Thursday, January 2, 2014

Experts’ Take: 2014 Singapore Stock Market Outlook

31 DECEMBER 2013
Experts’ Take: 2014 Singapore Stock Market Outlook
By Charlie Lau Suan Liat

The 2014 Stock Market Outlook for Singapore looks at best to be sustained around the closing of Straits Times Index on 31 December 2013 at 3,167 points.

That is to say the Singapore market could be fundamentally firm in 2014 maintaining the Straits Times Price Earning Premium of 13.47x as at 27 December 2013. Investors and funds must be sharp to pick stocks with forward looking business potential, especially from overseas.

Speculators may find it difficult to scalp for profits.

The Straits Times Index
2013 saw the Straits Times Index (STI) moved between the highest and the lowest at a variance of 461 points (or 13.3 percent).

The variance between the resistance level and the support level at the close 31 December is 102 points (or 3.3 percent).

Looking into 2014, the STI may not be as overwhelming as compared to 2013.

Price-earnings premium as compiled by the Business Times on a few regional markets showed earnings from constituents stocks in the Hang Seng Index and in the Shanghai Composite Index to be superior that those of the STI, albeit not representative of all stocks in each market.

Fundamental Review

The last speculative attempt on our local bourse in 2013, in hope to reinvigorate investment and speculative interest, slid off like a snake into a hole – three penny stocks, Asiasons Capital, Blumont Group and LionGold Corp, crashed close to ninety percent at the beginning of October 2013. The aftermath left the Singapore market – index constituents, second liners and pennies locked in lethargy. Even when the Dow Jones closed with a gain of 293 points on 18 December, the STI registered only a 3-point gain at 3,066.

Year-to-date at 18 December, the Dow Jones was up 24 percent at 15,875 points and the UK FTSE 100 Index was up 9 percent. The STI, however, was down 6.1 percent at 3,068 points.

Many of the economic and political hue and cries in 2013, on both the international and Singapore scene, turned out to be non-events for the Singapore stock market.

The series of property curbs by the policymakers in Singapore, Malaysia, China and lately the UK, did result in some property counters languishing at the 52-week low. CapitaLand closed at $3.03 on 31 December (52-week high/low was $4.03/$2.92). City Developments closed at $9.60 on 31 December (52-week high/low was $13.13/$9.45). Keppel Land closed at $3.34 on 31 December (52-week high/low was $4.32/$3.26).

On the international scene, the euro crisis that threatened to default world trading partners (Singapore included) has slid off into oblivion. World markets were unscathed.

The US Quantitative Easing (printing money) and the subsequent Tapering (reduction in printing of money, from monthly US$85 billion to US$75 billion), did not affect the Singapore stock market.

The political stand-offs among countries sparked off by Edward Snowden – US National Security Agency contractor, who whistled blow the US Government’s spying and prying into the privacy of world leaders and counter spying and prying among some countries – did cause some embarrassing moments for offending countries (Singapore included). These sentiments quickly fizzled off in light of mutual economic benefits and security reasons. So this aspect of political hue and cry did not affect the Singapore stock market too.

The riot at Little India in Singapore caused by a motor accident, in which a drunken foreign Indian worker was killed in the presence of throngs of the same countrymen congregating in their usual weekend open space at Hampshire Road, got the crowd emotionally carried away and vending their emotions on the police and ambulance crews. Police vehicles were overturned & burned. This sort of riot has not happened in Singapore for the last forty years. The Singapore public and investment sentiments were not affected especially when the riot situation was brought under control within hours. The Singapore stock market was not affected too.

Political standoffs among countries allied with major powers did not affect the Singapore stock market. The US backed Japan to overfly China’s newly created ADIZ (Air Defense Identification Zone), which included the disputed islands of Senkaku/Diaoyu. This was downplayed after the US later realised Japan’s own ADIZ has for years covered the shores of China.

Factors That Would Affect Singapore Market In 2014

1.      Foreign funds continue to prefer other markets

At the moment most foreign investment funds are locked in the US and European markets. Some are venturing into huge frontier markets like the PIVOTS countries – Peru, Indonesia, Vietnam, Oman, Turkey and Sub-Saharan Africa.

Citi Investment Research data showed that over the last 12 months, global investment funds have moved a staggering US$252 billion into equities and equity exchange traded funds. The US market had inflow of half of these funds, while Japan was the second biggest beneficiary with an inflow of US$44 billion causing the Nikkei 225 to gain 56 percent. Southeast Asian markets were mostly neglected.

The Singapore stock market is still languishing below $1.6 billion in daily trade. This is a good indicator to watch for the return of foreign equity funds. Daily trades in excess of the $1.6 billion, continuously for one contra period (five trading days), could signify the inflow of funds and the sustained volatility in the Singapore stock market.

2.      Financially weak Singapore market operators

The penny stock fiasco in 2013 and the S-Chips collapsed in earlier years should be noted by the Singapore investors and speculators as a sign of financial weakness in the local market operators. This could continue into 2014, thus leading stock investments to maintain (at best) a price-earnings premium of around 13.47x.

