Signs of a broader recovery in the global economy have led equity markets higher but yields and valuations of Singapore stocks continue to be attractive. Here's The Edge Singapore annual pick of 10 stocks to help you usher in a more prosperous Lunar New Year
SINGAPORE (Jan 17): At a recent presentation for wealth management clients organised by OCBC Bank, the attendees were polled on their preferred investment asset class for 2020. The results were certainly a delight to relationship managers, who thrive on clients’ transactions.
In particular, about 36% of the respondents would choose to invest in equities. This was followed by multi-assets at 30% and bonds at 21%. Cash, alternative investments and commodities were the least preferred asset classes at 8%, 3% and 2%, respectively.
This optimism for equities comes at a time when the global economy is showing signs of a broader recovery, albeit expectations of a slower pace of growth. Central banks around the world have eased monetary policy in a bid to spur economic activity. Moreover, the US and China finally signed “phase one” of a trade deal on Jan 15. In addition, the recent geopolitical tensions between the US and Iran appeared to have deescalated.
These positive developments have led equity markets higher for the year to Jan 13. In the US, the S&P 500, Dow Jones and Nasdaq Composite Index climbed 1.8%, 1.3% and 3.4%, respectively. Japan’s Nikkei 225 and Hong Kong’s Hang Seng index rose 2.8% and 2.7%, respectively. Similarly, the Straits Times Index gained 0.9%.
Against this backdrop, The Edge Singapore has assembled the annual portfolio of 10 stocks, done in conjunction with the Lunar New Year. Our portfolio is traditionally limited to locally listed counters and based on our reporting and observation of the market. We aim to beat the STI over the course of the year, and we will not replace any of the holdings. In effect, the portfolio is an expression of our editorial team’s view on the local corporate sector for the year ahead. (On the other hand, the value portfolio in our Capital section is a real-money portfolio of global stocks and its holdings may be adjusted on any given week.)
Our selections this year are Ascendas Real Estate Investment Trust, BRC Asia, CSE Global, DBS Group Holdings, Frasers Property, Spindex Industries, Singapore Telecommunications, ST Engineering, Thai Beverage and UMS Holdings. In the following pages, we explain why.
That said, the challenges to the performance of our portfolio are evident. As global growth slows further in 2020, Vanguard warns investors to expect periodic bouts of volatility in the financial markets, given heightened policy uncertainties, late-cycle risks, and stretched valuations. “Our near-term outlook for global equity markets remains guarded, and the chance of a large drawdown for equities and other high-beta assets remains elevated and significantly higher than it would be in a normal market environment,” it says in a 2020 outlook report on Jan 13.
Pictet Wealth Management is similarly cautious. “After a stellar 2019, we expect lower, but still positive, total returns of around 5% from developed-market equities in 2020, driven essentially by cash returns. Equity valuations look rich, but are being made digestible by low bond yields,” it says in a Jan 14 commentary.
Kevin Gibson, chief investment officer at Eastspring Investments, notes that Singapore is a small and open economy. Thus, the city-state is vulnerable to external factors. “While we do not deem Singapore equities high on risk compared to some of the other regional markets for its undemanding valuations, it is not insulated from global news flow and geopolitical developments,” he tells The Edge Singapore.
Still, Singapore equities are relatively cheap. As a whole, its valuation is in line with historical averages, says Kum Soek Ching, Credit Suisse’s head of Southeast Asia research, private banking research. In particular, the market is trading at a forward 12-month P/E and P/B of 12.9 and 1.3 times, respectively. “Income investors will find the Singapore equity market appealing, as its trailing dividend yield of 4.2% is not only higher than its historical average, but also ahead of other markets in Asia Pacific,” she wrote in a note dated Jan 6.
Top 10 stock picks for Year of the Rat
- Ascendas REIT: Upside from US portfolio, network effect and potential acquisition to underpin higher unit price
- BRC Asia: Higher public construction demand to boost steel reinforcement solutions provider
- CSE Global: Oil price recovery and infrastructure contract wins to drive earnings growth
- DBS Group Holdings: Any price weakness is an opportunity to accumulate this bank
- Frasers Property: Asset recycling, restructuring for greater liquidity the key catalysts for this developer
- Singapore Telecommunications: Price war truce in India will help this telco turn around
- Spindex Industries: Undervalued precision engineering manufacturer with solid fundamentals seen as likely takeover target
- ST Engineering: Record order book of contracts to accelerate earnings growth
- Thai Beverage: Regional F&B player could benefit from a potential listing of brewery business
- UMS Holdings: Shift into new industries and cheaper areas of production bode well for this company
