Excerpts from analyst's report
Head, OCBC Investment Research: Carmen Lee (left)
Head, OCBC Investment Research: Carmen Lee (left) Softness ahead
Singapore market valuations are reasonable
Stick with quality stocks
Challenges remain; but opportunities too!
As developed markets rallied in 2014, Singapore’s STI gains of 4% YTD appears feeble compared to >20% gains for several key markets. However, this is still remarkable on the back of a prolonged 5-year upcycle. Several key sectors outperformed over the 5-year period including banking and S-REITs.
Heading into 2015, the global economic outlook is softer and this is likely to generate some uncertainty for corporate earnings and growth outlook. While risks cannot be completely eliminated, some calculated ones are acceptable and is the new norm going forward.
Heading into 2015, the global economic outlook is softer and this is likely to generate some uncertainty for corporate earnings and growth outlook. While risks cannot be completely eliminated, some calculated ones are acceptable and is the new norm going forward.
US is bright spot; others less so
Market interest in 2015 is still likely to focus chiefly on the US, but the recent moves by policy makers in Europe, Japan and China to boost their economies will over time result in a gradual shift from the US to the rest of the world.
Attracting retail interest
At current levels, the STI has effectively gained some 15% from its year low. We continue to like the blue chips, especially in view of the impending reduction in trading lot size from 1000 to 100 from 19 Jan 2015.
This is likely to draw in a new group of retail investors, and will over time result in higher trading activities and interest in the Singapore market.
This is likely to draw in a new group of retail investors, and will over time result in higher trading activities and interest in the Singapore market.
STI: Undemanding valuations
The STI is currently trading at 13.3x earnings, 1.2x book and with an average dividend yield of 3.5% for FY15. We deem this as reasonable against historical averages.
Lim Hock Chee, CEO of Sheng Siong Group. NextInsight file photo.Stock pick strategyGlobal economic growth in 2015 is decent, although not exciting.
Against this, we expect equity investors to have a renewed focus on fundamentals and the quality and sustainability of earnings.
The latter will continue to be a key driver for stock price outperformance.
For 2015, our stock picks comprise mainly well-positioned quality stocks with good track records.
The list includes CapitaMall Trust, ComfortDelgro, DBS, Frasers Centrepoint Trust, Hotel Properties, Keppel Corp, Keppel Land, Sheng Siong, Starhill
Global Trust, Singapore Post, SingTel and Wheelock.
