Will Singapore stocks hit new highs? Insights from a top fund manager

In this edition of ‘Kopi-Gao: Outperforming Markets with Top Fund Managers’, we speak to Kenneth Tang, Senior Portfolio Manager of Asian Equity at Nikko Asset Management. 

Kenneth manages the Nikko AM Shenton Thrift Fund and co-manages the Nikko AM Singapore Dividend Equity Fund. 

According to data compiled by Bloomberg, the Nikko AM Shenton Thrift Fund has outperformed the Straits Times Index over the past 10 years. The fund returned about 20% to investors in the year to 30 November 2024, compared with 15% for the STI.

Kenneth shares his insights on the outlook for the Singapore stock market and the key factors to consider when investing in Singapore stocks.

Interview with Kenneth Tang, Senior Portfolio Manager of Asian Equity at Nikko Asset Management

What were the main drivers behind the Straits Times Index’s strong performance in 2024? Why did Singapore outperform markets like India and China?

The Singapore STI delivered a total return of 23.5% in 2024, outpacing India’s (SENSEX) and China’s (SHCOMP) market returns of 10.4% and 17.1% respectively (all in SGD). 

The primary driver behind these robust gains was better-than-expected earnings in 2024, particularly from sectors such as banking and industrials. 

Market bellwethers like DBS, Yangzijiang Shipbuilding and SATS produced healthy sustainable returns and positive growth surprises, which also showcased their resilience. 

These signals highlighted the overall strength of the Singapore market against a subdued global economic backdrop. Investor confidence was reinforced in 2024 as growth was matched by performance. 

Read more: 3 best-performing Singapore blue chip stocks in 2024

Is the strong performance of Singapore’s market in 2024 sustainable?

With Singapore posting a strong year with market return in excess of 20%, it is quite rare to see another consecutive year of strong returns in the double-digit percentage range. Not impossible but quite unlikely in our opinion. 

We stay constructive on the market outlook. Despite the market’s stellar performance in 2024, valuations remain reasonable. 

We stay constructive on the market outlook. Despite the market’s stellar performance in 2024, valuations remain reasonable. 

Singapore’s strong market performance in 2024 was primarily driven by earnings growth rather than price-to-earnings (PE) expansion. 

The Singapore market currently trades at the lower end of its valuation range of 11-15 times, suggesting that further upside is possible without the market becoming overvalued.

In addition, dividend yields remain attractive at around 5%, with growth supporting solid payouts.

The outlook for equities remains encouraging, particularly as interest rates have peaked and are expected to ease over the next 6 to 12 months. This environment provides a supportive backdrop for the equity market.

In addition, dividend yields remain attractive at around 5%, with growth supporting solid payouts.

What are some of the risks to look out for? 

In terms of risk, we believe most of the tail risk for Singapore lies on the macro front. 

With Trump’s US election win, we are wary of the external implications for Singapore given the country’s high dependency on global trade, which will likely face challenges from the president-elect’s more mercantilist* policies. 

The threat of new tariffs could dampen trade growth and impact Singapore’s broader macroeconomic performance. In addition, Asia could be hurt by a stronger US dollar, which may slow capital flows, drive interest rates higher and steepen yield curves.

The threat of new tariffs could dampen trade growth and impact Singapore’s broader macroeconomic performance. 

Still, Singapore may not be as affected as its Asian counterparts. 

Firstly, the country’s relatively small bilateral trade deficit with the US (as a net importer of US goods and services) suggests a lower likelihood of impact from additional tariffs. 

Secondly, Singapore continues to benefit from trade diversification and supply-chain relocation tailwinds from multinational corporations looking to diversify outside China, a trend we expect will continue even with Trump back in office. 

Finally, due to its trade-weighted policy, Singapore has a relatively high correlation with US interest rates, which will also grant the economy some resilience against these macroeconomic challenges.

*Mercantilism was the dominant economic system from the 16th century to the 18th century. It was based on the idea that a nation's wealth and power were best served by increasing exports and reducing imports.

Read more: Trump's tariff war heats up. What it means for investors?

Given challenges in the REITs sector, what factors should investors consider when looking at Singapore REITs in 2025?

