- Banks, commodity companies at risk from slowing China growth
- Straits Times Index's drop is almost triple the rest of Asia
Singapore’s stocks are set for a 15 percent tumble this year, putting them in the same league as Greece. Baring Asset Management Ltd. and UBS Group AG say shares need to get even cheaper before they’re prepared to buy.
Commodity trader Noble Group Ltd. and oil-rig builder Sembcorp Marine Ltd. fell at least 46 percent in 2015 through Monday amid a raw-materials price rout, while DBS Group Holdings Ltd. has been the biggest drag on the Straits Times Index as property prices decline and bad debts increase. Among developed markets tracked by Bloomberg, the only benchmark measure that has fared worse is the ASE Index in Athens, which is poised for a 24 percent plunge.
“While some value could emerge if Singapore drops another 10 percent, there’s not a lot of things to be wildly excited about Singapore at the moment,” said Soo Hai Lim, a Hong Kong-based money manager at Baring. “Cheap valuations aren’t a good enough reason why these stocks would deliver the kind of performance we’re looking for. The growth outlook is still quite soft for 2016.”
Following this year’s slump, shares on the MSCI Singapore Index trade at 1.1 times the value of its companies’ net assets, compared with a multiple of 2 on a measure of global equities. The gap between the two widened this month to the most since May 2003. The MSCI All-Country World Index is heading for a 5.5 percent retreat in 2015.
While attractive valuations may spur a rebound in the early part of next year, the outlook for the whole year still looks pessimistic, according to Mixo Das, a strategist at Nomura Holdings Inc.
“Growth overall is slowing, particularly in China, and that raises the risk for the earnings of banks and commodity companies,” Das said. “That’s going to drag on Singapore valuations.”
MSCI Inc. reclassified Greece as an emerging market in November 2013, while fellow index compiler FTSE still considers Greece as a developed market.
Foreign investors have pulled $6.7 billion from Thai, Philippine and Indonesian equity markets this year amid concerns the first U.S. interest-rate increase in almost a decade and a weakening Chinese economy will further curb the region’s economic growth. While Singapore averted recession in the third quarter, the Monetary Authority of Singapore has warned weaker corporate balance sheets and currency market volatility pose risks to the nation’s lenders.
“The banks have exposure to the Southeast Asia region,” Kelvin Tay, regional chief investment officer at UBS’s wealth management business in Singapore, said by phone. “Thailand, Malaysia and Indonesia aren’t doing particularly well.”
The non-performing loan ratio among Singapore banks rose to 1.5 percent in the third quarter of 2015, from 1.1 percent a year earlier, the central bank said in November. Bad loans have increased in the manufacturing sector, and banks with exposure to trade may see higher credit risks, the monetary authority said.
Still, Nader Naeimi, Sydney-based head of dynamic markets at AMP Capital Investors Ltd., said he is staying optimistic because rising interest rates should help boost bank profitability. Borrowing costs in Singapore were rising even before the Federal Reserve increased U.S. interest rates this month for the first time since 2006, helping to lift lender DBS Group’s interest margins in the third quarter to a four-year high.
Singapore lenders including DBS Group, Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. account for about 35 percent of the benchmark Straits Times Index, according to data compiled by Bloomberg.
“The key drag here is the banks,” said Nomura’s Das. “Loan growth is weak and is likely to remain so.”
The Straits Times Index added 0.3 percent to 2,852.97 at the close in Singapore on Tuesday. While the gauge is the worst performer across Southeast Asian markets in local currency terms, FTSE Bursa Malaysia KLCI Index plunged the most in U.S. dollars as the ringgit headed for a 23 percent slump this year.
While Nomura’s Das expects the gauge to end 2016 little changed from current levels, other brokerages are more optimistic, with Credit Suisse Group AG forecasting an advance to 3,000 and RHB Securities Pte expecting a 12 percent gain by December next year from Monday’s close. Still, Bank Julius Baer & Co. says it’s too early to buy.
“The growth outlook isn’t great,” Jen Chua, an analyst at Bank Julius Baer in Singapore, said by phone. “Though the downside from here may be limited, we won’t get too positive on the market for now.”