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4 Stocks That Will Perform Following PAP’s Win
Aspire, Hot Picks | 16 September 2015
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By: Lim Si Jie
Articles (169) Profile

People’s Action Party (PAP), ruling party of Singapore since its independence in 1965, had a landslide victory with 83 out of 89 parliamentary seats in Singapore’s latest general election (GE).

Since 2001, there had been a steady decline in support for PAP, which won by a lower margin in the previous two elections. However, the PAP managed to turnaround and increased its share of valid votes from 60.1 percent in 2011 to 69.9 percent in the latest GE.

While the loss of a Group Representation Constituency (GRC) in Aljunied and a Single Member Constituency (SMC) in Hougang to the Workers’ Party (WP) was not unexpected, it is noteworthy that the margin of victory for the WP was significantly lower as compared to that of 2011. PAP also managed to recapture Punggol East by a slim margin (51.8 percent vs WP’s 48.2 percent), a ward which the PAP lost after a by-election in 2013.

Deutsche Bank: Markets Tend to Rally after Strong PAP Wins

Deutsche Bank notes that historically large positive skews in the popular vote for the PAP in 1972, 1980, and 2001 have resulted in the MSCI Singapore rallying by 22-36 percent in the next three months after polling day.

However, with Fed’s Federal Open Market Committee (FOMC) meeting announcement slated on Friday 2am, significant volatility for all asset classes is expected. In the short run, investors need to stay cautious.

Keeping Singapore’s Economy Competitive While Minimizing Income Gap

Moving forward, the focus of the government would be its new Cabinet line-up, particularly the renewal of leadership as PAP gradually introduces Singapore’s new fourth generation of potential leaders. Given the strong mandate for PAP, the government will have greater confidence to adopt less populist measures and maintain a balance between keeping Singapore’s economy competitive and doing more to help the less privileged.

Meanwhile, key changes such as slowdown in foreign manpower growth, improvement in social safety net, decline in property prices as well as higher investment in transport network are also much hoped for.

UOB: Potential Policy Tweaks in Transport and Property Sector

Sectors which could see longer-term impact from potential tweaks in government policies include property and land transport.

Transport Sector

Significant changes have already begun with the change in asset-light model for bus and management changes at SMRT after 2011. Upcoming developments in the land transport sector would include clarity over the new rail financing framework (RFF).

Property Sector

UOB forecasts that physical property prices may have to fall 12-15 percent from the 2013 peak (currently, the decline is up to 7 percent), to prompt the government to relax some of the cooling measures to keep the overall price correction within the 20 percent range.

Listed developers in Singapore are currently trading at a distressed 1.5SD below mean Revalued Net Asset Valuation (RNAV), a level that is comparable to 2008.

Investors Takeaway

RHB: Developers with More Singapore Exposure

Citing the potential development in the property sector, RHB has given local developers with higher proportion of Singapore exposure a strong BUY rating. This includes Ho Bee Land and Wing Tai.

Among other blue chips, City Developments Limited (CDL) might also be a beneficiary as a number of its SG residential projects remain unsold (highest amongst listed developers with ~2,553 unsold units). Any easing in property measures will enable the group to expedite the monetisation of those projects.

Ho Bee Land— BUY; TP $2.60

Wing Tai— BUY; TP $2.44

UOB: Favourable Risk-Reward Stocks, Compelling Valuations

A few investment themes for long term investors include:

1.Favourable Risk-Reward Stocks

Picks: CapitaLand, Wing Tai, Ezion

2. Quality Stocks at Compelling Valuations

Picks: DBS, CapitaLand

On top of favourable macro factors such as potential policy changes in the property sector, UOB recommends investing in quality stocks that are more resilient in the volatile environment. Given the external uncertainties, UOB favours large cap stocks (listed below) which provide investors with more liquidity.

DBS—BUY; TP $23.75

CapitaLand—BUY; TP $4.08

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

DBS Group Hldgs  25.150 +0.15 +0.60%   
Business: [FY18 Total Income] Institutional banking (43.7%), consumer banking/wealth management (42.9%), treasury markets and others (13.4%).

Insight: Apr-19, 1Q19 net profit rose 9% to a record $1.7b.... Read More
CapitaLand  3.530 +0.02 +0.57%   
Business: Co develops, owns, and manages real estate properties. [FY18 Geographical] China (41.2%), S'pore (38.5%), Europe & others (18.6%), Vietnam & Others (1.7%).

Insight: Apr-19, 1Q19 revenue fell 23.8% while net profit d... Read More
Ho Bee Land  2.330 +0.04 +1.75%   
Business: Invests in & develops real estate properties in Singapore. [FY18 Turnover] Rental income (91.3%), sale of development properties (8.7%).

Insight: Apr-19, 1Q19 revenue rose 7.7% due to increased re... Read More
United Overseas Bank  25.760 +0.06 +0.23%   
Business: [FY18 Turnover] Group retail (43.3%), group wholesale (43.2%), global markets & investment management (5.1%), others (8.4%).

Insight: May-19, 1Q19 total income rose 7.8% to $2.4b due t... Read More


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