There wasn't any good news for past few weeks and in fact since January this year till now, we have more bad news than good news. Firstly, we have Middle East unrest, Japan natural disaster, European debt resurfaced, US economy recovery still weak, US debt ceiling saga and till the lately US credit rating being downgraded from AAA to AA+ by S&P. Singapore 1H2011 recorded a GDP of +4.9% falling short of expectation and making the Government to lower the FY forecast from 5%-7% to 5%-6%. Global stock markets for the past days just dropped like nobody business. Is recession coming ?
With the recent events, the possibility of having a technical recession ( contraction of GDP for 2 quarters ) is high and this is what stock market is reacting to it. As for real recession, it is still too early to conclude that as economic data still yet to show sign of that.
STI hit a high of 3,313.61 on 9th November 2010 and since then the rebound can only bring it back to 3,227.28 on 1st August 2011. With current global events, no fact can show that STI can reclaim that 3,313.61 high. Now how low can this correction goes ? From a "recession" perspective, stock market can correct 15% - 20%. Taking a 15% drop from 3,313.61, STI could hit 2,816 and with a 20% drop, STI would be at 2650 ( isn't that the level when STI rebound last year during the European debt issue first surfaced and then there was fear of global economy might going into a double-dip ? ). There is another level, STI 2,400 and falling to that and below would surely indicating Singapore economy is entering real recession.
Presently, without any concrete economic data to show Singapore is entering a real recession, the possibility of STI falling to 2,400 is slim but for the possibility of hitting 2,650 ( getting into technical recession ) has risen. Hence, investors should be mentally prepared to see STI going to such a level and with 2,884.00 ( closing on 8th August 2011), STI is just 234 points or 8.11% away.
Many investors are currently in a catch-22 situation about their portfolio ( should I sell or average down ). From a selling point of view, we probably miss the selling trigger already. Any moment selling out due to panic or fear might result in selling or cutting loss at the lowest. Waiting for a technical rebound to selling off or cutting loss would be more appropriate ( and don't expect a strong technical rebound as damage is already done, it will take a long time to heal the damage ). As for average down or bargain hunting, if needed to do that, have to be very cautiously.
Currently, we are still in a low interest rate environment and with inflation at a high of 5%, bank saving rate is virtually none, staying on full cash is not a way to combat the high inflation. Would consider continue stay vested in stock to be a wiser move despite the falling market condition. Stocks that should be vested at the moment have to be very selective. From a defensive point of views, vested in companies with a defensive business ( like health care and utilities ) and can provide constant good dividend yield would be ideal to offset the high inflation rate and bad market conditions. Health care and utilities business are something that even if recession, the demand is still greatly required.
There are 3 stocks among the STI investors might want to look at.
1. First Reit -- Reit in health care sector, with current price of $0.76, a dividend yield of about 8.3%
2. Plife Reit -- Reit in health care sector, with current price of $1.875, a dividend yield of about 5%
3. K-Green -- Trust in utilities sector, with current price of $1.005, a dividend yield of about 7.4%
Under current market condition doesn't mean the price of the above 3 will not drop, they will as sentiment affected but the rate of dropping will be lesser as compared with the rest of them. Investors who interested in the above 3 might want to consider getting them when their dividend yield hit 9%, 6.5% and 8% respectively. This will relate to a price of $0.69, $1.45 and $0.93 respectively.
