Singapore Market Showing Good Value – Comments from Aberdeen Asset Management Asia
The Singapore economy is currently in a technical recession. Singapore’s GDP contracted 0.6% in year-on-year terms in the third quarter of 2008. The Ministry of Trade and Industry (MTI) announced on 21 November that the Singapore economy is expected to grow by around 2.5% in 2008, and -1.0% to 2% in 2009. Against the background of a potential global recession, the outlook for the Singapore market is not looking rosy at all.
The local bourse, the FTSE Straits Times Index (STI) has been on a downward decline since the beginning of this year, as seen from Chart 1. On a year-to-date basis, the STI has fallen 51.2%, more than half of its value.
Source: Bloomberg, based on closing figures. Data correct as at 1 December 2008
With the steep decline in the STI, valuations for the Singapore market are looking very attractive as well. We speak to Aberdeen Asset Management Asia for their views on the Singapore equity market.
Funduspermart (FSM): Valuations for many Asian markets, including Singapore, have dropped to very low levels. Is this a good time to be accumulating Singapore equities?
Aberdeen: For investors with cash liquidity and who take a longer-term view, perhaps now would present good buying opportunities. Current levels of Price to Earnings (PE) and Price to Book (PB) for Singapore equities are reasonably attractive, trading at single multiples, which have been deeply discounted with the sell down.
FSM: What are the criteria that a Singapore company needs to meet, before you would consider investing into that company’s stock?
Aberdeen: Singapore is home to some of the best Asian companies with strong balance sheets and conservative managements. It has a consistent and rational economic policy, and a high level of transparency. Companies are also increasing focus on shareholder value and embarking on corporate restructuring, and the leading ones have regional as well as global reach.
FSM: With Singapore in a technical recession, what would be your advice to investors who currently have Singapore equities in their portfolios?
Aberdeen: If you have a medium- to long-term investment horizon, it will be advisable to hold on to Singapore equities to avoid selling at lows as the quality of companies in Singapore appears to be resilient and fundamentally sound.
FSM: Assuming the scenario of a prolonged global recession, would large cap companies be “safer havens” for equity investors to be putting their money in, versus small and mid caps?
Aberdeen: Naturally, large cap companies would have larger capital bases and experience in tiding over market cycles, but it doesn’t necessarily make them less vulnerable or recession proof. We wouldn’t identify large caps as being safer havens however; it has a higher probability of weathering through the tougher operating macro environment versus that of the small-mid cap space.
Click here to watch a video interview with Kwok Chern-Yeh, Investment Manager at Aberdeen Asset Management Asia, on how Singapore can tide over this recession.
Stephanie Thng (Editor) is part of the Editorial team at iFAST Financial Pte Ltd.
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