THE Year of the Sheep has turned into a period of slaughter with Singapore stocks as a whole registering their worst year since 2011.
Looking ahead to the Year of the Monkey, analysts are mostly not sticking their necks out for a rebound. They are focusing on longer-term reasons for cheer instead, like a growing South-east Asia and a restructuring economy to focus on services. They like the property sector for its value and the transport sector for its defensiveness.
At the end of the half-day trading session on Dec 31, 2015, the total value of the 764 companies listed on Singapore Exchange (SGX) tracked by The Business Times came to S$855 billion, down S$102 billion from a year ago.
The benchmark Straits Times Index (STI) closed the year at 2,882.73 points, down 14 per cent from 3,365.15 points at end-2014 and 19 per cent from a mid-April peak of 3,539.95 points. The index hit an end-September low of 2,787.94 points.
The last time stocks fell this much was in 2011, when the market bled 17 per cent. Those invested in offshore and marine companies this year fared the worst: they would have found themselves down a whopping 50-70 per cent. The Singapore dollar ended the year down more than 6 per cent against the US dollar.
Overall, brokers are expecting the STI to trade between 3,000 and 3,200 points by end-2016, not too far from where it is today.
"Stocks are cheap, and they have ugly near-term prospects," said CIMB Singapore equity research head Kenneth Ng in his 2016 outlook report.
Yet, Mr Ng does not believe things will be gloomy forever. He sees office space, banks and logistics businesses as longer-term winners. "We are increasingly optimistic on the growth opportunities for Singapore-listed corporates. That optimism is rooted in several converging trends, which we think will raise the growth potential for Asean, and cement Singapore's relevance as one of the hub cities of the world."
Kenneth Tang, senior portfolio manager at Nikko Asset Management Asia, is also looking at the longer term. He likes service companies that can thrive for the next 50 years. He highlights companies such as SGX, SATS, Q&M, CWT, Wilmar, and Keppel T&T.
The year 2015 had started out bubbly amid a global search for yield that boosted valuations of defensive stocks and some real estate investment trusts here. Debt-fuelled traders piled into the Chinese market, lifting sentiment across Asia, even as oil prices seemed to stabilise at US$60 a barrel.
Markets were riveted by the drama of a Greek exit from the eurozone, while the spectre of the eventual December US rate hike haunted traders throughout the year.
In June, China stocks started coming down to earth, crashing a few times in that month, July and August. Sentiment went downhill, especially after the yuan went through a slight devaluation. That nevertheless sparked global turmoil, causing the US Fed to delay raising rates in September.
Investors fretted over China's continued growth slowdown and its effects on the world. Emerging market stocks continued to underperform developed markets as global investors, the bulk of whom are based in US and Europe, decided to stick to their home markets.
Business sentiment fell in many parts of Asia amid worries of bad debt and a regional slowdown. In December, oil fell further to the US$30s, exacerbating worries that offshore and marine companies may not get enough cashflow to repay debt obligations as major oil and gas players reduced their spending. Banks here were dragged down on debt and slowdown concerns.
Nevertheless, those here continued to have faith that South-east Asia is still growing.
CIMB's Mr Ng noted that the world's cheapest workers are found in Singapore's neighbourhood: Myanmar, Cambodia and Laos. Chinese capital is also available to develop infrastructure in the region under its One Belt, One Road policy.
Singapore government-linked companies can co-invest with China in the development of Asean countries, he said. Thus, banks facilitating project finance loans, and industrials such as Keppel and Sembcorp investing in infrastructure and utilities assets, stand to benefit from these longer term developments, he said.
Nikko AM's Mr Tang said that SGX, which his S$77 million Shenton Thrift Fund holds, is an exporter of financial services. It can be a hub and recycler of capital in the region, he said. "SGX has built up a business model to capture that: equities, derivatives, and next, bonds and currencies."
One day, when regulators require fixed income trades to be booked on an exchange, there could be new fee income potential for the firm, Mr Tang said.
A deep value company he also likes is OCBC-owned property conglomerate United Engineers (UE). At current levels of around S$2, there's good value, Mr Tang said. OCBC had wanted to sell its stake to Thai tycoon Charoen Sirivadhanabhakdi, but talks fizzled out earlier in 2015.
