Worst-Performing Asia Stock Index Turns Winner on Value Love
Comment of the Day

March 11 2021

Commentary by Eoin Treacy

Worst-Performing Asia Stock Index Turns Winner on Value Love

This article by Ishika Mookerjee for Bloomberg may be of interest to subscribers. Here is a section:

“Singapore stocks look attractive because of their relatively better valuations and high dividend yields,” said Stuart Rumble, a multi asset investment director at Fidelity International. The large share of property firms and banks also make the market “highly geared” to economic re-opening, he added.

The Straits Times Index closed up 1.2% on Tuesday to the highest in more than a year. The gauge is trading at 14.7 times 12-month forward earnings, behind most of its regional peers and the MSCI Asia Pacific Index’s 16.8 multiple, according to Bloomberg-compiled data. The Singapore gauge’s dividend yield is estimated at 3.8% for the next 12 months, higher than the regional benchmark’s 2.3%.

The export-oriented economy suffered its biggest contraction since independence last year due to the global pandemic. Now, new daily Covid-19 infections locally are hovering near zero and the government expects growth to rebound to between 4% and 6% in 2021.

The three local banks -- DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. -- that make up nearly half of the index’s weight, contributed the most to the benchmark index’s rise amid higher yields, climbing more than 10% each this year. Investors are awaiting the easing of a regulatory cap on bank dividends introduced last year.

Eoin Treacy's view

The Singapore Dollar is a strong regional currency that does best in periods of economic growth led by Asia. The rate has been ranging between S$1.3 and S$1.45 since 2015 but that situation may now be coming to a conclusion as Asian growth ramps up following a milder contraction than the rest of the world and with a rebound fuelled by positive demographics.

The US Dollar’s rebound encountered this week in the region of the trend mean and a sustained move above S$1.35 would be required to question potential for additional downside.

The Strait Times Index yields 3.81% and has been ranging for even longer than the currency. It continues to rebound from the lower boundary and a break below 2800 would be required to question medium-term scope for continued upside.

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