Singapore's share lion continues to roar

PUBLISHED : Friday, 04 February, 1994, 12:00am
UPDATED : Friday, 04 February, 1994, 12:00am

JARDINE Fleming Securities, in its 1994 Asia-Pacific markets outlook, singles out just two significantly overweight recommendations among the 15 economies covered - Singapore and Indonesia.

Singapore would not be everybody's hot tip for 1994.

On the economic front, two of the big four banks - United Overseas Bank and OCBC - have already lifted their prime rates, and indications are that the cost of money will be raised across the board.

Singapore is at the top of its cycle, and growth will have to slow from the provisional 9.8 per cent notched up last year.

Stock valuations are high relative to the rest of the region - bar Taiwan - at about 25 to 28 times 1994 earnings, and the market itself is just one third the size of Hong Kong's.

Yet the market has its fans.

Earnings this year are forecast to rise 14.6 per cent followed by 12.3 per cent next year, according to S.G. Warburg Securities. The analysts say sentiment this quarter will be positive as it is usually the strongest period of the year and this will be further strengthened by forward buying of durable goods before the implementation of the Goods and Services Tax in April.

The final results for 70 per cent of listed companies will be released during the course of this quarter, and are expected to build on the strong showings at the interim stage.

Gilding the lily of healthy earnings and sentiment, liquidity will be boosted by the domestic relaxations of investment guidelines governing the Central Provident Fund.

Goldman Sachs analyst Bong-loo Tan said: ''There is probably not going to be much downside to the market now.

''Sentiment is tied pretty closely to Malaysia, and Malaysia is 15 to 18 per cent off its all-time high and will be attractive in currency terms.

''Moreover, in the run-up to the elections expected in the second half, there is not much downside, and this will all follow on to Singapore.'' According to Morgan Stanley Capital International calculations, Singapore was the fourth best performing developed market last year, with a US dollar return of 65.5 per cent.

In line with the rest of the region, this was followed by a hefty correction at the start of this year.

But Jardine Fleming says Singapore's rise was less impressive in comparison with the rest of the world, and notes that valuation levels are much less stretched than they have been, with the market PE ratio (excluding Singapore Telecom) ending 1993 only slightly above its five-year average.

''Singapore missed out on the emerging markets bonanza, since even the most imaginative fund manager would have found difficulty in classifying a country with per capita (gross domestic product) of around US$17,000 as 'emerging'.

''Indeed, foreign investors seem to have been less active in Singapore than elsewhere over the course of the year,'' Jardine Fleming says.

This year at least, Singapore's market is likely to be compensated by an influx of Central Provident Fund (CPF) capital.

Although regulations that released domestic funds for investment and property purchases were in place last year, brokers reckon there was little immediate impact and cash from this source did little to help fuel the last spurt of the bull run.

Anecdotal evidence suggests this was partially because brokers refused orders taken out on the CPF because they took too long to settle.

An additional S$8 billion (about HK$38.9 billion) now qualifies for stock investment, bringing the total eligible to $22 billion.

As at December, only slightly more than $6 billion of that was in the market.

So far one of the biggest winners has been Singapore Telecom, but the gains are expected to be spread more equitably this year.

Backing up the CPF capital is an impressive private savings ratio. Singapore had one of the highest gross national savings to GDP ratios of 0.46 in 1992, a level which would have been improved further last year on the back of full employment, high salaryincrements and big bonuses.

In terms of sectors, S.G. Warburg and Goldman Sachs highlight banks, shipyards and property.

Singapore - with Hong Kong - is reckoned to be one of the region's major beneficiaries of the successful accord on the General Agreement on Tariffs and Trade, as its GDP is heavily trade dependent, and shipping will gain indirect advantages.

Mr Tan of Goldman Sachs said: ''The gap in office rentals between Singapore and Hong Kong is at its highest since Singapore's market went down in the mid-1980s, and there is a very strong inducement for companies to move their regional non-China operations down to Singapore.

''Although we are not seeing that yet, property consultants are definitely getting more enquiries on that front.

''That will be very good news for the commercial property people, especially those with property in the financial district, because there is not much supply coming up in the next three years or so.''