Brighter outlook soon for Singapore market

SINGAPORE - The Singapore market has so far suffered heavier losses than some of its Asian peers in the market selldown, but that could change soon, said Credit Suisse.

The benchmark Straits Times Index (STI) slid below the key 3,000-point mark earlier last week for the first time since November 2012. It staged a mild rally last Thursday and Friday, before closing the week at 3,013.14.

So far this year, the STI is down nearly 5 per cent.

Several blue chips here, such as OCBC, City Developments, the Singapore Exchange and Sembcorp Marine, have hit their lowest levels in a year last week.

Analysts noted that the local market's fall so far this year has been more pronounced compared with the performance of its regional peers in Indonesia (up 4.5 per cent for the year), Thailand (down 0.2 per cent) and Malaysia (down 3.1 per cent).

"Contrary to expectations of it being a defensive market, the STI has fallen the most among the large ASEAN markets, even on a currency adjusted basis, and is at a 12-month low," noted Credit Suisse research analyst Sanjay Mookim.

The STI had led the region in previous declines, most recently in the emerging market crisis in May last year. However, it then did better as other markets fell subsequently, he noted. This pattern was observed near the beginning of the global financial crisis as well in late 2007.

This "leading" behaviour has been blamed on the relative ease of short-selling - selling a stock one does not own in order to profit from a price fall - in Singapore, he observed. Short sales - as a percentage of total turnover - are currently at levels close to their one-year high.

Another factor is the negative correlation between the yields of United States 10-year bonds and the excess returns in Thai, Indonesian and Philippine stocks over Singapore and Malaysian equities. These bond yields have been falling of late, possibly explaining the STI's underperformance so far this year.

But Credit Suisse believes the trend could reverse soon, with the STI set to perform more strongly than its peers.

It expects US 10-year bond yields to rise through the year as the US Federal Reserve reduces purchases and the economy improves.

"If the emerging market crisis escalates, other ASEAN markets could face greater risk. If not, Singapore should bounce back," said Mr Mookim.

The potential near-term rally in Singapore stocks could benefit counters recently battered by the selldown, including CapitaMalls Asia, Noble, Sembcorp Marine, OCBC, Genting Singapore, Wilmar, Keppel Corp, Singapore Airlines and CapitaLand. These have all fallen more than the overall market so far this year.

Credit Suisse's top picks among the large listed firms here are DBS Group Holdings, despite its robust share performance, Keppel Corp for its valuation and order inflow, and CapitaMalls Asia and CapitaLand, owing to an improving return on equity outlook and valuations. M1 and Osim remain its top mid-cap picks, despite their recent outperformance.

Other research analysts believe the Singapore market is becoming more attractively valued, given the current selldown. Deutsche Bank's Mr Joe Liew noted that the sell-off in Singapore has been led by the property, plantations and banking sectors.

He noted: "We believe that January's selloff was driven predominantly by non-quantitative easing concerns."

Deutsche said the worst-hit stocks within its coverage included CapitaMalls Asia, Sembcorp Marine, OCBC, Genting Singapore and Wilmar, all of which have tanked more than 9 per cent in the year to date.

Its top-five buy picks here are ComfortDelGro, DBS, Genting Singapore, Golden Agri-Resources and Yangzijiang.

The bank said Genting was the "poorest performer" among its key picks, having slumped around 10 per cent so far this year. The counter could gain from an improving China macroeconomic outlook as 50 per cent to 60 per cent of its high rollers come from China and Hong Kong, as well as potentially positive news from Japan.

As for palm oil giant Golden Agri, Deutsche believes its recent sluggishness is caused by a seasonal weakness in crude palm oil prices. It expects a rebound in the second quarter, and anticipates improving margins on slower rises in production costs.

In ComfortDelGro's case, the stock could gain from a potential change in its bus business model here in the next two to three years, while its rail profitability should improve over time.

The broker noted that DBS has the least exposure among its peers to an ASEAN slowdown and a higher exposure to China.

Yangzijiang has been capturing market share during the current industry consolidation and has been promising new order flow momentum, it added.

alfoo@sph.com.sg

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