Back with a bang. The integrated resort (IR) theme will make a strong comeback in 2H09 to differentiate Singapore from the rest of the region. Domestic plays will take centrestage as the opening of the IRs in end-09/1Q10 looms. Macau's and Las Vegas' experiences are clear examples of the far-reaching positive impact of mega IRs. Furthermore, Singapore will be among the first to recover from the current economic downturn given its small open economy. As evidenced during the Asian financial crisis, the Singapore stock market posted the sharpest rally of 78% in 1999, the first year of recovery, after South Korea's 83%. We are OVERWEIGHT on Singapore.

Property developers have more upside. In Macau's case, residential property prices shot up before the opening of Sands’ casinos and rose further by 30% within the first 18 months after the opening of the casinos. We expect foreign buyers to return to the Singapore residential property market. Property developers with a high exposure to this segment will benefit. Although property stocks are more than double their March lows, the property sector still offers 39% upside to its long-term P/B mean. We remain BUYers of property stocks. Our top picks are City Developments (CIT SP/BUY/Target: S$10.90) and Allgreen Properties (AG SP/BUY/Target: S$1.30).

Renewed investor interest in services plays. A recovery in tourist arrivals will benefit service segments such as hospitality, aviation, land transport, retail and healthcare. The media sector, usually a late-cycle play, will likely stage an early recovery as the IRs spur a recovery in advertising spending. We expect renewed investor interest in domestic services plays. Our stock picks are CDL Hospitality Trust (CDREIT/BUY/Target: S$1.24), SMRT Corporation (MRT/BUY/Target: S$1.86) and Singapore Press Holdings (SPH SP/BUY/Target: S$3.90).

We also favour early-cycle recovery plays. Banks and property stocks are favoured early-cycle economic recovery cyclicals. Real estate investment trusts (REIT) will offer good upside as credit returns, resulting in lower financing risks and fresh capital for acquisitions. If property developers continue their rally, REITs will play catch-up at some point. Among the banks, we favour DBS Group Holdings (DBS SP/BUY/Target: S$13.64). Our top pick among the REITs is Ascendas REIT (AREIT SP/BUY/Target: S$1.93).

Aviation remains our high-conviction UNDERWEIGHT. Singapore Airlines (SIA SP/SELL/Fair: S$9.80) remains our high-conviction SELL. The market has priced in an earnings recovery. We believe yields are unlikely to improve any time soon due to excess capacity in the airline industry, competition from low-cost carriers for back-end traffic and continued pressure for premium traffic.

FSSTI target: 2,800. Our end-09 FSSTI target of 2,800 is an average of our technical target of 2,680 and the FSSTI's implied fair valuation of 2,900 based on its long-term P/B mean of 1.76x.