Improving economy may prompt S’pore investors to look at cyclical stocks
- POSTED: 07 Jan 2014 23:33
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An improving global economy and recovering stock price performance in developed markets are some factors that may prompt Singapore investors to start looking at risky cyclical stocks this year.
SINGAPORE: An improving global economy and recovering stock price performance in developed markets are some factors that may prompt Singapore investors to start looking at risky cyclical stocks this year.
Most market experts expect dividend plays to take a back seat as Singapore investors could look at getting returns from capital appreciation.
The improved economies of the US and Eurozone are expected to lead the global economy out of the doldrums.
With that, Singapore's economy is also expected to grow by between 2 and 4 per cent this year.
This would mean improving the earnings of cyclical stocks, which usually benefit from an improving economy.
Benjamin Goh, market strategist at CIMB Research, said: “The banks are going to have an improved net interest income. So that is pro-cyclical. If you talk offshore and marine, oil and gas, like SembMarine, Keppel Corp, they are also going to be doing well. Because of an uptick in business cycle, they are going to need more oil; therefore you need to buy more oil rigs.”
The FTSE ST Oil and Gas Index closed near its 12 month highs at nearly 772 points on Tuesday.
Most market experts see Singapore-listed firms with exposure beyond Singapore to perform better.
This is because of declining profitability from rising labour and rental costs in Singapore.
Daryl Liew, head of portfolio management at Reyl Singapore, said: “The Chinese e-commerce theme is something I have been following, and I like as well because the amount of goods that the Chinese is buying through e-commerce is growing significantly, which is why I am waiting for the potential listing of Alibaba, for example. One way of playing is though Global Logistics Property (GLP) in Singapore.”
GLP shares have gained nearly 4 per cent in 2013.
Last year, investors mostly derived their returns from dividends.
These are mainly from the Real Estate Investment Trusts and defensive stocks like telcos.
Barclays’ director Eddy Loh said: "Expensive stocks like the telecom sector, which has been in favour for quite a while, I think, could also underperform in the current environment."
As the Fed has begun to taper its bond buying programme this month, signalling stronger confidence on growth outlook, some market watchers expect investors to be less distracted by tapering, and return to watching out for economic and corporate earnings growth as important indicators for market performance.