Singapore banks and property stocks should benefit from global rates easing, according to Julian Lau...
Singapore banks and property stocks should benefit from global rates easing, according to Julian Lau, portfolio strategist at Fidelity Investment Managers in Hong Kong.
Over the past two years to the end of February, the Singapore index (STI) has risen 60.23% in sterling terms compared with the 1.5% in the FTSE All-Share.
Lau believes that property has some good opportunities if the investor focuses on the quality of companies. "Property is very sensitive to interest rates and office property companies are performing well," he says.
Gary MacKenzie, investment director at Merrill Lynch Investment Managers, agrees that there is a good supply of office property, but says residential property and mortgages look unappealing.
Singapore is still attracting investors because of its domestic recovery story, meaning that banks, property and infrastructure companies, such as transport, are a defensive play for investors. In the current economic environment, such investors tend to focus on defensive stocks, Lau says.
For the 12 months to the end of March, the top-performing stock in the STI is financial services company Jardine Matheson, posting sterling returns of 80.53%. Also among the index's top 10 performers over the same time period is Hong Kong Land Holdings, which invests in and develops commercial property, having risen by 74.6% and United O/S Bank and OCBC Bank having returned 19.54% and 11.81% respectively.
According to MacKenzie, when interest rates get cut, the Asian equity markets go up. This is most apparent in Singapore and Hong Kong, which is why many view them as safe havens. He says: "Investors should remain fairly relaxed with Singapore because banks are stable and there are many defensive plays."
However, in other sectors within the Singapore market, the influence of the government is having a negative effect and is adding to the problem of many companies trying to relocate.
The government has been criticised for being heavy-handed with the economy and corporations but this has created a crime-free society, according to MacKenzie. Although, at the same time it has held back the natural entrepreneurial spirit of businesses in the region, he adds.
"For example, Temasek, the investment division of the government, owns 75% of Singapore Telecom. We would prefer it if the companies were left to a free market but, as it is, many companies are now feeling they should get out of Singapore," says MacKenzie.
Singapore Telecom recently made a bid for Cable & Wireless in Australia. MacKenzie says: "The full price was bid despite there being hardly any synergy between the two because one is land and the other is mobile. This suggests that companies are so pressured to move out of Singapore that they will overpay for a company which is not necessarily suitable."
For the year to 29 March Singapore Telecom has fallen 29.80%.
According to Lau, there is also a continued focus on technology companies in Singapore.
He says: "Singapore is a key base for contract manufacturers and is benefiting from worldwide outsourcing, whether that be for components or the final product."
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