Dividend-paying and other defensive stocks with sound balance sheets dominate analysts' shopping lists when asked what they would buy in the Singapore market now.
They said that in a downturn, investors have to pick companies with experienced management teams, sustainable earnings, and an ability to service their debt.
"Typically, companies use a downturn to clean up their balance sheets. Even if they report good results, nobody cares," said research house NRA Capital's executive chairman Kevin Scully.
"I'd look at survivability, gearing, cashflow, and interest cover, and reference that to the business outlook," he said.
Lai Yeu Huan, senior portfolio manager at fund house Nikko AM, said dividends are important in an environment where growth is tepid.
Mr Lai likes the telco and non-traditional real estate investment trust (Reit) space, such as healthcare and data centres. Other Reits also work for him.
"Retail is always defensive, some areas of industrials are defensive if you look at business parks, but areas like office are not. But having said that, office Reits have built in a slightly softer outlook for rents," he said.
OCBC Investment Research head Carmen Lee said that in a period of high volatility, she prefers to focus on companies with a good flow of orders, a healthy level of cash, a good management track record and a consistent and satisfactory level of dividend payouts.
Her preferred stocks include telco Singtel - a favourite among analysts interviewed - along with supermarket operator Sheng Siong, retail Reit Frasers Centrepoint Trust, and beverage firm Thai Beverage.
Stock markets around the world have plunged since the beginning of the year, with Singapore hit hard among ASEAN countries.
Markets are fretting that the sharp decline in oil prices and a China slowdown will impact Asia by spreading deflation. The STI is down another 9 per cent in January after a 14 per cent decline in 2015.
Due to the severity of the selldown, some analysts said valuations are now attractive.
"We believe the market is oversold and view the current weak conditions as a buying opportunity," said Kelvin Tay, regional chief investment officer at UBS Wealth Management.
There is a debate over whether banks are suitable investments in the current climate, where non performing loans (NPLs), especially to the beleaguered oil and gas and commodity sectors, are expected to spike.
Mr Tay likes them, noting they have fallen below book value and are trading at crisis valuations.
DBS is trading at over a 10 per cent discount to book due to worries over its exposure to the oil and gas and commodities sector.
Citi analysts are steering clear. "We are cautious on banks on concerns about a turning credit cycle and increased risks to asset quality," they said in a Jan 27 report.
NRA's Mr Scully said rising NPLs will more than offset a rise in net interest income due to higher rates.
"Banks probably got another 20 per cent downside," he said.
He also expects healthcare stocks, which are considered defensive and are trading at 30 to 40 times earnings, to come down to earth. The broader market is trading at just 10 times earnings, he said.
But he is watching blue chips Singtel, OCBC, Keppel Corp.
"These companies would probably have survived four to five downturns before. I'm looking for opportunities to buy good companies at distressed levels," Mr Scully said.
Apart from the defensive and dividend themes, the restructuring or reform theme also gets bandied around.
Nikko AM's Mr Lai said that restructuring in 2016 will be led by Temasek-linked entities.
"Either you position yourself in companies with non-core assets that need to be sold and value realised, or companies that could be privatised," he said.
UBS' Mr Tay said that as the global and domestic economy slows down further, the government could implement policy tweaks to support businesses.
"These include a reform of the land transport sector, a potential relaxation of property cooling measures, and a possible easing of immigration policies," he said.
"Such measures would benefit public transport operators, property developers and labour-intensive businesses such as the hospitality and the retail sectors."
This article was first published on February 2, 2016.
Get The Business Times for more stories.