Top of the stocks for 2010??

How do you see 2010 panning out?

For the first time in history, Asia will unseat the United States as the largest global demand driver. The V-shaped recovery in recent months will slow down to exhibit more gradual growth by early this year due to both demand and supply constraints as well as monetary tightening policies.

Our Singapore economist expects 6 per cent growth this year. And our currency strategist sees the Singdollar strengthening to 1.34 against the US dollar from the current 1.39 by the end of the year.

We see the STI heading to around 3,000 in the first quarter of but a temporary top is seen in line with a potential peaking of year-on-year economic growth. Rate hike concerns could also start to weigh on the market, leading to a correction.

Temporary hiccups aside, we believe 2010 will be a year where equity markets will gradually grind higher, interrupted by periods of volatility. Our 12-month target for the STI is 3,200.

What are the sector/stock picks for 2010?

We favour oil and gas, and property stocks. We think that the cyclical backdrop for most commodities should be more favourable this year compared to last year, especially for energy and agriculture.

Our house view is for oil price to range between US$70 and US$90 per barrel, averaging at US$80. This means that at the current level of US$70, there is room for trading opportunities among the oil and gas plays.

We like Sembcorp Marine, Swiber and PEC for a potential resurgence in orders. We also like Ezra Holdings and Mermaid for their potential growth through acquisitions.

We prefer property stocks focused on the high-end market such as SC Global and Ho Bee over the mass market.

The reasons are the widening valuation gap between Singapore and Hong Kong high-end properties and the opening of the two integrated resorts.

In addition, the impact of policy risks affecting the high-end segment is lower and this segment is less sensitive to an expected rise in interest rates.

Among the real estate investment trusts (Reits), we favour the hospitality and retail sectors for their healthy organic and acquisition growth potential. The expected rise in tourist numbers with the opening of the integrated resorts is also an important plus point. We like Ascott Residential Trust and CDL Hospitality Trust.

What's your tip?

Be vigilant and selective because the easy money has been made. Still, this could be the start of Asia's decade and the long-term rising trend remains intact, interrupted by periods of volatility. Make use of corrections to accumulate. Buy on fear, sell when euphoric.

How do you see 2010 panning out?

Some of the key issues will be the pace and sustainability of the economic recovery. Overall, 2010 should still be a better year for growth, but as equities have already risen quite strongly last year, most of the positives have already been priced in. For the Straits Times Index (STI) to advance further, the upward movements will need to be supported by good earnings growth, and earnings in the first two quarters will be watched closely for guidance. There is a good chance for the STI to test the 3,000 level, but beyond that, earnings growth will need to come in to support price gains.

What are the sector/stock picks for 2010?

Several sectors are likely to continue to outperform. We continue to like the commodity, infrastructure and oil and gas sectors as earnings visibility for these sectors is good.

We also like the telecommunications sector for the defensive earnings and good dividend yields, and yield will remain a key focus in the present low interest rate environment. Our picks for 2010 are Ezra Holdings, Genting, Hyflux, Keppel Corp, Keppel Land, Midas Holdings, MobileOne, Noble Group, Olam International, Sembcorp Marine, Singapore Telecom, SMRT Corp, StarHub, UOL Group and Wilmar International.

What is your tip?

Invest in quality stocks. While the operating environment has improved, share prices and equity indices have more than doubled in most cases, pricing in most of the positive news. Therefore, any earnings disappointment could be a drag on share prices. While the global economy has bottomed, the recovery is still tentative and it is best to focus on quality companies, which are better placed to ride out any uncertainties.