Published December 11, 2009

Great recovery in H1, great exit in H2: Citi

It predicts the STI hitting 3,250, then falling on stimulus withdrawals globally


THE latest Citi Corporate Securities Strategy report paints deeply contrasting scenarios for the earlier and later parts of 2010 for Singapore.

While the first part of 2010 is dubbed the 'Great Recovery', with over 10 per cent growth in gross domestic product expected in the first quarter, the reckoning for Singapore will begin in Q2 or Q3. year.

Citi analysts Chua Hak Bin and Ivan Lim reckon that the Straits Times Index will reach 3,250 in 2010.

'This represents a more modest return of about 15 per cent, after the spectacular over-90 per cent rally from the trough in March 2009,' they say in their latest report.

Most of the rally is expected to take place in early 2010, driven by global recovery, inventory restocking and continued accommodative fiscal and monetary policies.

'Our economics team is forecasting global GDP growth to recover to +3.2 per cent in 2010 from the -2.1 per cent contraction in 2009,' the report states.

For Singapore, Citi is forecasting GDP growth of 6.5 per cent in 2010, buoyed by manufacturing and trade-related services, as well as the boost to tourism from the opening of the two integrated resorts.

From the middle of 2010, however, the outlook becomes slightly more sombre, as what Citi calls the 'Great Exit' might stall the STI's rally.

Then, the Monetary Authority of Singapore (MAS) is expected to tighten its exchange rate policy against the backdrop of a global withdrawal of stimulus that is 'unprecedented' in scope and scale.

'Historically, the STI falls on average by about 6 per cent in three months and 13 per cent in six months after the MAS tightens its exchange rate policy to an appreciation stance. We expect the MAS to tighten policy at its next meeting in April 2010,' the report says.

Inflation might also be of some concern, with the report pointing out that, 'inflation may return quite strongly in early 2010, with HDB rentals, energy prices and car prices rising'.

'Going into 2010, we recommend overweighting financials, offshore marine and health care. We are underweight property developers and land transport; neutral on telcos, media and Reits.'

Citi bank analyst Robert Kong has made DBS Bank his top pick, while having a 'buy' rating on UOB and OCBC as well.

On the property front, Citi property analyst Wendy Koh remains cautious on developers, given the government's monitoring of rate increases in the mass markets.

She has a 'buy' rating on Allgreen but a 'sell' on CapitaLand, CDL, WingTai and Keppel Land.