Schroders Plc and Baring Asset
Management Ltd. are avoiding Singapore stocks, the cheapest in
Southeast Asia, as slower economic growth in the region and cuts
to Federal Reserve stimulus drive capital outflows.
The fund managers expect property to lead declines in
Singapore amid a real-estate slump and the prospect of higher
interest rates. The Straits Times Index was the worst-performing
developed market in 2013, dropping 9.5 percent since Fed
Chairman Ben S. Bernanke said in May that bond purchases may be
reduced on signs of sustainable U.S. recovery.
Capital has been fleeing Southeast Asia as investors seek
higher returns in North America. The market value of Singapore
shares fell 5.6 percent to $567 billion this year as of Dec. 23
as 10-year U.S. bond yields climbed to a two-year high in
September, making dividends from the city-state’s real-estate
investment trusts less attractive. The Standard Poor’s 500
Index rose to a record after the Fed announced on Dec. 18 it was
cutting stimulus, citing optimism about the labor market.
“Property companies will do badly, particularly in
Singapore where there’s a perceived housing bubble,” Lee King Fuei, a Singapore-based fund manager at Schroders, which
oversees about $420 billion. “If higher bond yields cause
property prices to fall, there’s an immediate impact on
earnings. Cost pressure on banks will also increase as bond
yields rise.”
The Singapore’s STI traded at 1.38 times book value as of
Dec. 24, according to data compiled by Bloomberg. That compares
with 2.49 for the Philippine’s PSEi Index, 2.37 for Indonesia’s
Jakarta Composite Index, 2.34 for the FTSE Bursa Malaysia KLCI
Index, and 2.07 for the Stock Exchange of Thailand, the data
showed.
Quantitative Easing
The Federal Open Market Committee said after its Dec. 17-18
meeting it will cut its $85 billion in monthly purchases of
Treasuries and mortgage-backed bonds, also known as quantitative
easing, to $75 billion in January.
The central bank will reduce asset buying in $10 billion
increments over the next seven policy meetings before ending the
program in December 2014, according to the median forecast in a
Bloomberg survey of economists on Dec. 19. The STI surged 94
percent from when the Fed lowered its benchmark interest rate in
December 2008 to this year’s peak in May.
Real estate and financial companies account for 47 percent
of the STI, according to data compiled by Bloomberg. Singapore’s
biggest property companies were among the worst performers in
2013, with City Developments Ltd. plunging 25 percent and
CapitaLand Ltd. falling 18 percent. Jardine Cycle Carriage
Ltd. (JCNC), an automotive distributor that gets about 89 percent of
sales from Indonesia, fell 27 percent to lead declines on the
benchmark equity gauge.
Slower Growth
The International Monetary Fund lowered its growth target
for Indonesia, Southeast Asia’s biggest economy, to between 5
percent and 5.5 percent this year and next after 6.2 percent
expansion in 2012. Singapore’s GDP is expected to grow 3.9
percent in 2014 after an estimated 3.8 percent rise this year,
according to a quarterly survey released by the Monetary
Authority of Singapore this month.
“Singapore’s neighbors have not been doing so well,
particularly Indonesia, where many of the property buyers in the
city come from,” said Khiem Do, Hong Kong-based head of Asian
multi-asset strategy at Baring Asset Management Ltd., which
oversees about $60 billion. “The Singapore government has also
been implementing tough property measures because they don’t
want housing prices to go through the roof.”
Housing Bubble
Singapore home prices increased at the slowest pace in six
quarters in the three months ended Sept. 30 after the government
introduced new curbs to cool prices in Asia’s second-most
expensive property market.
“There’s no driver to spur investor interest in
Singapore,” Baring’s Do said. “The recent penny stock crash
isn’t really helping the case for investing in Singapore.”
About $6.9 billion was wiped from the market value of three
commodity companies over three days in October, prompting an
investigation by the monetary authority and Singapore Exchange
Ltd. The average value of shares traded daily on SGX in the
three months through December fell to S$1 billion ($790
million), compared with S$1.24 billion a year ago, according to
data compiled by Bloomberg.
Penny Stocks
Blumont Group Ltd., which invests in minerals and energy,
soared more than 1,000 percent this year through the end of
September to lead gains on the FTSE Straits Times All-Share
Index. The stock plunged from an all-time closing high of S$2.45
on Sept. 30 to 7.8 Singapore cents on Dec. 24.
Asiasons Capital Ltd., the second-best performer, slumped
96 percent from its record close of S$2.83 on Oct. 1 through
Dec. 24. LionGold Corp. tumbled 91 percent from its S$1.725 peak
on Aug. 29 after deals to acquire gold assets fell through. The
plunge in shares prompted the bourse to seek approval to
establish circuit breakers to minimize market volatility.
The world economy is primed for its fastest expansion in
four years, with the U.S. driving output gains, economists at
Goldman Sachs Group Inc., Deutsche Bank AG and Morgan Stanley
said this month. Global growth will accelerate at least 3.4
percent in 2014 from less than 3 percent this year as the euro
area recovers from recession and China and other emerging
markets stabilize.
“Singapore would be one of the markets that would be
favored in Southeast Asia,” said Haren Shah, Singapore-based
chief strategist for Asia-Pacific at Citigroup Inc.’s wealth
management division, which oversees $210 billion. “Singapore,
along with the North Asian markets, is looking cheap and most
likely will benefit as we see recovery in the global economy.”
The Straits Times Index is trading at 14.7 times estimated
earnings, compared with 16 times for the MSCI World Index,
according to data compiled by Bloomberg News.
Trade Falling
Even as the external environment is improving, Singapore is
exporting less to the West, according to Alan Richardson, whose
Samsung Asean Equity Fund outperformed 97 percent of peers
tracked by Bloomberg during the past three years. The city-state
gets about 22 percent of export revenue from the U.S. and Europe
as of November, compared with 37 percent a decade ago, according
to data from International Enterprise Singapore.
“Singapore being a very property- and banking-centric
country means it hasn’t benefited from global economic recovery
because of the government’s tightening policy on the property
market,” Richardson said.
To contact the reporters on this story:
Jonathan Burgos in Singapore at
jburgos4@bloomberg.net;
Jasmine Ng in Singapore at
jng299@bloomberg.net
To contact the editor responsible for this story:
Sarah McDonald at
smcdonald23@bloomberg.net
Baring to Schroders Avoid Singapore After Slump
