Singapore stocks have gained 13 percent in 2012 with volatility that is the lowest in Asia, luring the region’s biggest investors to a rally that trails only Denmark among developed nations.
The Straits Times Index has risen 15 of the last 19 days while its 30-day implied volatility, a measure of risk derived from options prices, held below levels in Japan, Hong Kong, China, South Korea, India, Taiwan and Australia. Shares in the measure yield 3.6 percent in dividends, compared with 3.2 percent for the MSCI Asia Pacific Index, data compiled by Bloomberg show. The Singapore gauge rose 0.5 percent today, the biggest advance among Asia-Pacific benchmarks.
Nikko Asset Management Co. and Schroders Plc are finding bargains even after the Straits Times Index closed at its highest level of the year last week. Companies trade at 9.9 annual earnings, compared with 21 times for Denmark’s OMX Copenhagen 20 Index, the best-performing index among developed countries with a 21 percent gain. The MSCI Asia Pacific Index trades at 14 times profit, data compiled by Bloomberg show.
“Singapore equities are very, very cheap,” said Ng Soo Nam, Singapore-based chief investment officer at Nikko Asset Management, which oversees about $165 billion. “Valuations have been bashed down so much that the dividend yields are getting interesting even for Singapore banks, which are traditionally not dividend yield stocks.”
DBS Group Holdings Ltd., Southeast Asia’s biggest lender, offers investors a yield of 3.8 percent. That’s the highest among the city’s three banks, according to data compiled by Bloomberg. Oversea-Chinese Banking Corp., which gets 82 percent of sales from Singapore and Malaysia, pays 3.2 percent.
Financial companies account for about 45 percent of the Straits Times Index, according to data compiled by Bloomberg.
Singapore Telecommunications Ltd., the heaviest-weighted company at 10 percent, yields 4.6 percent. StarHub Ltd., a pay-TV operator that trades at 19.9 times trailing earnings, pays the highest dividend relative to share price of any of the index’s 30 member-companies.
Real estate investment trusts on the Singapore bourse offer an average dividend yield of 6.9 percent, the highest for the industry among the Asia’s developed markets, according to data compiled by Bloomberg. CapitaMall Trust, the only REIT on the Straits Times Index, yields 4.9 percent.
“There’s been a much greater focus on dividend investing and companies that pay good dividends given the low interest rate environment,” said Lee King Fuei, a Singapore-based fund manager at Schroders Plc, which oversees about $326 billion. “Singapore has a much larger proportion of companies that fit that criteria. That’s why the market has done quite well. This reflects that risk appetite for equities is slowly coming back.”
The Straits Times Index slumped 17 percent in 2011, snapping a two-year advance, as China took steps to cool its property market and Europe struggled to resolve its debt crisis. Negative yields on two-year government debt for Germany, Switzerland and Denmark and the Bank of Japan’s decision to scrap a 0.1 percent yield floor underscore the difficulty for investors seeking returns from relatively safe assets.
The Singapore dollar has climbed 3 percent against the U.S. greenback this year, the second-biggest advance among the world’s major currencies. An appreciating currency boosts the allure of dividends.
The Monetary Authority of Singapore, which uses the exchange rate to manage inflation, said in April it would allow faster gains to damp price pressures. The central bank guides the local dollar against a basket of currencies within an undisclosed band, and adjusts the rate of change by altering the slope, width and center of the band.
The consumer price index rose 5.3 percent in June from a year earlier after climbing 5 percent in May, the Department of Statistics said in a statement yesterday. The median estimate of 16 economists in a Bloomberg News survey was for a 5.1 percent increase. The central bank forecasts consumer-price gains will average 3.5 percent to 4.5 percent in 2012.
Dividend yields and companies that provide exposure to the economies in Association of Southeast Asian Nations make the city’s equities attractive, Dennis Lim, co-Chief Executive Officer at Templeton Asset Management Ltd. in Singapore, said.
Singapore’s biggest companies from CapitaLand Ltd. to Singapore Telecommunications offer investors exposure to China and Southeast Asia, which together with India could outpace the rest of the world in terms of economic growth over the next two years, the International Monetary Fund said in an April report.
Southeast Asia, the heart of the 1997 currency crisis, produced the best risk-adjusted returns for Asian stocks this year since global markets started to rebound three years ago, as investors sought a haven from Europe’s debt turmoil. The MSCI Southeast Asia Index has climbed 11 percent, including dividends, this year.
“Many of these companies give you exposure to Asean but trade at a much lower multiple,” Lim, who helps manage $50 billion of emerging-market funds at Templeton in Singapore, said. “Everyone is excited about India and China and they forget that Asean as a region has 600 million people. You would see a lot of growth in Asean going forward.”
Investors can buy exposure to PT Astra International, Indonesia’s biggest automotive retailer, at a discount in Singapore by investing in Jardine Cycle & Carriage Ltd., the biggest shareholder, Lim said. Astra trades at 14.3 times trailing earnings, compared with Jardine Cycle’s 12.3 times, according to data compiled by Bloomberg. Jardine Cycle reports that 93 percent of revenue comes from Astra.
Still, the fact Singapore’s fate is so tied to outside economies means investing in the city-state’s equities is not without risk. Citigroup Inc.’s private bank prefers direct exposure to to domestic-oriented economies such as Indonesia, Philippines and Malaysia after Singapore’s gross domestic product unexpectedly shrank in the three months through June.
“As one of Asia’s most export-oriented economies, it is perhaps no surprise that Singapore’s second quarter GDP growth number missed expectations,” John Woods, the Hong Kong-based chief Asian strategist at Citigroup’s private bank, wrote in a note to clients dated July 18. “For Singapore, a technical recession, in which growth in the third quarter is also negative, is entirely possible.”
Singapore’e economy unexpectedly fell an annualized 1.1 percent in the three months through June from the previous quarter, when it climbed a revised 9.4 percent, as factory output contracted. While the city’s export growth accelerated last month, Europe’s deepening debt crisis threatens to curb demand for Asia’s goods.
CapitaMalls Asia Ltd. is the best-performing stock on the benchmark Straits Times Index as the operator of shopping malls expands its presence in China and Malaysia. The city’s biggest developers, CapitaLand Ltd. and City Developments Ltd., were also among the biggest climbers as home prices in Southeast Asia’s largest economy rose to a record in the second quarter even after the government introduced measures to rein in prices.
“Property has good fundamentals for the long-term,” said Andrew Gillan, who helps oversee about $72 billion in assets as senior investment manager at Aberdeen in Singapore. “Singapore also benefits from the region’s strong economic growth.” Aberdeen has an overweight rating on Singapore and holds shares in the city’s banks, real estate companies and offshore rig builders.