FTSE STI closed 3,190.04 on 31st Dec 2010 making a +10.09% performance for the year 2010.
Recap on 2010, global economy continued its recovery with Asia lead but along the way couple of road bumps. European debt crisis ( Greece and Ireland bailout ), slow US economy recovery ( concern of double-dip recession ) coupling with high unemployment rate ( 9.8% ) leading to US Fed rolling out second round of stimulus aids in later part of 2010 and China fighting to curb its fast rising inflation ( which in a way the cooling measures will slow the economic growth ). Global markets including STI though reacted negatively for those events but still managed to hand in a positive performance in 2010.
Looking ahead in year 2011, consensus is that global economy will continue to recover with Asia taking the lead and US will be able to bring down the high unemployment rate. However, do expect a rough ride ahead 2.15as there are still couple of events that need to iron out.
1. European debts -- Investors are monitoring whether Spain and Portugal will be the next in line to request bailout from EU and IMF.
2. Inflation -- Not only China face with rising inflation risk, other Asian countries too and hence expecting various Governments to frequently introduce cooling measures. Those measures in longer term is good to tame inflation but will have short term negative impact on stock markets.
3. US economy recovery -- World number 1 economy still struggling in 2010 as high unemployment rate deter the recovery. US Fed has to introduce second stimulus injection ( QE2 ) in the later part of the 2010 and US has the tax cut deal extended to spur the economy recovery. Failure to bring down the high unemployment rate of 9.8% will continue to hurt the US economy recovery.
4. Currency war -- The massive printing of USD has weaken the dollar against especially Asian currencies which resulting in a currency war last year with US accusing China of not strengthening its Yuan and hurting US - China trade. This problem might still persist in 2011.
5. South and North Korea tensions -- With the North Korea shelling one of the South Korea's island and killing citizens along the way, tensions between the two Koreans piling up since and if war breaks out ( China siding the North and US with the South ), negative impact will be felt to the Asian economy as a whole and effecting global economy recovery.
6. Natural disaster -- This is something that cannot be predict or foreseen and yet could happen like earthquake, volcano eruptions, flooding, etc will have some negative impact on the economy. Australia's Queensland state currently facing flooding issue due to the impact of "La Nina" and that is threatening the coal mining business.
On the home front, Singapore recorded a +14.7% GDP growth for 2010, making it one of the fastest growing country in 2010 after stepping out of recession in 2009 and is projected to have a GDP growth of between 4% - 6% in 2011. Singapore economy should continue to grow in 2011 but external factors will also play a part in it as Singapore economy relying on export activities to US, China, Europe and rest of the world. Any slowing down on those will be curbing the economy growth. Inflation is also in the mind of the Government. Last year inflation of 3.8% was reported and Singapore Government wishes to curb the inflation to between 2% to 3% in 2011. The rising in housing prices has led the Government to implement cooling measures last year and so far the prices are stabilizing. Looking ahead in 2011, the following factors would determine Singapore economy growth.
1. General Election -- Due in 2012 but many believe it will be held this year. PAP should continue to gather majority in the parliament and hence continue to carry out its blue print for Singapore economy growth. This will give global investors confidence the continuation in investing in Singapore.
2. International events -- F1, international conventions, etc are the normal international events in Singapore calender year. These events bring in the spending power of the tourists which help Singapore retail sector growth.
3. Inflation -- Like other Asian countries, Singapore does face the issue of raising inflation especially when excessive liquidity is flowing in from the West. In particular property assets inflation is the main concern for the Singapore Government and do expect regular or frequent cooling measures to tame those. This will have short-term negative impact on property developers. Another aspect that need to monitor is inflation in necessity like food, clothing, transportation, etc.
4. External factors -- Any of the world top economy countries like US, China, Japan or Germany ( or EU region ) having economy growth issue will affect Singapore through the export/import activities.
