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Value stocks shine amid recent market rebound: SGX

THE Singapore Exchange (SGX) has highlighted value investing as a significant contributing factor to the Straits Times Index's (STI) recent rally in the quarter to date, noting that four of the STI's 10 strongest performers for the period were ranked highly for value factors in early H2 2020.

The four stocks were Jardine Matheson Holdings, Sembcorp Industries, Jardine Strategic Holdings and CapitaLand. These averaged 26 per cent total returns in the current quarter compared to 16 per cent for the STI, said SGX in a market update published on Tuesday.

According to the bourse, the recent investor rotation from healthcare and technology stocks to more cyclical sectors and stocks deemed to be trading at value has seen the STI generate close to double the gains of US' S&P 500 Index in the quarter and year to date. SGX said that over both periods, Singapore's 30 largest and most actively-traded stocks with the highest factor exposure to value have averaged total returns that are broadly in line with the STI.

Sunpower Group was the largest gainer of the 30 value stocks in the quarter to date, posting total returns of 50 per cent over the period. The environmental protection solutions specialist's underlying net profit surged 47 per cent year on year to a record high of 278.7 million yuan (S$56.6 million) for the nine months ended Sept 30, 2020.

On a 2020-to-date basis, Sembcorp Industries emerged as the top contributor of the 30 value stocks, registering total year-to-date returns of 50 per cent. The company recently demerged from Sembcorp Marine in September this year to become a focused energy and urban business, with a renewed mandate to unlock value for investors. It is also one out of five value stocks named by SGX to have seen the most institutional inflows proportionate to their market capitalisation, with net inflows of S$39.1 million for the quarter to date.

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Other value stocks with notable net institutional inflows include BHG Retail Reit, CDL Hospitality and Hong Fok Corporation. Together with Sembcorp Industries and CapitaLand, these five stocks averaged a 17 per cent total return in the quarter to date, in line with the gains of the STI.

SGX also said in its update that most of the STI's 16 per cent total return in the quarter to date has hinged on the gains of DBS, UOB and OCBC. While the trio of banks was not among the top 30 rankings for the value factor, the bourse said this quarter has seen the banks' average price-to-book (P/B) multiple rise from 0.84 to 1.02 times, in line with the revaluation of global banking stocks on news of the Covid-19 vaccine development and deployment this quarter.

SGX estimated that this rotation to financials in the current quarter saw the three banks revalued from an average 16 per cent discount to book value, to a marginal premium. The trio historically averaged a P/B ratio as high as 1.38 times at the end of Q1 2018.

Factor investing is a relatively new method of grouping that looks to link past and potential performances of stocks according to common factor attributes including value, which measures a company by fundamentals such as revenue, dividends, yield and profit margins.

The 30 value stocks identified by SGX were viewed by the bourse as those with the most inexpensive valuations, or lowest valuations in terms of a screening that applied an equal-weight combination of P/B and price-to-earnings (P/E) multiples. These counters were sorted by the highest positive value factor based on data from Factor Investing in Singapore by Nicolas Rabener and supported by SGX, at the time the report was published in August 2020.

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