Strategy

Strategy: UOBKH sees the STI being range bound in 1H16. Valuations are inexpensive but the 18% and 30% discounts to long-term mean PE and P/B valuations respectively look appropriate, given the mixed outlook and structurally weaker domestic growth prospects. The house sees end-16 target of 3,240 for the FSSTI.
The house also sees that any earnings recovery is more likely in 2H, near-term headwinds persist. It forecast 2016 market EPS growth of 8.2% yoy, but see potential downside. Consensus forecasts continue to trend down with a 5.4% EPS growth (-1.8ppt) after a lacklustre 3Q15 reporting season.

The house advocates buying on pullbacks when the VIX rises, as volatility remains elevated. Investors should also remain defensive.

UOBKH has the following picks. Large-cap BUYs include Ascott REIT, City Developments, DBS, First Resources, Raffles Medical, SATS, Singapore Post and SingTel. Mid-cap picks include Jumbo, Singapore O&G, Triyards and Wing Tai. SELL Nam Cheong, Sembcorp Marine and SIA Engineering.