Singapore economy in 2011 could be focusing on tourism and infrastructure works to sustain the growth and probably offsetting any potential downside from external factors ( export activities ) and manufacturing. In tourism, retail, hospitality and transportation related companies should benefit from those. In infrastructure works, utilities, construction and telco companies should benefit. Other key areas would be finance and property. When Singapore does facing property inflation risk, the constant cooling measures introduced by Government should be able to stabilize the price, fending off speculative. Those genuine demands will be able to sustain the growth of the property market. Singapore Government has been constantly releasing land parcel lately for residential, commercial and industrial usage and that is a good sign.
The following is sector by sector analysis of Singapore economy in 2011.
Financial Sector :-
The banking sector was one of the laggard performer in 2010 after sharp rebound in 2009 and it might continue to be lagging in the first half of 2011. Earning from the banks appeared to come to a saturation mode in 2010 as banks globally have to conserve reserve to meet the new banking rules ( implemented in 2010 to prevent another financial crisis ). For the banks to have a better performance in 2011, assets acquisition and increase in loan income are the key factors. With Government introducing cooling measures to curb property price from rising, loan income from that area will be slowed and that will have impact on the banks' revenue. With interest rate being low, company loans for expansion and M&A might be a bright spot for the banks. Stocks DBS, UOB and OCBC.
Property Sector :-
In a low interest rate environment and excessive liquidity, investors looking for high return will be targeting physical assets and hence causing the property prices to be speculated and rising. This will result in unwanted property bubbles and that is one of Singapore Government's aim in 2011, to tame property inflation. In normal situation having cooling measures will hurt property developers' earning in the short-term. With that in mind, do expect property developers profit margin to be squeezed. Singapore itself is a small country with land limitation and as such most of the developers are or already shifting their investment to overseas like China, Vietnam, etc. The current hot topics is investing in China. China does having property inflation presently but that is confined to their first tier cities like Beijing and Shanghai. Those second and third tier cities like Tianjin, Chengdu, Guangzhou, etc still have lot of opportunities for developing. Singapore developers venturing into China should be able to find good opportunities in those cities. Stocks CityDev, Capitaland, Kepland, UOL, SC Global, Allgreen, Ho Bee, Yanlord and Ying Li.
Offshore/Marine Sector :-
Crude oil price ended year 2010 staying above US$90/barrel and the rising in crude oil price could continue in 2011. That is beneficial to Oil & Gas related companies as that will lead to more oil related projects. Currently, KepCorp and SembMar are bidding for the Petrobras contracts which come in US billion dollar worth. A winning of those contract could see KepCorp or SembMar's orders book back to the peak level in 2007 and that will have very positive impact on their earning. Companies that doing supporting role for oil-rig building or drilling will also benefit from the rising demand. Shipping and ship building related companies might have mixed performance for 2011. Despite the recovery, shipping business still a laggard in 2010 and with Euro zone debt still questionable issue, the demand of freight business to/from Europe zone might still be slow as compared with other regions. Ship building business could be in strong demand as normally for freighting companies to order more vessels to cope with shipping demands, they will have to place order typically 1.5 to 3 years in advance ( that is the typical duration of building a vessel ) and shipping business could become rosy again then as countries are spending on infrastructure ( Brazil to host World in 2014 and Olympics in 2016 and UK Olympics in 2012 ). Nowadays China shipping builder companies are getting lot of spot light with orders piling up. Stocks KepCorp, SembMar, Ezra, Swiber, Falcon Energy, KS Energy, Rotary Engineering, Tat Hong, PEC, Enzion and Swissco for Oil & Gas related. NOL, Cosco, Yangzijiang, JES, Mermaid, Mercator, STXOSV and ASL Marine for shipping & ship building related.
