As Singapore looks to go green by facilitating the green transition of businesses with better oversight, accountability and improving data quality, CGS-CIMB Research analysts Lim Siew Khee, Lock Mun Yee and Melvin Lim are focusing on companies with “good fundamentals” before going deeper into their environmental, social and governance (ESG) credentials.
The way the analysts see it, ESG scores should not be sole driver of a company’s performance.
“We are unable to find a consistent relationship where high ESG scores are the primary driver of price performance, with macro and business factors taking precedence,” they write. The analysts’ views are “based on the performance of our portfolio which comprises mainly of companies which score highly on ESG rankings, against the SGX ESG leaders index, and the broader Straits Times Index (FSSTI) index.”
“A review of external literature also acknowledges the current gaps in qualifying and the verification of ESG data, amidst a fragmented global reporting regime which raises concerns about the comparability of the data,” they add. “We believe the current downmarket will be a true test, given that highly-rated ESG stocks have ridden the bull market and have also benefitted from positive coverage, which could have contributed to their ‘outperformance’ previously.”
As such, the analysts are keeping ComfortDelGro (CDG), City Developments (CDL), DBS Group Holdings, Keppel Corporation and Sembcorp Industries on their list of top picks.
The analysts have also replaced Manulife US REIT (MUST) with Singapore Telecommunications (Singtel) and Singapore Technologies Engineering (ST Engineering).
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In their inaugural issue previously, the analysts selected three top large picks with market capitalisations of above US$3 billion ($4.17 billion), which are Keppel, DBS and CDL.
They had also chosen CDG, MUST and Sembcorp for their mid-large cap picks, while Ascott Residence Trust (ART), Boustead Singapore, Q&M Dental Group and Yangzijiang Shipbuilding were the four stocks to watch in terms of having the most upside potential in ESG.”
“Both portfolios comprising only our top picks, and all 10 picks, underperformed both the FSSTI and the Edge SG ESG Leaders Index (SGXSULE) through to February before turning the corner, thanks to Sembcorp and Keppel (rising energy prices for both), and CDL (hospitality up as global travel resumes),” the analysts write.
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Within their top 10 ESG companies listed on the Singapore Exchange (SGX), OCBC has moved up to 10th place following the delisting of CapitaLand Limited (now CapitaLand Investment or CLI).
CapitaLand had taken its development arm private and subsequently relisted its investment management arm under CLI.
“As the new entity starts to report its ESG data, we expect CLI to rejoin the list in the near future,” they say.
“In our most ‘upside potential from ESG factors’ list, we keep Boustead Singapore and Yangzijiang Shipbuilding, and replace ART and Q&M Dental Group with Pan United and UOL,” they add.
