(SINGAPORE) Researchers at a US bank have gone out on a limb by recommending investors to 'sell Singapore' and put their money into Taiwan.

Singapore is now an expensive market, says the strategy report from Citigroup Research - which runs starkly counter to the market consensus and demonstrates a sudden about-turn in the bank's own view. The recommendation follows three years of 'double overweight' by the US research house.

Markus Rosgen, Citi's chief Asia strategist, said in the 19-page report dated June 24 that it is time to take Singapore to underweight.

'Singapore has many things going for it; the equity market is not one of them,' Mr Rosgen said.

'The price to book value (P/BV) is now the highest it has ever been since 1990. We have enjoyed the ride; it's time to get off,' he said, adding that Singapore is also expensive on asset and cashflow basis.

Instead, he is calling a 'buy' on Taiwan, where the market sentiment is the worst in the region.

'Relative to the region, valuations have hit levels only seen in crisis periods. Finally, this market has about as much momentum as a sloth. This is a value, not momentum, play,' he said.

Singapore stocks yesterday finished sharply lower, the victims of a triple whammy involving Wall Street's Friday woes, slides in Hong Kong and China, and Citigroup's 'sell Singapore, buy Taiwan' recommendation.

The Straits Times Index, which until mid-afternoon exhibited stubborn resistance to the selling pressure, finally gave in during the final two hours, ending 35.05 points lower at 3,580.33.

Elsewhere, regional bourses including Tokyo, Hong Kong, Kuala Lumpur, Shanghai and Shenzhen also traded lower.

Citigroup reduced DBS, SPH and StarHub's weightage in its model Asia ex-Japan portfolio, and removed Parkway and ComfortDelgro.

It also decreased the underweight of Taiwan's TSMC and Acer - both in the technology sector - and added Far Eastone and Formosa Plastics to the portfolio. The Singapore market is still set to grow, but will grow less relative to Taiwan's, the report suggests.

Overall, Taiwan and Korea were overweighted in its portfolio while South-east Asia was underweighted.

Mr Rosgen noted that unlike Taiwan, market sentiment in Singapore 'is not only through the roof but beyond the clouds' and 'is now approaching levels last seen in the great Asian bull run of 1993-94'.

'Since 1995, it has always paid to go against the consensus asset allocation. We believe this will be the case again this year,' he said. 'It pays to buy into markets when no one likes them and sell those markets that are in the spotlight.'

Indeed, since June 1995, following the consensus on Asian equity investment has led to underperforming the benchmark by 3.9 per cent, while going against the grain has led to an outperformance of 21.1 per cent.

Over the last three years, Citigroup had favoured Singapore because it was cheap, had poor sentiment but offered a high risk reward. In the post-Sars period, Singapore, with its proactive corporate sector, also showed strong reflationary benefits.

'To this day, Singapore Inc remains one of the few places where corporates have leveraged up their balance sheet and the fact of returning cash to shareholders does not send the CFO in to apoplexy. However, we believe that at this stage much of the good news is in the price,' Mr Rosgen said.

At a multiple of 2.6, Singapore's price/book value (P/BV) is its highest in 17 years.

Citigroup analysts predict that, based on P/BV data since 1990, buying Singapore at its current multiple would lead to losses 100 per cent of the time in the next three, six, nine and 12 months.

In contrast, Taiwan's P/BV is at 2.2. The probability of positive returns on Taiwan is 44 per cent, 47 per cent, 51 per cent and 50 per cent in the next three, six, nine and 12 months. These figures can be compared to Asia as a whole, where the probability of negative returns is 54 per cent, 69 per cent, 92 per cent and 85 per cent over the next three, six, nine and 12 months.

While Taiwan's cross-strait relations with China have been a source of market disappointment, Citigroup analysts believe politics 'will either be viewed as a non-event, or actually a positive catalyst for the market'.

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