Singapore REITs faced significant challenges especially in the second half of 2024 as concerns about global inflation and rising interest rates resurfaced. 

Consequently, we have maintained a cautious view of the sector for the past year. The pressure on REITs from elevated interest rates may be subsiding. 

While we remain cautious, we do continue to monitor a select group of REITs that have strong balance sheets and offer distribution per unit (DPU) growth opportunities from solid underlying demand and exposure to themes within our “New Singapore” narrative such as data centres and healthcare.

These REITs may offer opportunities in 2025, especially as the ongoing rate-cut cycle is likely to boost the sector’s future dividends and valuations.

We continue to monitor a select group of REITs that have strong balance sheets and offer distribution per unit (DPU) growth opportunities from solid underlying demand and exposure to themes within our “New Singapore” narrative such as data centres and healthcare.

The concept of “New Singapore” has been a key theme in the Singapore market. What is “New Singapore” and what are the most promising sectors within this vision that investors can watch out for in 2025?

We continue to support the “New Singapore” narrative as we head into 2025. 

First coined during the country’s 50th anniversary celebrations in 2015, the concept represents the future of the nation’s economy built on innovation, adaptability and global relevance. 

First coined during the country’s 50th anniversary celebrations in 2015, the concept represents the future of the nation’s economy built on innovation, adaptability and global relevance. 

It also embodies Singapore’s success in establishing itself as a key exporter to the world, as well as its role as a critical hub for financial and trade intermediation.

A cornerstone of Singapore’s success has been its service exports, particularly in sectors like financial services and transportation. 

As Asia’s premier wealth management hub and one of the region’s leading centres for logistics, trading and transportation, Singapore has evolved into a global centre of excellence. 

Today, the country accounts for 4% of global service exports and continues to thrive as a vital financial and trade conduit for the global economy.

Singapore’s success lies not only in its established service industries, but also in its continuous innovation. Singapore has grown from its early days as a trans-shipment port to a dynamic global service hub. 

The nation’s continued competitiveness depends on its ability to innovate and adapt, ensuring that it stays at the forefront of the global economy. 

We believe the service economy, represented by financial services and transportation, will continue to contain key sectors which offer high sustainable returns, positive fundamental change and growth. These sectors are critical for the market’s continued outperformance and the delivery of returns. 

We remain structurally positive on “New Singapore” stocks, which represent the country’s future economy. 

We remain structurally positive on “New Singapore” stocks, which represent the country’s future economy. 

Key sectors include financial services, renewable energy, technology, data, infrastructure/utilities and transportation. 

Can you share more about some of the key holdings in the Nikko AM Singapore Dividend Equity Fund?

Amongst our top 10 holdings, we own the 3 Singapore Banks, together with key holdings in Singapore Telecom, Sembcorp Industries and ST Engineering. 

Our largest holdings for the Nikko AM Singapore Dividend Fund are in DBS, UOB and OCBC, which represent what we call the dividend anchors for the portfolio: 

High and sustainable yielding dividend stocks which help anchor the bulk of returns of the Fund. 

Amongst the three banks, we are most constructive on UOB in 2025. 

UOB has a strong fundamental bottom-up story over next 1-2 years, from capital return, cost improvement (post Citi integration), net interest margin (NIM) support from consumer banking and the highest wealth management growth amongst the banks. In addition, it is also still priced below their sustainable return on equity (ROE). 

Amongst the three banks, we are most constructive on UOB in 2025. 

Singapore Telecom is also another dividend anchor in the Fund.  It pays an estimated 5% sustainable dividend supported by its internal cash flows. 

Special dividends or a meaningful buyback would represent a positive share price catalyst given the management's focus on shareholder value return. 

Also, the company is well positioned in data centre opportunities which will help secure future dividend growth for the company.

As for Sembcorp Industries, the company is one of ASEAN’s largest and fastest growing power generators, pivoting strongly towards energy transition and renewable energy. 

We like the company as we expect returns to continue improving with continued expansion in renewable energy and resilient performance from its conventional portfolio. 

The company recently revised renewable energy targets to more ambitious levels - aiming to double capacity by 2028, which we believe will help secure growth in the longer term.

