Chili Crabs Whet Samsung Asset's Appetite Amid Singapore Slumpby
Money manager sees spots of value even as stock market sinks
Singapore Air, Jumbo Group have potential, Richardson says
For investors reeling after the first annual loss for Singapore stocks in four years, there may be comfort in chili crabs and airline travel.
While the outlook remains bleak for Singapore shares following the second-worst performance among developed markets last year, Alan Richardson of Samsung Asset Management Ltd. is seeing flashes of opportunity. The Hong Kong-based money manager, who shunned Southeast Asia’s largest equity market in 2015, spots potential in companies such as Singapore Airlines Ltd. and Jumbo Group Ltd., the restaurant company that went public in November. Bank Julius Baer & Co., meanwhile, is drawn to real estate investment trusts.
“Singapore growth may be subdued but it’s still growing,” says Richardson, who runs Samsung’s Southeast Asian equity fund that has beaten 97 percent of its peers over the past five years. “Investors can still find investment opportunities. They just need to avoid the potholes along the way in the oil and gas sector or commodities.”
Richardson is underweight in the broader Singapore equities market due to concerns the collapse in commodities will continue to impact raw-material traders and lenders with exposure to oil explorers and miners. The Straits Times Index tumbled 14 percent in 2015 amid volatility in China and slumping oil prices.
There are few signs of relief, with the benchmark index down 11 percent this year as a global equities selloff deepens. Last year’s worst performers are again at the bottom of the heap, with commodities trader Noble Group Ltd. and oil-rig builders leading losses. Growth in the city-state is expected to remain below 3 percent in the next two years.
Given that outlook, Richardson is taking cautious steps, continuing to avoid lenders and commodity-related stocks and buying shares with good growth potential. Jumbo Group has soared 88 percent since the Singapore-based operator of chili-crab restaurants’ initial public offering. The company has been making inroads in China, which would underpin future growth, he said. Its shares gained as much as 4.4 percent to 48 Singapore cents before closing at 47 Singapore cents.
Richardson has also been buying shares in Sheng Siong Group Ltd. The supermarket company is expanding its network of stores and earnings have been resilient even as the Singapore economy posted its slowest growth in six years in 2015, he said. The retailer will likely report another record profit for this year, according to estimates compiled by Bloomberg. The stock gained 1.8 percent Friday.
Richardson is betting on a recovery in Singapore Air’s earnings as it benefits from plunging jet fuel prices. The airline’s profit will increase to S$687 million ($477 million) in the year ending March 2016 from S$368 million in the previous fiscal year, according to average analyst estimates compiled by Bloomberg. The shares added 1.2 percent.
Samsung Asset has also been buying companies with resilient earnings and decent dividend yields such as Singapore Technologies Engineering Ltd., Southeast Asia’s biggest aircraft maintenance company, and ComfortDelGro Corp., Singapore’s largest taxi operator, Richardson said. ST Engineering rose 1 percent, while ComfortDelGro advanced 1.8 percent.
“This market volatility is not really going to have an impact on these companies’ underlying operations,” he said. “The volatility just causes multiples to go crazy, which provides us a good buying opportunity.”
For Bank Julius Baer, the recent sell-off has boosted the allure of Singapore REITs. The owners of shopping malls, office buildings and industrial facilities offer average dividend yields of 7.8 percent, the highest in the Asia Pacific region after Hong Kong, according to data compiled by Bloomberg.
“Singapore REITs are looking attractive following recent declines,” Jen Chua, an analyst at Bank Julius Baer in Singapore, said by phone. “It would be a good hedge amid market volatility.”
While the market selloff has made valuations cheaper, strategists warn it’s too early to jump into the hardest-hit stocks.
Noble Group and oil-rig builder Sembcorp Marine Ltd. have plunged at least 11 percent this year, after losses exceeded 46 percent in 2015. Southeast Asia’s biggest lender DBS Group Holdings Ltd. along with United Overseas Bank Ltd. and Oversea-Chinese Banking Corp. are down at least 10 percent. The weightings for the three financial giants account for a third of Singapore’s benchmark index.
“We haven’t seen the worst for commodities,” Herald van der Linde, Hong Kong-based head of equity strategy for the Asia Pacific at HSBC Holdings Plc, said in an interview from Singapore on Jan. 14. “Singapore banks are less attractive compared to those in Indonesia and the Philippines. Property prices have been coming off and mortgage payments have been rising.”
Singapore is currently the cheapest stock market in Southeast Asia. Shares on the MSCI Singapore Index trade at about the value of its companies’ net assets, compared with a multiple of 1.8 on a measure of global equities. The gap between the two widened last month to the most since May 2003.
“The fundamentals aren’t that bad,” Richardson said. “Everyone has just become truly emotional following the market selloff. I’m just trying to navigate through that.”