atans1

Banality of analysts’ talk about 2015

In Uncategorized on 09/01/2015 at 11:59 am

How about telling us something we don’t already know?

From CNA report dated 29 Dec 2014

Despite a year of volatility, the Singapore market has emerged relatively unscathed. The Straits Times Index (STI) is now standing at about 6 per cent higher than where it started the year. However, market watchers are warning of further volatility in 2015, as global interest rates start to normalise.

Several challenges lie ahead for the Singapore stock market, as companies contend with rising domestic costs and uncertain external growth. Some market watchers said it may be some time before the market fully recovers.

Said Ms Madeleine Lee, managing director of AZ Athenaeum: “2015 is a continuation of consolidation for the local economy and companies. We had GDP being revised downward. We had rising business costs, by way of higher labour costs and persistently high rentals.

“The top line will be affected by unsure OECD growth, Europe shock and Japan shock. So I think it will be a year of consolidation and we need returns on equities components to come back to normal. I think it will be 2016 before we see economies and markets recovering.”

Low trading volumes and liquidity has been an on-going concern for Singapore’s equity markets. Market watchers attribute this to a lack of positive investor sentiment.

Said Voyage Research’s CEO, Mr Roger Tan: “The unfortunate thing about the Singapore stock market now is that we seem to be lacking that kind of excitement, from the exchange viewpoint, from the regulation viewpoint. I think there is a lot of emphasis and a lot of focus on mitigating and reducing risk, reducing volatility, and unfortunately at the same time, the excitement of momentum is taken out of the whole picture.”

Real estate investment trusts (REITs) continue to be the backbone of Singapore equities, taking up about 25 per cent of listings this year and raising almost S$2 billion. However, the expected rise in interest rates could impact the REIT market and other property-related counters.

On the other hand, banks could benefit from rising interest rates. Analysts also cited the telecom sector as another area for growth, given its stability and good yields.

Said DBS’ head of equity research, Ms Janice Chua: “We like the banks mainly because it is one of the key earnings growth driver for next year. For the overall market, we are looking at 8 per cent. Banks, we are looking for a growth of 12 per cent.

“We also expect a stable net interest margin, with the potential for upside when interest rates go up. At the same time, loan growth is still quite steady and about 8 to 9 per cent.”

She added: “The other sectors that we like are those that are stable, in terms of generating steady earnings stream, with growth as well as good dividend yield, and net cash companies. These are typically the telecoms companies, where growth is spurred by the rising usage of the tiered-data plans. This sector itself generates about 5 per cent dividend yield.”

Analysts said sectors which could be facing some pressure next year include oil and gas, and shipping. Typically highly-geared, these industries could face a double whammy next year of softening oil prices and a rise in interest costs.

With interest rates set to normalise in 2015, market watchers have said it may be time for investors to rebalance their portfolios.

Amid a low interest rate environment, investors have been drawn to high dividend counters. Among the 30 stocks which constitute the benchmark Straits Times Index (STI), Hutchison Port Holdings Trust paid the highest dividends this year, at 7.9 per cent.

With ongoing economic restructuring in Singapore and slowing GDP growth, analysts said small-to-medium cap stocks could provide more value for investors in 2015.

Said Voyage Research CEO Mr Roger Tan: “Look at the Singapore stock market – we are going through some structural issues with lower volume and lower momentum. So I think if you are looking at blue-chip stocks, maybe you want to look at the small-to-mid caps where you will be able to find more value, and more upside potential in the mid to long term.”

Sector-wise, investment bank UBS said the telecoms sector may provide safe returns in the near term, but banks’ earnings may come under pressure in the second half of 2015.

“In terms of earnings resilience, the telcos will probably still benefit from the fact that there is 4G migration and greater data usage. The banks may benefit in the very near term because of the rise in short-term interest rates,” said UBS managing director Ms Tan Min Lan. “But bear in mind that the U-curve is also flattening, and the loans growths are rolling over, so that is a drag on the banks beyond the next six months.”

Still, corporate earnings in Singapore are not just dependent on the domestic economy. With a growing international exposure, external factors play a key role.

Singapore Exchange’s director of market strategy, Mr Geoff Howie, said: “Much of the internationality that we have here in Singapore does transcend very much into the stock market. So our big blue-chip players are not necessarily 100 per cent Singapore players.

“Hence, the returns and the factors that are driving the performance of these stocks cannot just be dependent on Singapore, but very much what is happening in the region. In fact, if you look at the 30 STI stocks, half of the revenues that come from the STI stocks are regenerated from overseas.”

With heightened uncertainty in the global outlook, some experts said investors should strike a balance between dividend payouts and growth potential of companies.

“2015 is a murky year,” said Mr Tan. “If you are going after momentum and the quick buck, be prepared for the volatility. But volatility is in your favour if you are looking for value and have some companies in mind. The potential of buying them cheap is very high.”

The five STI constituent stocks with the highest dividend yields this year are Hutchison Port Holdings Trust, Ascendas REIT, SIA Engineering, CapitaMall Trust and Sembcorp Industries.

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