SINGAPORE STRATEGY 2013 : A GOOD YEAR FOR EQUITIES (OCBC)
A GOOD YEAR FOR EQUITIES
The Singapore market clocked in good gains in 2012, and our core favourite sectors also outperformed. Moving into 2013, we see better economic and market conditions, and while earnings growth is still in the single-digit region, it is a recovery from the slowdown in 2012. Valuations for the Singapore market are not excessive and we expect a healthy pipeline of IPOs, takeover and privatisation exercises in 2013 to help buoy interest in the market. We are sticking with our strategy of overweighing the Oil & Gas, Banking, Healthcare and selective property sub-sectors. Our stock picks for 2013 include Biosensors, CapitaMalls Asia (CMA), CapitaMall Trust (CMT), City Developments, DBS, Ezion Holdings, Keppel Corp, M1, Sembcorp Marine, Starhill Global REIT, UOB and Venture Corp.
Fairly mixed performance in 2012
While equity indices were generally up in 2012, the markets seem to lack the much-needed investor confidence for sustainable gains. While the outlook was largely mixed, most economies were fairly resilient despite the spate of unfavourable news. This was also the case in Asia, as prospects in Asia were somewhat dimmed by the persistent weakness in Europe, US and recently in China. However, the low interest rates environment continued to be conducive for businesses and corporate earnings for the first three quarters of 2012 were generally in line or slightly above expectations.
Corporate earnings growth slowed in 2012
Led by stimulus measures from the US, there were market rallies due to expectations of influx of funds, and this benefited equities although bonds, gold and properties were favoured over equities in 2012. On the earnings front, the slowdown gathered momentum in 3Q as seen from the contraction in corporate earnings – which was the weakest since 2Q09. Fears of earnings disappointment dented market sentiment and trading volume was fairly anaemic.
IPO, takeover and privatisation likely to continue into 2013
Singapore stocks have outperformed in 2012, and several key sectors even outperformed the Straits Times Index (STI) including some of our favourite sectors such as Oil & Gas, Banking and REITs. Price drivers for 2013 will continue to depend largely on the outlook for the key external economies as well as a pick up in consumer demand. In addition, we expect the pace of IPO, takeover and privatisation seen in 2012 to continue into 2013. The latter two will largely be fuelled by still attractive valuations for Singapore stocks. However, price gains in the coming months are likely to be capped by the still-fragile investor confidence. As such, we expect the STI to continue to trade within a band, supported on the downside by inexpensive valuations and on the upper level by the lack of buying momentum at higher levels. Any further upside will need to be fuelled by a strong pick up in corporate earnings, which is still on a slow recovery currently as earnings are only expected to grow in the high single-digit level in 2013.
Stay with our favourites
We continue to advocate that investors remain in some of our core sectors and stocks despite strong gains in 2012, as we see further upside for these sectors/stocks. We continue to favour the Oil & Gas sector despite the strong outperformance in 2012 because of the sector’s strong order books, good long term earnings visibility and a host of well-run companies within the sector. Our picks in this sector are Keppel Corporation, Sembcorp Marine and Ezion Holdings. We are also reiterating our Overweight for the Telecommunication, Banking, Healthcare and selective Property sub-sectors. Our 2013 picks are Biosensors, CapitaMalls Asia (CMA), CapitaMall Trust (CMT), City Developments, DBS, Ezion Holdings, Keppel Corp, M1, Sembcorp Marine, Starhill Global REIT, UOB and Venture Corp.