"OCBC and Great Eastern (OCBC's insurance subsidiary which owns a substantial stake) has made it clear they want to sell UE. Our financial analysts have been looking at that possibility. We will get a lot more conviction when we see the stars align," Mr Tang said.
Another restructuring, divestment or privatisation play could involve Keppel T&T and its investment, M1, he said.
In the short term, observers expect markets here to be affected by uncertainties over how fast US interest rates will go up.
DBS Vickers Securities expects the STI to trade from 2,650 points to 3,100 points in the next six months. Its lower bound is pegged to 10.7 times, or two standard deviations, below the mean of the STI's 12-month forward earnings. "We see weakness in Q1 2016 on interest rates and earnings uncertainties."
Weakness will be a trading opportunity to buy stocks and then sell, DBS said. It noted that market valuations were inexpensive and history shows that a negative stock market reaction to an initial US rate hike turns within three months.
Moreover, the period from mid-March till end-April is traditionally positive for equities as investors position themselves ahead of stocks going ex-dividend, DBS said.
On a broader level, there are still some reasons to be bullish about stocks, said DBS chief investment officer Lim Say Boon. He pointed to how investors still earn far less on bonds than they can on equities.
In Asia, analysts highlight the role of governments in supporting their economies by cutting interest rates and embarking on domestic reforms.
Said Tan Min Lan, head of UBS's Asia-Pacific investment office: "We are optimistic on the momentum of regional reforms, particularly in Singapore, India and China; valuations in India reflect this, China and Singapore less so."
The key to return expectations lies in where the US dollar will go in 2016. A strong dollar is typically viewed as being negative for Asia and commodity-linked emerging markets, especially if there is little economic growth.
One explanation is that as commodities are priced in dollars, strength in the greenback makes it more expensive for emerging markets to purchase the commodities they need to build their economies. Commodity exporters also suffer from falling demand from the rest of the world as a strong dollar makes their goods more expensive.
In 2015, the US dollar strengthened against most major currencies, except the Japanese yen and the Swiss franc.
Against the dollar, the euro depreciated 10 per cent and the Australian dollar, 11 per cent; while emerging market currencies such as the Brazillian real (-33 per cent) and South African rand (-26 per cent) fared the worst. Closer to home, the Malaysian ringgit was down 19 per cent while the Indonesian rupiah was down 10 per cent.
However, Alain Bokobza, French bank Societe Generale's global head of asset allocation for corporate and investment banking, thinks that the dollar has finished strengthening.
Central banks in Japan and Europe are not inclined towards further easing, he said. This means the yen and the euro, the two currencies most traded against the US dollar, might not depreciate further. Another reason for a stable dollar is that the US Fed will tighten monetary policy gradually, he said.
In Singapore, billions were wiped off the valuations of well-known names in 2015. They included the three local banks, the Jardine group of companies, Keppel Corp, Genting Singapore, and Singtel. Commodity trader Noble Group was also hard hit by shortseller reports alleging accounting issues.
The biggest gainers by market value, meanwhile, included insurer Prudential, property play Hongkong Land, hospital giant IHH Healthcare, shipping firm NOL which is being taken over, and in-flight caterer SATS, which is favoured by many brokers.
The biggest percentage gainers included oil & gas trader CEFC International, which is pursuing investment projects and has attracted several SGX queries over its trading. Another was Catalist-listed Chongqing developer Starland Holdings, which has sold units in its projects, while major shareholders reached an agreement to sell their shares. The offeror has said that it wants to keep the company listed.
The biggest percentage loser of the year was MMP Resources, down 93 per cent in value.
Formerly known as Sino Construction, the company had shot up from end-2013 on news of its business restructuring. Shares went to 30 cents in 2014, even as SGX queried its trading activity and its deals in coal and other resource assets.
The collapse came in March 2015 amid an unexpected profit warning, a time extension to the release of its financial results, director resignations, and selling by major shareholders. The company's 2014 commodity deals fizzled out.
Sino Construction renamed itself MMP Resources, raised new funds, and is now pursuing a micro power plant construction business among other plans in the renewable energy space.
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