Since it is impossible to have an ideal stock offering all the key mega trends and still provide stability, good cash flow, dividend, etc., a more realistic approach in the current uncertain time is to focus on stock picks. The STI is currently trading at -1 SD for both P/B and PER. Historically, when the index was at these levels, during the Global Financial Crisis (GFC) and the Chinese stock market crash (2016), these also presented opportunities to accumulate stocks.
Banking stocks have performed well this year, up some 9% YTD at the high, as measured by the FTSE ST Financial Index (FSTFN). While share prices have come off and the index is now off the year’s high of 1112.15 in May 2018, we believe that most of the positive drivers are still intact despite current equity market softness. The outlook is definitely improving as the banking sector saw several quarters of improvement as allowances declined, NPLs plateaued and margins started to reverse up.