Investment opportunities in Singapore

As published in The Sunday Times on 26 June 2016

Carmen Lee
Head, OCBC Investment Research, OCBC Bank
Member of OCBC Wealth Panel

Explore local market trends, sentiments, forecast and potential stocks to invest in despite the global economic slowdown

WHILE the global market is generally lacklustre due to economic and policy uncertainties in key economies from China to the United States, the Singapore market has generally outperformed the rest in the region this year, backed by a core group of defensive and fundamentally strong companies. With the current outlook, OCBC is delving into the buying opportunities here.

Positive views on STI

After falling early in the year, Singapore's Straits Times Index (STI) rebounded strongly in April. With a valuation at 12.8 times earnings and an attractive average dividend yield of 4.0 per cent, STI stocks have become one of the investment themes in the local market.

Says OCBC Bank's head of Investment Research Carmen Lee: "At current level, the STI is still trading at fairly reasonable valuations with a price-to-book value ratio at 1.0. This brings valuation effectively to the same level seen during the 2011 European debt crisis and just slightly above the level seen during the 2009 Global Financial Crisis. We believe this is not warranted, and that current share prices have already discounted the less rosy economic outlook for the region, the Singapore economy and for Singapore listed companies."

Declines in global markets have generally been widespread as investor confidence took a beating due to the lack of economic slowdown, as well as earnings clarity and visibility. The STI fell about 4 per cent this year, but this is significantly better than the 10 to 20 per cent decline seen for most of the North Asian markets.

Apart from reasonably attractive valuations, other possible investment opportunities include the recent spate of privatisations and acquisitions, which reflects the undervaluation of Singapore listed stocks.

Says Ms Lee, an OCBC Wealth Panellist: "Some recent transactions included NOL, OSIM and Eu Yan Sang. At current market price, this opens up opportunities for cash-rich companies or companies with strong balance sheets, as well as financially strong key shareholders, to launch privatisation or takeover offers, usually at decent premiums to last traded prices. This trend is likely to continue to gather momentum and we expect more undervalued small-to-mid sized companies to attract potential buyers, not just from Singapore but also from the region."

Meanwhile, the ST Financial Index is down about 2 per cent for the year. It has also priced in the softer outlook for the region. "We believe that the economic fundamentals in Asia remain sound, although the softer outlook for China will act as a drag for the region", says Ms Lee.

Optimistic outlook for REITs

The key outperformers this year included the Real Estate Investment Trust (REIT) and the telecommunications sectors, up 9 per cent and 13 per cent, respectively. Both the REIT and the property sectors have performed well this year. "The property sector, as measured by the ST Real Estate Index, has gained some 13 per cent from this year's low to this year's high and is currently up 2 per cent year-to-date. It is trading at rather low price-to-book of 0.7 times", says Ms Lee.

REITs were the star performers

Oil price recovery

In terms of the oil sector, OCBC believes that the operating environment is likely to remain challenging due to the lack of order book visibility. In this context, some have restructured their operations to focus on other businesses and share prices have largely reflected most of the negatives in these sectors. "However, the recent recovery in oil price, from the lows of around US$26 (S$39) per barrel level or up some 80 per cent, should help to gradually revive orders in the oil and gas sector," she says.

Diversified portfolio

As the economic outlook remains cloudy, a diversified portfolio of quality stocks is preferred in this environment. OCBC suggests investors select quality stocks across different sectors ranging from high yielding defensive stocks to companies offering good earnings growth. Risks remain in the market, especially with political, economic, financial and policy uncertainties in several key economies, but share prices for most mid-to-big-cap Singapore stocks have corrected for most of the potential negatives in the market.

OCBC continues to favour a diversified pool of quality stocks including Ascendas REIT, CapitaLand, Frasers Centrepoint Trust, Keppel DC REIT, Sheng Siong Group, SingTel and Venture Corp. In addition, another good proxy to a diversified Singapore portfolio is via the LionGlobal Singapore Dividend Equity Fund, which holds a wide ranging portfolio of Singapore dividend yielding stocks and could appeal to investors looking for dividend yields.

In a nutshell

  • Singapore has outperformed the region
  • REITs were the star performers
  • Valuations are undemanding
  • Privatisation theme is gathering momentum
  • Oil has recovered from the lows
  • LionGlobal Singapore Dividend Equity Fund is a good proxy to holding a diversified Singapore portfolio

Investment recommendations

At OCBC Premier Banking, both customers and Premier Banking Relationship Managers have access to rich market information provided by the OCBC Wealth Panel. With over 200 years of collective investment experience, the Panel's insights are available to help guide customers' investment decisions.

Here are the bank's recommendations:

  • LionGlobal Singapore Dividend Equity Fund
  • Ascendas REIT, CapitaLand, Frasers Centrepoint Trust, Keppel DC REIT, Sheng Siong Group, SingTel and Venture Corp.