THE likes of the Covid-19 pandemic, rising inflation levels and the ongoing war between Russia and Ukraine have contributed to a dour market landscape for investors, but RHB analysts said certain sectors in Singapore like consumer spending, construction, tech and certain commodities, warrant a closer look as the world gets back on the recovery track. 

 

Speaking at the launch of the brokerage&rsquo s Top 20 Singapore Small Cap Companies Jewels for 2022, RHB Investment Bank&rsquo s chief executive Ganesh Sabaratnam said the global economic landscape remains challenging, and many central banks around the world are &ldquo treading a fine line&rdquo between managing inflation levels and maintaining economic growth. 

 

&ldquo Despite a more challenging market environment, small cap companies are able to remain ahead of the curve by being quicker in leveraging any opportunities,&rdquo said Sabaratnam, noting that larger companies are not as &ldquo nimble&rdquo . 

 

The capabilities of smaller companies in South-east Asia has allowed them to be more adaptable in managing the fluid business environment and in &ldquo returning value to their investors&rdquo , he added. 

 

Certain themes are likely to underpin stock market performance across the region, RHB analysts said. These include the easing of pandemic-related restrictions, further developments on the Russia-Ukraine war, and supply chain disruptions. 

 

Alexander Chia, head of regional equity research at RHB, said that the &ldquo gradual normalisation of business conditions&rdquo have pushed investors to take a closer look at small-cap stocks.

 

He cited the &ldquo outperformance&rdquo of the FTSE Bursa Malaysia Small Cap Index over the past 3 calendar years, on the back of rising interest from institutional investors and &ldquo strong participation&rdquo from retail investors. 

 

&ldquo The valuation discount (of small-cap stocks) to the big caps, and better earnings prospects, are also important factors,&rdquo said Chia. 

 

For the Singapore stock market, RHB analysts stressed that consumer spending and tourism will continue to pick up as more people get vaccinated and worldwide travel resumes. Companies such as G.H.Y. Culture & Media, Delfi, and Hotel Grand Central will be beneficiaries, they said.

 

Consumer stocks make up the largest portion of the brokerage&rsquo s local top picks for 2022, or 30 per cent. Reits constitute 20 per cent, while oil and gas (O& G) and tech each take up 15 per cent of the top buys. 

 

Although soaring commodity prices and the volatile crude oil market might have dampened investor sentiment, analysts were quick to warn that higher oil prices could give the industry a lift, particularly for O& G companies that are further down the supply chain.  

 

The brokerage is more optimistic on Sembcorp Marine, especially in light of the counter&rsquo s merger with Keppel Offshore and Marine and the group&rsquo s pivot towards green projects. 

 

Construction is also another area to watch, as activities in the sector could see a boost from backlog orders and delayed public projects. Stocks like BRC Asia and Pan-United Corp could be proxies to the recovery, said RHB analysts.  

 

Among Reits, RHB analysts are upbeat on the potential of Daiwa House Logistics Trust, given its exposure to the &ldquo stable and growing&rdquo Japan logistics market. 

 

Meanwhile, Prime US Reit has also been identified by analysts as a &ldquo high-yield proxy&rdquo to the rebound of the office sector in the US. The Reit&rsquo s healthy balance sheet also gives it sufficient room for acquisitions, analysts noted. 

 

On the flipside, investors looking at the Straits Times Index (STI) might be better off putting their money in small-cap stocks in the second half of the year. 

 

Head of equity research at RHB Singapore Shekhar Jaiswal said that while he is confident that the benchmark index will deliver positive returns this year, an upward move will be &ldquo a slow grind&rdquo .

 

&ldquo With the expectation of GDP growth slowing in coming quarters amidst rising downside risks, the STI&rsquo s returns for the rest of 2022 could be stuck in the mid- to low-single digits,&rdquo he added.