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Prospects For Aberdeen Singapore Equity Fund December 11, 2001
"There's good value here," says Peter Hames about the Singapore market. He's part of the investment team managing the fund.
Author : Suryati Mahmud

Untitled Document

( He thinks Singapore has been unfairly treated by many fund managers because of North Asia. Chief Investment Officer at Aberdeen Asset Management Asia, Peter Hames says: "For the big sort of regional fund managers, international fund managers, their focus has been more on North Asia because of the perceived China play and buying Taiwan on hopes of a rebound in technology." And it doesn't help that these investors has lumped Singapore together with some of its politically and economically troubled Southeast Asian neighbours, he adds.

Hames believes the stock market here is undervalued. He cites Singapore Airlines (SIA) as an example of a good company that's trading at attractive valuations. According to estimates from Aberdeen, SIA's price to book value (this is a way of valuing a stock and measures how much an investor is willing to pay for every dollar of the firm's assets) is currently at 1.5 times compared to 1.8 times last year. This means that SIA is currently cheap as you'll only be paying $1.50 for every dollar of the firms assets compared to a price of $1.80 a year ago. Moreover Aberdeen also expects the firm's earnings to increase by about 60% to 100% between financial years 2002 and 2003.

Another reason why Hames is bullish on Singapore equities is that companies here have been active in implementing changes such as corporate restructuring and increasing their focus on shareholder value. This, plus beaten down stock prices, have yielded good investment opportunities. "I think, in many ways, in terms of some of these changes, Singapore has led the way. And yet its stock market has been one of the weaker performers (in Asia). So I think it has been unfairly treated. But this also throws up some opportunities because you have a chance to pick up good companies at pretty depressed prices," Hames explains.


Hames likes Singapore banking stocks. "I think it's going to be very interesting to see how the mergers play out, how the cost cutting goes, what results the banks that have made the takeovers are able to get from the deals they've done," he says, referring to the flurry of merger and acquisition activities that began when OCBC Bank made an offer for Keppel Capital Holdings in June this year. He thinks much depends on their ability to bring separate management teams together, cut costs and improve efficiency. Whether these banks succeed in doing so will only be evident in 2 to 3 years, he remarks. Another factor he's watching out for is how these banks plan to dispose their non-core assets such as stakes in property companies.

He also believes that banks here are currently trading at attractive valuations. Data from Aberdeen show that the sector has a projected PE ratio (price-earnings) of 16 times for 2001 and 14 times for 2002, compared to a historical average of 17 times. This means banking stocks are cheaper now, especially since Aberdeen reckons their earnings are expected to increase by about 30% to 60% between financial years 2001 and 2002.

As at end-October, about a third of the Aberdeen Singapore Equity Fund is invested in the banking and finance sector, and he likes UOB and OCBC. They are the fund's top 2 holdings and respectively make up 14.6% and 9.5% of the fund (as at 31 Oct 2001).


Hames says that small- and mid-cap firms (those with market capitalisations of less than US$250 million) also offer good value and have performed well in the last few years. These firms occupy a third of the fund's holdings.What type of companies does Hames look for? Those with solid businesses that generate a lot of cash, trading on low valuation multiples and in many cases pay out quite high dividend yield. Among his favourites is Singapore Food Industries. "Its (corporate) results have been very good over the last 2 to 3 years... Very shareholder focused and pays out good dividends," he points out. Informatics is also one of Hames' favourites in this sector. Both stocks make up 7% of the Aberdeen Singapore Equity Fund as at end-October.


Hames is however cautious about the technology sector. "The good companies will still do fine. But there were so many excesses within the whole sector, I mean everywhere, that to suddenly expect us to be going back off to the races in tech, is unrealistic. We found that across the region, after the recent rebound, tech stocks generally are, Asian tech stocks that is, just look a little bit pricey to us. So it's not a sector we're chasing," he reveals. As at the end of October, only 3.5% of the Aberdeen Singapore Equity Fund is invested in the technology sector. Below is a breakdown of the fund's allocations as at 31 Oct 2001.

Top 10 Holdings

UOB - 4.6%
OCBC - 9.5%
SIA - 7%
ST Engineering - 6%
Robinson - 5.5%
Singapore Press Holdings - 4.6%
SMRT - 3.7%
Hong Leong Singapore - 3.6%
Singapore Food Industry - 3.6%
SBS - 3.5%

Sector Allocation

Banking & Finance - 33.9%
Transportation - 18.4%
Consumer & Retail - 12.8%
Real Estate - 10.3%
Conglomerate - 6%
Printing & Publishing - 4.6%
Industrial - 3.5%
Technology - 3.5%
Hotels - 0.8%
Construction - 0.5%
Miscellaneous - 0.5%
Cash - 5.4%


The fund had an annualised return of 9.89% since inception in December 1997. On the other hand, the benchmark (the Straits Times Index) and the sector average (average performance of Singapore equity funds) respectively posted annualised returns of -4.2% and 2.2% over the same period. Figures are as at 30 Nov 2001. The table below shows the fund's cumulative performance.

Cumulative Performance Of The Aberdeen Singapore Equity Fund As At 30 Nov 2001

Fund (%)
Benchmark (%)
Sector Average (%)
Since Inception (Dec 1997)
Source: Aberdeen Asset Management Asia; Benchmark: Straits Times Index

Hames is cautiously optimistic on Singapore for next year. He is content if the fund's performance for 2002 is in the low teens as he's not expecting a strong economic recovery to take place soon. "The (Singapore) market has already rebounded 10% or 15% (recently). If we saw a similar increase (for the fund) for the whole of next year, we'd be very happy given that we are not expecting any dramatic pick-up in the US or Asian economies next year," he explains.

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