Still chances to make money in local bourse

GLOWING FIGURE: From Feb 2 to Thursday, the STI gained about 7.7 per cent, compared with the Dow Jones' gain of 6.2 per cent during the same period.


    Jul 08, 2014

    Still chances to make money in local bourse

    IN THE 153 trading days between Feb 2 when the Dow Jones Industrial Average crossed 16,000 for the first time and Thursday when it breached the 17,000 level, the Straits Times Index (STI) gained about 7.7 per cent. Not too shabby when you consider that the Dow's rise of 1,000 points over that period amounts to only 6.2 per cent.

    So although the headlines might focus on Wall Street's all-time highs, anyone who bought and held the STI when the Dow hit 16,000 would actually be better off now than someone who invested in the Dow at that time.

    Of course, sceptics might counter that the raw numbers tell only one side of the story. The STI's lopsided reliance on a few heavyweights to thrust it higher is perhaps the biggest objection, though, to be fair, the criticism should not be directed at the index but more at the absence of sufficient actively traded large-cap firms for the index's guardians to choose from.

    Moreover, performance appraisal of this sort hinges heavily on choice of the start and end dates. Choose correctly and even a lemon of a market can be made to look like a top performer. Year-to-date, the STI has gained only 3.4 per cent, which is not great.

    Still, the fact remains that although volume has been low for many months now and, although retail involvement is almost non-existent, outperformance is clearly possible in the local market.

    Within the index, it is to be found in the Jardine group and smaller counters like Olam International, Thai Beverage and Genting Singapore. Look and ye shall find, or so the saying goes.

    It is also interesting to see more houses making encouraging noises about emerging markets (EMs). ABN Amro, for example, said last week that headwinds for EMs are generally fading, as market sentiment has improved and capital flows have returned.

    "Moreover, fears of a hard landing in China have receded, while the fall-out from the Ukrainian conflict has proven rather short-lived," said the bank.

    "Emerging markets are also benefiting from the acceleration in advanced economies. However, the growth picture remains divergent, with some emerging markets slowing in reaction to tightening measures, political uncertainty and/or structural flaws. All in all, ABN AMRO expects growth in emerging markets to remain at 4.5 per cent this year, similar to 2012/13, gaining some momentum in 2015."

    DBS Vickers (DBSV) in its Q3 Asean Strategy last week, titled Consolidate And Rejuvenate, did not refer to EMs per se but said that the investment environment for the region should still be positive in the coming month and it does not expect major fund outflows.

    "China's improving PMI, a pragmatic QE tapering schedule in the US and a recovery in 2H are reasons to stay positive," said the broker as it recommended a "buy" on Thai banks and property, and an "overweight" on Asean construction.

    For Singapore, DBSV said merger and takeover activity will underpin the market, at least for as long as the market "lacks actionable strong themes".

    Diplomatically, the broker did not indicate an end-of-year target for the STI, though a best guess would be that the index finishes the year higher than where it started, and the eventual return in percentage terms is only a single digit.

    Not so for many penny stocks where daily returns can run into the double digits. Of course, low base prices contribute to this, as do syndicates and house traders.

    As takeovers/privatisations seem to be the only activity guaranteed to push prices higher, some second- and third-liners have capitalised on this with takeover announcements of their own. Whether or not these materialise (or are genuine in the first place) remains to be seen, but they at least give punters something to bank on.

    Bottom line: Although the liquidity withdrawal that started in May last year has hurt the local market, there are still opportunities to make money. Underperforming blue chips, growing interest in EMs and an active local corporate sector offer hope for the second half.