RBS downgrades Singapore to Underweight from Overweight, saying it sees limited upside for the market. It notes financials account for 44% of Singapore's market cap, and expects this space "to experience substantial headwinds" going forward as "the recent slew of policy tightening measures (in the property space), coupled with new supply and rising unemployment, should trigger a pullback in property stocks, which would be negative for the associated banking sector."
From a valuation standpoint, RBS says Singapore actually looks inexpensive (MSCI Singapore is trading at 12.3X 12-month forward P/E vs its peak at 18.3X in July 2009). However, given the government's stance in capping further property price gains, it believes the domestic property sector is poised to trade lower. "Such policy moves, when coinciding with a weakening economy and further retrenchments on the employment front, should bring about price declines in the physical market as well as the associated equities. In turn, this would be a major drag on loan growth in the banking space."
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