How should one go about deciding between the Nikko AM Singapore Dividend Equity Fund and the Nikko AM Shenton Thrift Fund? 

The Nikko AM Singapore Dividend Fund is a dividend focused strategy and aligns to income portfolios. The Fund adopts a balanced approach of capital appreciation and dividend yield income to achieve a total return. 

We emphasise assessing the companies’ cashflow-generating ability and their track record in dividend payout when selecting securities for the portfolios. 

We emphasise assessing the companies’ cashflow-generating ability and their track record in dividend payout when selecting securities for the portfolios. 

Companies with high dividend payout and possess the potential for capital appreciation are the main criteria. 

The Fund typically holds a mix of both “Dividend Anchors” and “Dividend Growers” – which are companies with attractive income stream presently or anticipated to increase in the future. 

The Nikko AM Shenton Thrift Fund is an active Singapore strategy. Its primary objective is to outperform its benchmark. the Straits Times Index (STI). 

The Fund focuses on maximising medium to long term capital appreciation by investing in companies in Singapore. 

The Fund focuses on maximising medium to long term capital appreciation by investing in companies in Singapore. 

How can one choose between the two? Well, if one is dividend focused or income seeking, with a bias towards steady and stable stream of returns from dividends, the Nikko AM Singapore Dividend Equity Fund is designed for that. 

For the investor who is alpha seeking and has a primary focus on capital growth or appreciation within a Singapore centric universe, the Nikko AM Shenton Thrift Fund is more suitable. 

What’s one tip you can share with those looking to invest in Singapore stocks? 

Our investment philosophy is centred around 'Harnessing Change'. 

We seek out stocks that are driven by positive fundamental change and offer attractive, sustainable returns. 

A core principle guiding our approach is the pursuit of sustainable growth opportunities or growth moats across various industries. 

We believe that by focusing on companies with positive change and consistent growth potential, we can harness strong and sustainable returns. 

Our mantra is simple: Find growth, and you will find performance.

We believe that by focusing on companies with positive change and consistent growth potential, we can harness strong and sustainable returns. 

About Nikko AM Singapore Dividend Equity Fund

The Singapore Dividend Equity Fund is an award-winning fund with a proven track record of performance over the last decade, featuring good quality companies listed in Singapore that offer attractive and sustainable dividend payments with the potential for long-term capital appreciation.

Learn more about the Nikko AM Singapore Dividend Equity Fund here. 

About Nikko AM Shenton Thrift Fund

The Nikko AM Shenton Thrift Fund has a track record that spans over 30 years and offers investors exposure to growth opportunities found in the New Singapore which features sectors that represents the future economy of Singapore.

Learn more about the Nikko AM Shenton Thrift Fund here. 

About Nikko Asset Management 

With USD246.1 billion* under management, Nikko Asset Management is one of Asia’s largest asset managers, providing high-conviction, active fund management across a range of equity, fixed income, multi-asset and alternative strategies. In addition, its complementary range of passive strategies covers more than 20 indices and includes some of Asia’s leading exchange-traded funds (ETFs).

Headquartered in Asia since 1959, Nikko Asset Management and its subsidiaries employ personnel representing around 30 nationalities, including approximately 200 investment professionals**. 

The firm has a presence through subsidiaries or affiliates in a total of 11 countries and regions. More than 400 banks, brokers, financial advisors and life insurance companies around the world distribute the firm’s products.

For more information about Nikko Asset Management and to access its investment insights, please visit the firm’s homepage.

*  Consolidated assets under management and sub-advisory of Nikko Asset Management and its subsidiaries as of 30 Sept 2024.

**  Including employees of Nikko Asset Management and its subsidiaries as of 30 Sept 2024.

About Kopi-Gao: Generating Alpha with Top Fund Managers

Kopi-Gao is regular column by Beansprout that features conversations with professional fund managers, offering a rare glimpse into the strategic thinking and personal philosophies that drive the world of investment. These interviews are aimed at providing insights and actionable knowledge for individuals looking to understand the art and science of successful fund management in today's ever-evolving financial landscape.

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