Singapore Stocks Are Best Rated in Asia, Merrill Lynch Says

By Chen Shiyin

Aug. 11 (Bloomberg) -- Singapore stocks are most favored to gain in Asia as the economy sustains its expansion and the currency strengthens, Merrill Lynch & Co. said. Credit Suisse Group disagrees, downgrading the market to ``underweight.''

Merrill raised the weighting for Singapore equities in its model portfolio to 7.9 percent from 4.7 percent previously, strategists led by Mark Matthews wrote in a report today. That's higher than the market's 5.3 percent representation on the MSCI Asia-Pacific excluding Japan Index and the most ``overweight'' among 12 regional markets, the brokerage said.

The Straits Times Index has dropped 18 percent this year, outperforming a 23 percent retreat in the MSCI regional index. The city-state's economy is forecast by the government to grow by between 4 percent and 5 percent this year, after expanding 7.7 percent in 2007, while its currency has climbed 5 percent against the U.S. dollar in 2008.

``Singapore offers First World governance for emerging market growth,'' Merrill's report said today. ``Monetary policy is conducted through the currency, which we expect to appreciate versus the U.S. dollar by 4 percent between now and the end of the year.''

That's not enough to attract Credit Suisse analyst Sean Quek, who today cut his rating on the market to ``underweight' from ``overweight,'' saying that valuations are no longer attractive.

The Straits Times Index is valued at about 14 times current-year earnings, the highest in Asia, excluding Japan, after China, Hong Kong and India. Singapore's exports will fall this year for the first time since 2001, the island's trade promotion agency said today, reversing an earlier estimate that exports will grow by between 2 percent and 4 percent. Shipments fell 2.4 percent in the first half of 2008.

United Overseas Bank Ltd., Singapore Telecommunications Ltd., StarHub Ltd., CDL Hospitality Trusts, Singapore Technologies Engineering Ltd., CapitaCommercial Trust and Ascott Residence Trust are among companies rated ``buy'' by Merrill.

To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net