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Baring To Schroders Avoid Singapore After Slump
Perspective | 02 January 2014
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Schroders and Baring Asset Management are avoiding Singapore stocks, the cheapest in Southeast Asia, as slower economic growth in the region and cuts to US Federal Reserve (Fed) stimulus drive capital outflows.

The fund managers expect property to lead declines in Singapore amid a real estate slump and the prospect of higher interest rates. The Straits Times Index (STI) was the worst performing developed market in 2013, dropping 9.5 percent since Fed Chairman Ben Bernanke said in May 2013 that bond purchases may be reduced on signs of sustainable US recovery.

Capital has been fleeing Southeast Asia as investors seek higher returns in North America. The market value of Singapore shares fell 5.6 percent to $567 billion this year as of 23 December 2013 as 10-year US bond yields climbed to a two-year high in September 2013, making dividends from the city state’s real estate investment trusts less attractive. The Standard & Poor’s 500 Index rose to a record after the Fed announced on 18 December 2013 it was cutting stimulus, citing optimism about the labour market.

“Property companies will do badly, particularly in Singapore where there’s a perceived housing bubble,” said Lee King Fuei, a Singapore-based fund manager at Schroders, which oversees about US$420 billion. “If higher bond yields cause property prices to fall, there’s an immediate impact on earnings. Cost pressure on banks will also increase as bond yields rise.”

The Singapore’s STI traded at 1.4 times book value as of 24 December 2013, according to data compiled by Bloomberg. That compares with 2.5 for the Philippine’s PSEi Index, 2.4 for Indonesia’s Jakarta Composite Index, 2.3 for the FTSE Bursa Malaysia KLCI Index, and 2.1 for the Stock Exchange of Thailand, the data showed.

Quantitative Easing

The Federal Open Market Committee said after its 17-18 December 2013 meeting it will cut its US$85 billion in monthly purchases of Treasuries and mortgage-backed bonds, also known as quantitative easing, to US$75 billion in January 2014.

The central bank will reduce asset buying in US$10 billion increments over the next seven policy meetings before ending the programme in December 2014, according to the median forecast in a Bloomberg survey of economists. The STI surged 94 percent from when the Fed lowered its benchmark interest rate in December 2008 to its peak in May 2013.

Real estate and financial companies account for 47 percent of the STI, according to data compiled by Bloomberg. Singapore’s biggest property companies were among the worst performers in 2013, with City Developments plunging 25 percent and CapitaLand falling 18 percent. Jardine Cycle & Carriage, an automotive distributor that gets about 89 percent of sales from Indonesia, fell 27 percent to lead declines on the benchmark equity gauge.

Slower Growth

The International Monetary Fund lowered its growth target for Indonesia, Southeast Asia’s biggest economy, to between 5 percent and 5.5 percent this year and next after 6.2 percent expansion in 2012. Singapore’s gross domestic product is expected to grow 3.9 percent in 2014 after an estimated 3.8 percent rise this year, according to a quarterly survey released by the Monetary Authority of Singapore (MAS) in December 2013.

“Singapore’s neighbours have not been doing so well, particularly Indonesia, where many of the property buyers in the city come from,” said Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management, which oversees about US$60 billion. “The Singapore government has also been implementing tough property measures because they do not want housing prices to go through the roof.”

Housing Bubble

Singapore home prices increased at the slowest pace in six quarters in the three months ended 30 September 2013 after the government introduced new curbs to cool prices in Asia’s second-most expensive property market.

“There’s no driver to spur investor interest in Singapore,” Baring’s Do said. “The recent penny stock crash is not really helping the case for investing in Singapore.”

About US$6.9 billion was wiped from the market value of three commodity companies over three days in October 2013, prompting an investigation by the MAS and Singapore Exchange (SGX). The average value of shares traded daily on SGX in the three months through December 2013 fell to $1 billion, compared with $1.2 billion a year ago, according to data compiled by Bloomberg.

Penny Stocks

Blumont Group, which invests in minerals and energy, soared more than 1,000 percent this year through the end of September 2013 to lead gains on the FTSE Straits Times All-Share Index. The stock plunged from an all-time closing high of $2.45 on 30 September to $0.078 on 24 December.

Asiasons Capital, the second-best performer, slumped 96 percent from its record close of $2.83 on 1 October 2013 through 24 December 2013, LionGold Corporation tumbled 91 percent from its $1.725 peak on 29 August 2013 after deals to acquire gold assets fell through. The plunge in shares prompted the bourse to seek approval to establish circuit breakers to minimise market volatility.

The world economy is primed for its fastest expansion in four years, with the US driving output gains, economists at Goldman Sachs Group, Deutsche Bank and Morgan Stanley said. Global growth will accelerate at least 3.4 percent in 2014 from less than 3 percent this year as the euro area recovers from recession and China and other emerging markets stabilise.

“Singapore would be one of the markets that would be favoured in Southeast Asia,” said Haren Shah, Singapore-based chief strategist for Asia Pacific at Citigroup’s wealth management division, which oversees US$210 billion. “Singapore, along with the North Asian markets, is looking cheap and most likely will benefit as we see recovery in the global economy.”

The STI is trading at 14.7 times estimated earnings, compared with 16 times for the MSCI World Index, according to data compiled by Bloomberg News.

Trade Falling

Even as the external environment is improving, Singapore is exporting less to the West, according to Alan Richardson, whose Samsung Asean Equity Fund outperformed 97 percent of peers tracked by Bloomberg during the past three years. The city-state gets about 22 percent of export revenue from the US and Europe as of November 2013, compared with 37 percent a decade ago, according to data from International Enterprise Singapore.

“Singapore being a very property- and banking-centric country means it has not benefited from global economic recovery because of the government’s tightening policy on the property market,” Richardson said.

City Developments  9.830 +0.01 +0.10%   
Business: Co is an international property & hotel conglomerate. [FY18 Turnover] Property development (48.4%), hotel operations (39.8%), rental properties (8.5%), others (3.3%).

Insight: May-19, 1Q19 decreased 29.5% to $746.2m compared t... Read More
Jardine Cycle & Carriage  30.800 -0.16 -0.52%   
Business: Co is mainly engaged in the mfr, assembly, distribution, and retailing of motor vehicles and motorcycles in S'pore, M'sia, Indonesia, and Vietnam.

Insight: Apr-19, 1Q19 revenue rose 1.6% due to higher reven... Read More
Blumont Group  0.002 -- --   
Business: Co provides contract sterilization and polymerization services. [FY18 Turnover] Sterilisation (99.3%), property (0.7%).

Insight: Feb-19, FY18 revenue increased 6%. Total expenses ... Read More
Attilan Group  -- -- --   
Business: Co engages in alternative asset investment and management activities. [FY17 Turnover] Investment management (65.7%), pre-school (20.6%), media sales (11.7%).

Insight: Aug-18, 2Q18 revenue increased slightly by 4% as C... Read More
LionGold Corp  0.001 -- --   
Business: Co has interests in gold mining and exploration companies in Australia and Ghana.

Insight: May-19, FY19 revenue rose 18.6% due to increased t... Read More

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