Commodity Sector :-
Weak USD, excessive liquidity and low interest rate normally associate with rising in demand of commodity ( regardless hard or soft type ). Year 2011 is expecting to see those signs again and with inflation as a threat, the demand of commodity is there. Crude oil price moving up will allow people to seek alternative like palm oil which in turn will drive up the demand for it. Countries spending in infrastructure play ( building rail road, facilities for mega events like World Cup, Olympics ) will see hard commodity in demand too. Stocks NobleGrp, Olam, Wilmar, GoldenAgr, IndoAgri, StraitsAsia, FirstRes, KencanaAgri.
Transportation Sector :-
Air travel was recovered in 2010 as both passenger and cargo loads were up as compared with previous year. As more and more air traveling regardless for business or leisure, the trend in air travel has developed into branded airlines vs budget airlines since then. 2011 will also be seeing the same trend again. There could be 3 things to lookout for in air travels in 2011. Traveling to US ( mainly from Asian tourists ) due to weaken USD, traveling to Europe ( mainly from Asian tourists ) partly also due to weakening of Euro and air travel within Asia itself as Asian countries building up tourism activities to spur their own economic growth ( Singapore IRs, Hongkong Disneyland, Osaka and South korea Universal Studio park, etc ). Air travel should continue to growth in 2011. The demand for land transportation in Singapore will be occupied by the 2 IRs, international events ( F1, international conventions, etc ) and increasing Singapore population. So far there is no sign of this demand slacking. Downside for transportation companies is the rising crude oil price which could eat into their profit margin due to higher cost for fuel usage. Stocks SIA, SIA Engg, SATS, ST Engg, TigerAir, ComfortDelGro, SMRT and SBS Transit.
Telco Sector :-
Telco companies in its nature is a defensive play and should be expecting the same for 2011. There were questions being asked can a small country like Singapore accommodate 3 telco companies and that view remain unchanged in 2011. SingTel last year was hurt by its overseas investment ( revenue slipped ) and causing it to underperform. StarHub despite it strong cash flow, question being asked was saturation of cable TV business and does StarHub need to venture overseas in order to expand its business. M1 being the smallest of the 3 telco was being talked about a potential take over target. Smart phones business was what kept the 3 telcos revenue in sustaining form in 2010. Tablet devices could be the one replacing smart phones in 2011. Stocks SingTel, StarHub and M1.
Construction Sector :-
Construction sector was pretty much quiet for 2010 but could be in focus in 2011 due to Government potentially focusing in infrastructure spending to sustain the economic growth. Expanding existing MRT network, enhancement of road infrastructure, housing upgrading, developing facilities for commercial expansion and building of facilities for international events are namely which construction companies can get contracts from. Stocks Yongnam, OKP, Koon and Tiong Woon.
Technology Sector :-
US economy recovery was led by technology sector and nothing has changed since then. Year 2010 was all about smart phone ( iPhone and Android ) and for 2011, tablet devices ( iPad ) could be the one in focus. However, Singapore technology sector is rather a small sector as compared with those in US, Japan, Taiwan and South Korea. The closet to benefit from the technology demand would be technology manufacturing companies and telcos. Other than that, investors would have to dig into US, Taiwan or South korea for the tech stocks and investors could do so via the ETFs channel that access those countries. Stocks Venture, SingTel, StarHub and M1.
Retail Sector :-
Tourism is what Singapore relied on as one of the component to sustain the economic growth. With the 2 IRs operating and gathering good revenue last year, international events ( F1 and conventions ) being held in Singapore too, this area will continue to provide the economy growth for Singapore in 2011. Tourism provides the driver for Singapore retail sector and with Singaporeans resume the spending power, the retail sector should not under-perform as relative to last year. Stocks Genting SP, SPH, F&N, CapitaMall Trust, Suntec Reit, FrasersCT, ComnfortDelGro, SMRT, SIA, TigerAir, CDL HTrust, UOL, FJ Ben, MetroHlg, Osim, Starhill Global, AscottREIT and ARA.
