Big players, top-down regulation could unlock value in Singapore stocks: industry watchers

SINGAPORE might require a big investor to inject liquidity into its stock market if it hopes to regain investor interest, said a panel of market experts on Saturday (Jul 15).

A fund focusing on small-cap or mid-cap stocks in various sectors, as well as top-down regulation may help unlock the value of deeply discounted counters, these industry watchers told The Business Times senior correspondent Ben Paul during the Mark to Market “Live” forum. 

Mark to Market “Live” is an extension of Paul’s popular weekly Monday column and monthly podcast of the same name. This edition took place at The Capitol Kempinski Hotel, and was the first to be held in front of a live audience. 

The panel comprised Terence Wong, chief executive officer, Azure Capital; Vijay Natarajan, vice-president of real estate and Reits, RHB Bank Singapore; and Aaron Chwee, OCBC’s head of wealth advisory. Apart from ideas about how to revive the Singapore market, and the panel discussed how investors should position their portfolios in the wake of aggressive interest rate hikes to quell inflation. 

Noting that Singapore is a “value playground”, Wong said Singapore’s market offers multiple defensive stocks that have committed to dividend payouts, resulting in steady income for investors. 

Banks, in particular, have dividends coming in at 5.5 per cent to 6 per cent, having benefited from heightened interest rates, he added. This would provide “downside protection” for investors. 

RHB’s Natarajan was positive on industrial and logistics real estate investment trusts (Reits), as their asset values are more stable and they have relatively reliable cash flows, compared to office or retail Reits.

While Reits are sensitive to high interest rates, the sector as a whole is favoured for its ability to ride out market cycles, he noted. 

“My suggestion would be to always have 20 to 30 per cent of your portfolio in Reits, especially if you’re the kind of investor who is not extremely savvy in terms of market cycles and trends,” added Natarajan.

Aside from stocks, fixed income investing has returned to the limelight. OCBC’s Chwee said bond investors can opt for crafted portfolios that combine investment grade bonds with higher yield picks, which have resulted in yields ranging from 5 per cent to 6 per cent. 

“Investors today can go out and lock in these yields… and if interest (rates) drop, they may potentially have capital appreciation,” he said. 

However, income-focused investing could be one reason the Singapore market suffers from low trading liquidity. RHB’s Natarajan said high dividend yields means that income investors are happy to hold on to their stocks until a catalyst emerges.

This could come in the form of an internal catalyst, such as a company deciding to spin off some of its assets; or an external catalyst, such as a major investor deciding to acquire a stake in the company.  

Although investors can continue to wait, it is possible that catalysts never materialise as major shareholders move to privatise their companies, with low-ball offers rampant in recent times, the market experts warned. 

“What I will suggest is that we need to have a big brother behind (us),” Azure Capital’s Wong said, noting that Malaysia’s Employee Provident Fund supports the Kuala Lumpur stock market. 

“I’m sure there is scope to park a couple billion (dollars) in the market, and I think that will lend (it) confidence,” he added. 

Natarajan reckoned that Singapore should emulate Japan, where its financial regulator stepped in to require companies trading below book value to make plans to address their undervaluation.  

The panel also discussed China, whose market has not popped as observers had expected since it ended its zero-Covid policy. 

Honing in on China’s tech stocks, OCBC’s Chwee said the space differs greatly between the large- and small-cap players. The large caps enjoy a healthy balance sheets and cash flows, whereas the smaller caps continue to face cash flow issues coupled with a poor market environment. 

The Chinese government has also pledged to be more positive towards the tech space, and that may be a “potentially decent catalyst”, he said. 

But China’s property sector will continue to struggle unless more stimulus is injected, said RHB’s Natarajan. That said, select areas may still offer opportunities, such as properties geared towards logistics and industrial sectors, he added.