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In Conversation With Aberdeen (Part II): Singapore And Investment Tips!
Tradeable | 14 May 2013
By: Simeon Ang
Articles (125) Profile

Carrying on from where we left off last week (In Conversation With Aberdeen (Part I): Japan, An Investing Opportunity?),  my interview with Aberdeen’s investment director, Chong Yoon Chou went more in depth into Singapore and the stock market here.

Aberdeen’s Outlook For Singapore

Despite the recent surge in asset prices, Chong felt that a lot of companies in Singapore are still good investments. The main reason for this stemmed from Aberdeen’s research and belief that companies here generally have strong balance sheets.

However, the fact that Singapore is a very internationalised market brings both pros and cons. The pros being that companies have access to several new markets. However, this access also brings about some cons.

The fact that “things are still pretty soft out there”, understates the fact that companies have not yet recovered fully since the previous economic shock that was the Great Recession.

Chong feels that governments around the world, particularly in US and Europe are still looking for solutions to their economic problems.

QE And Asset Inflation

Echoing the same sentiments as investment guru, Hu Li Yang, Chong felt that asset inflation in Singapore is very clear. He mentions that despite the government’s efforts to try and stem the growth of asset prices, asset inflation continues unabated.

Source: FactSet, graph on Singapore’s inflation

Chong postulates that excess liquidity (brought about by quantitative easing in the US and Japan) as well as low interest rates have forced investors to “chase yield”. This chase has subsequently caused asset prices to jump, which by the way, lowers yield.

It seems evident to Chong that the excess liquidity is currently chasing yield in almost all assets. The usual culprits include real estate and stocks. However, Chong notes that exotic investments have also come to the fore, these include art pieces and wine bottles.

Source: FactSet, graph on the returns of the Straits Times Index

Aberdeen seems concerned with this as Chong mentions that no one really knows what the endgame will be like. Because of the global nature of quantitative easing, actions and measures taken by the government will be limited.

Hence, Aberdeen is keeping a keen eye on such developments to make sure that their portfolio is ready to face such challenges.

Mitigating Asset Inflation In Singapore

Notwithstanding that keen eye on a possible asset bubble, Aberdeen feels that its current investment strategy will be able to withstand such possible shocks. Chong said that Aberdeen remains focused on making sure that the companies in its portfolios are strong.

In the case of asset inflation, Aberdeen has actually been benefitting from it. This is particularly so with companies that have exposure to the real estate market (Aberdeen has a stake in City Developments).

Aside from the real estate market, Chong also felt that consumer stocks will also benefit (Aberdeen is invested in Jardine Strategic Holdings). This is particularly so with counters that have exposure to growing economies in the region. Chong felt that consumer stocks are defensive plays both during good and bad times.

Notwithstanding that, consumer stocks are also able to benefit from inflation because people generally spend more during times of moderate inflation.

 

Source: FactSet, graph comparing returns of the STI (Blue) versus FTSE Real Estate Index (Yellow) versus FTSE Consumer Services Index (Pink)

Overall, Chong felt that the present situation does not warrant any peculiar need for mitigation. He says, “its actually riding on what comes may.”

Aberdeen’s Favourite Singapore Stocks

Despite the relative smaller size of Singapore (as opposed to giants like China and US), Chong feels that Singapore has plenty of investment “jewels” to offer. He opines that Singapore counters provide a “springboard to the growth in ASEAN”. In essence, Chong points out that ASEAN continues to experience high quality growth.

Chong feels that the banks in Singapore particularly, offer promise for investors. He refers to the banks’ strong foundations and balance sheets “that can withstand crisis like the last few years”. More importantly, he feels, local banks are starting to grow their franchises in regions like China and more importantly, Indonesia.

Indonesia, according to Chong, is a “very fast growing economy with strong growth, and consumerism, and mortgage lending”, which allows banks to grow operations.
Another industry that has caught Aberdeen’s and Chong’s eyes is the oil and gas industry. Even though Singapore has no such natural resource to boast of, the country has successfully cultivated a vibrant oil and gas sector. The sector is led by local champions, Keppel Corporation and Sembcorp Marine. Both of which, Chong feels, will offer investors a direct play on the global oil and gas industry.

Source: FE Trustnet Offshore, table showing the holdings of selected stocks in Aberdeen’s Singapore Equity Fund

Overall, Chong feels that Singapore is not a market that investors should discount. In fact, there are plenty of investment “jewels” that ride on global and regional ASEAN economic growth.Source: FE Trustnet Offshore, table showing the holdings of selected stocks in Aberdeen’s Singapore Equity Fund

Investment Advice From Aberdeen

When prodded for some advice to retail investors, Chong said he only had three words for investors. They are homework, patience and humility.

Of the three, Chong felt that the most important habit retail investors should inculcate is the habit of doing homework. He mentioned that retail investors should not simply listen to what people say or recommend. As with the case of looking for properties, Chong felt that stock investing also requires investors to do some homework. Two pointers he mentioned when evaluating a counter:

  • Is the balance sheet strong?
  • Does the company have in place quality management team?

In the information age, Chong mentions that there is plenty of information in the market available for retail investors. “You are not shut out, in terms of information, but you have to do the work yourself.”

Chong’s second point was for investors to invest for a longer time horizon. That is to say, to adopt a strategy of buying and holding. Notice that this strategy has always been a central tenant in sound investments. Warren Buffett is one such investor who employs such an investment strategy.

Thirdly, Chong feels that investors should not let ambitions cloud their judgement. Lofty ambitions can be “a dangerous thing”. Chong feels that steady investments that grow should be what investors aim for.

He goes on to conclude, “These are classic investment tenants, and they are ideal in a growing region like here in Singapore.”

That brings me to the end of this two-part series. Has this series helped you in your investment decisions? Do drop us an email at tradeable@trade-able.com to let us know how you feel about this series and any suggestions on how to improve.

 

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Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

Please click here for more information about this author.


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