Utilities Sector :-
Renowned for its defensive nature as company's business is targeted towards daily necessity like water, gas and logistic provider. Unlikely to see large capital appreciation for these stocks but mostly backed by reasonable and above average dividend yield. Assets acquisition is a key factor for these companies to raise their companies profile and earning. Stocks Hyflux, K-Green, SembCorp, SingPost, CitySpring and MacqIntInfra.
Health Care Sector :-
Another of those defensive in nature business type of companies. Regardless of economy condition, health care is always in demand and cannot be shun away from. Singapore is also renowned for being a health care hub for the South-East Asia region and with last year acquisition of Parkway and Thomson Medical by private investor, focus will be on which will be the next to be being acquired. Stocks Plife REIT, Raffles Medical, First REIT, Biosensors, Q&M Dental and Healthway.
REIT Sector :-
REIT sector is not a sector by itself but rather a category of investment instrument as REIT companies can be among of the Retail, Commercial, Industrial and Health care sectors. Defensive by nature due to backing by their dividend ( offering average higher dividend yield than STI ), REIT has been lagging in 2010 partly due to fewer acquisition to enhance their assets. Most of the REITs managed to raise capital for the past 2 years and with current low interest rate environment, might see more assets acquisition in year 2011 ( which is a good news to REITs ). Assets acquisition is the key to unlock the value of REITs in 2011. Retail class type of REITs would be continued to be in demand in line with tourism demand in Singapore and stocks are CapitaMall Trust, Suntec Reit, Starhill Global and FrasersCT. Commercial class type of REIT would see better earning from previous year due to the rising office rental. Stocks CapitaComm Trust, Suntec Reit and K-Reit. Industrial and logistic provider class type of REIT was a laggard in 2010 as companies were not expanding much then. The demand for that in 2011 could be different as most of the companies are looking at expansion of business. Stocks A-Reit, MapletreeInd, Mapletreelog, Cambridge, Cache, Sabana REIT and GLP. Health care class of REIT will continue to perform as per last year. Stocks Plife REIT and First REIT. Hospitality class type of REIT would be in demand in line with tourism demand in Singapore for this year. Stocks CDL HTrust and AscottREIT.
S-Share Sector :-
S-Shares are renowned for high beta and volatility class of stocks in Singapore market. They have mostly under-perform in last year as investors taking cautious stand towards them. Property related stocks are concerned with property bubbles and constant tightening measures in China. Retail consumption related stocks attracted not much interest as the branded and biggest companies in China are not listed in Singapore and with past cases of corporate governance issue, investors are skeptical about investing in those despite the cheaper prices. The only bright spot for S-Share listed in Singapore last year was probably those offshore/marine related namely Cosco, Yangzijiang and JES whereby global demand in shipping business enable these companies to gather contracts. These companies should be able to continue to perform in 2011. Furthermore, couple of S-Shares listed are seeking option to dual list in either Hong Kong or Taiwan as the interest over there is better than Singapore. Despite all those, there are still some good quality S-Share to be found and with cautious investing, investors could minimize those risks. Stocks are Cosco, Yangjizang, JES, Yanlord, Ying Li, Midas, ChinaMinzhong, SinoGrandnes and Sound Global.
Year 2011 blue chip companies might have limited upside in price appreciation since the sharp rebound in 2009 as their earnings entering temporary saturation phase. This year potentially could be for the second liner and below stocks to play catchup in their earnings and provide better price appreciation that could out-perform the index. With the higher potential gain in investing in penny stocks, tag along will be higher risk also and hence careful selection of the stocks should be priority for investors in 2011. Companies with good order books of contracts, strong cash flow and sustainable profit level should be focus on as a selection criteria.
Personal preferred choice of stocks for 2011 :-
DBS, NobleGrp, NOL, SIA Engg, A-Reit, ComfortDelGro, CDL HTrust, Mapletreelog, Swiber, K-Green, Yongnam, Yanlord, Ying Li, JES, and Midas
