Summary
Singapore is in its deepest recession in the last 25 years.
The aging population in Singapore is an issue.
We are essentially a service oriented economy.
The aging population in Singapore is an issue.
We are essentially a service oriented economy.
Analysis
When is a good time to start buying into equities again? I suppose that is a million dollar question nowadays.
The reality is that while equities are meant to be long-term investments, it is also important to respect time. Time is our friend and helps to smoothen out the volatilities in the marketplace. However, time can also be our enemy if we do not respect it and make strategic ‘ins and outs’ in the equity markets.
On average, if equity investors have stayed invested for the past 5 years, they would have lost all capital gains and worse still would be deeply under water.
More importantly, quite a number of investors jumped back into the equity markets in January 2009, trying to chase the market. Today, the 3 Singapore bank counters, City Development and Capitaland are all about 20% lower than January prices.
The following charts shows how the respective counters have performed in the last six months against the STI Index. It shows whether they have underperformed or outperformed the index: -
The reality is that while equities are meant to be long-term investments, it is also important to respect time. Time is our friend and helps to smoothen out the volatilities in the marketplace. However, time can also be our enemy if we do not respect it and make strategic ‘ins and outs’ in the equity markets.
On average, if equity investors have stayed invested for the past 5 years, they would have lost all capital gains and worse still would be deeply under water.
More importantly, quite a number of investors jumped back into the equity markets in January 2009, trying to chase the market. Today, the 3 Singapore bank counters, City Development and Capitaland are all about 20% lower than January prices.
The following charts shows how the respective counters have performed in the last six months against the STI Index. It shows whether they have underperformed or outperformed the index: -
As you can see, most of the stocks underperformed the index, except for OCBC which was about the same.
All the financial numbers are out for the three local banks, all three posted significantly lower earnings but still very much in the black compared to American banks that are all in the red.
The financial numbers has been reflected in the price of the bank shares.
Unfortunately, as the Singapore economy sinks deeper in the first half of this year, we will definitely see downward pressure in the real estate market.
Let’s not forget that one of the major businesses of the banks is housing loans and all three banks were aggressively lending the last 3 years in excess of their normal growth rate for their loan books. DBS leads the three banks in its aggressive loan book growth and will probably be the first to experience negative pressure on its books. This probably explains why after the preference share issue of S$1.9Bn, it raised another S$4Bn through rights issue, to capitalize itself.
A perspective of the real estate market; from 1990 to 1997, capital values went up by 3X, from 2006 to 2008 it went up by 3X. This time around it took less than half the time for real estate values to triple, what does that tell us when the correction comes? Probably equally significant!
On the other hand, corporate Singapore is having it worse than the banks because more and more of them are reporting losses for fiscal 2008.
So do we think the bottom for the Singapore equities market is now? I do believe that the STI has a high probability of hitting 1,200 just like it did back in 2003/2004 and that last downturn is nothing like the current one.
Granted that is no such thing as buying at the bottom and selling at the top, however, we can always intelligently buy near-bottom and sell near-top.
I believe near-bottom is in the next month. We can begin allocating up to 20% back into equities, keeping the balance 80% for averaging purposes.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