Any extreme swing in the STI’s price-earnings premium – for the better below 10x or for the euphoric above 20x – continuously for at least two contra periods would be another indication of the sustained interest in the Singapore market.

This price-earnings premium can be found in the weekend edition of the Business Times (at the regional index market charts).

3.      Improved economic conditions in the US, Europe and China

Major economies like the US, Europe and China have to be growing to benefit smaller economies (including Singapore, the PIVOTS countries, and others).

World Bank chief financial officer, Bertrand Badre, is of the view that the global economy “will see brighter days”. Badre sees the global economy to expand by at least 3.4 percent in 2014 as compared to below 3 percent in 2013.

International Monetary Fund managing director, Christine Lagarde, is of the opinion that the US economy “would expand 2.6 percent in 2014 as compared to 1.6 percent in 2013”.

ING Investment market strategist on the US economy, Doug Cote, is of the view that the US economic growth would improve from 2 percent in 2013 to 4 percent in 2014. Cote expects the US to turn trade surplus position in two years’ time in view of energy advantage (80 percent in cost savings on natural gas).

China, the biggest consumer of everything, was polled by Bloomberg in a 53-economist survey to grow by a median 7.5 percent in 2014. This is considered its fourth year of slow growth, albeit the growth is still almost three times that of US’.

UBS forecasts “4.5 percent gross domestic product growth for Singapore, led by cyclical recovery in global growth”.  The Swiss investment bank expects the STI to end 2014 at 3,460 points (up 293 points, or 9.3 percent, from the 3,167 closing on 31 December).

All said, Singapore can ride on global growth and benefit some of her public listed companies. But the Singapore stock market is a different kettle of fish in the international arena – too small for comfort.

4.      The end of low crop prices cycle

Fueled by global demand, as well as decreased supplies due to natural disasters and below-cost selling prices, crops like palm oil, cocoa and sugar may see their prices rise in 2014 and benefit the plantation sector of Singapore’s public listed companies.

Price of gold and some other metal like copper and iron, which do not have relevance to global growth, would continue to stay low. Gold has already declined thirty-eight percent from its September 2011 peak of US$1923.70 per ounce. 2014 would still see gold price languishing at the low.

Investment Strategies For Singapore Market In 2014

1.      For investors

Based on the STI’s high/low variance of 461 points (or 13.3 percent) in 2013, investors investing in 2014 can try to target a 13.3 percent capital gain in some STI stocks.

Counters to consider should be exposed to global growth economies like the US, Europe and China. Preferable selections should be within the thirty STI stocks.

A smaller percentage of investing capital can venture into other stocks exposed to the global growth economies like the PIVOTS countries. These countries carry the risk of social and political disorder, but in light of their economic growth potential, investment gains can be significant. There would not be property curbs – at least not for the moment. Economic activities would be backed by those governments’ support and participation.

Dividend yield should be an important selection criterion for Singapore investors. Data reported on this is historical. Investors need to know the business model and assess if handsome dividends can be recurring. Many Singapore stocks, even those in the STI, offer more than five percent yield.

Price-earnings ratio on stock selection should be below the STI price-earnings premium (13.47x).

Book value per share (BVS) should preferably have a premium over share price – the higher the better.

Locking in profits when share prices move up is never wrong. Time frame should not be a criterion for investments. When the dividend yield falls significantly, it is time to sell; when price-earnings ratio shoots up suddenly, it is time to sell. For investors who are knowledgeable on charts, noticing the 14-day Relative Strength Indicator and the 5-day Stochastic Moment hitting the top of their box means it is time to sell.

2.      For speculators

As mentioned at the beginning of this article, speculators in 2014 may find it difficult to scalp for profits. The reasons are most market operators in Singapore are financially weak. Also, the small capitalisation of most Singapore stocks, especially the pennies, is a deterrent for foreign funds to be involved as they risk triggering a mandatory offer should they acquire more than 5 percent stake in a counter.

Daily speculative activities would still be on pennies and third liners as major shareholders are anxious to reinvigorate their counters (and possibly cash out thereafter). The pleasure in playing such pennies is one bid price difference is usually enough to cover both buy/sell commission. So contra trade speculators will find this interesting. A simple cue or tip is just to look at the top volume counters as market starts for the day.

The pain is when after jumping onto a bandwagon, the music slows – even that one bid price difference cannot be achieved. More pain is when the operators suddenly withdraw all buying quotations, resulting in speculators not even able to cut loss.

General Outlook For Singapore Investors

Based on the many 2014 forecasts on the Singapore economy and stock market, one similarity is predominant. There would be economic growth, albeit subdued.

The subdued political differences, spying and prying among developed and developing nations would be helpful to trade and business environment among countries (Singapore included).

2014 may not see a great leap in Singapore’s economic activities, so expectation from investment in the Singapore stock market should not be too high.

With prudence in investment selections, Singapore investors should have a successful 2014.

Publish date: 31/12/13

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