 5 per cent annual pace in the third quarter, the most in 11 years, expectations are rising that the Federal Reserve will start to raise its benchmark rate target by the middle of next year. Banking stocks in Singapore are expected to reap a bounty when this happens, with interest rates here moving broadly in line with those in the US.

“While the verdict is not out on the timing of rate hikes, this trend, if it happens, is positive for banks, which can price up loans faster than the rise in funding cost, pushing up the net interest margin,” the DBS Vickers analysts said.

Airline and land transport stocks also stand to benefit from falling oil prices as the lower costs will have a positive impact on earnings.

“Given the substantial decline in oil prices since August, airlines can look forward to a better 2015 as fuel costs typically account for 40 per cent to 50 per cent of total operating costs,” the DBS Vickers analysts said.

“Although most of the lower costs would be offset by hedging costs … airlines should also see their earnings improve substantially given the razor-thin margins in this segment … We (also) expect land transport operators to benefit from the recent decline in oil prices, resulting in lower diesel and electricity prices,” they added.

Phillips Futures analysts were less upbeat, penciling in a 3,480 target for the STI, just 3.4 per cent above the current level.

Mr Howie Lee, investment analyst at Phillips Futures, said: “We are prudent about the overall performance for STI for next year, as we see more downside than upside factors affecting it. We don’t see any fundamental economic catalyst pushing the increase in performance.”

“The property sector will remain sluggish. We foresee a high mortgage rate in Singapore due to a hike in US interest rates. The performance of the sector will be governed by government policies. If there are no policies to push the sector, it will continue to remain sluggish.”

However, he added: “3,600 will be a possible price target for the STI if elections are held next year and government policies affect and push the price target higher.”

Mr Daniel Ang, also an analyst at Phillips Futures, said: “Overall, the business outlook for Singapore will also be affected by the global economic slowdown next year.” While the US economy has surged, the growth in the eurozone, China and Japan are expected to slow.

Nonetheless, he said: “The most exciting industry to look at next year will be the oil industry and it will be a place with good investment opportunities.”

Global oil prices have nearly halved since June on a supply glut, with benchmark Brent crude down a further 2 per cent yesterday to US$56.74 a barrel in London, the lowest since May 2009.

Mr Ang said: “We expect the price of oil to reverse by the second quarter of next year. This is a good chance to purchase oil-related stocks, such as stocks from oil producers and oil-related services stocks that have been affected by the fallen oil prices.”