Sunday Times investment event draws strong crowd

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Expert views are always appreciated. However, given the mkt momemtum, noone seems to have highlighted that the "10 year cycle" clock is ticking following the 3 sharp bear years post gfc (2008-2010) and global mkts are in the 7 grinding bull phases (2011 till now). Value investing is always important but when real values are hard to come by and investors start to move into relative value searching (thinking that they remain steadfast to their beliefs), then it set stage for the complacency phases and bubbly penultimate bull mkt phase... I stand by my views on 2017...

- Mr Lim suggested that investors might want to look at sectors here that might benefit in the long term from the global economic recovery, such as the offshore and marine sector, and the banking sector.

- Ms Lee also projected a renewed focus on value investing. "Investors should always do their homework and invest wisely," she added.

Sunday Times investment event draws strong crowd

The seminar features insights from ST Money Desk journalists and experts from DBS Bank
Published on May 11, 2014 1:09 AM

By Ivan Teo

A record 650 investors attended The Sunday Times Invest Seminar yesterday to hear from veteran financial journalists and economic experts from DBS Bank who offered their views on the global economy and investment strategies.

Organised by The Straits Times Money Desk, the seminar, now in its third year, was presented by DBS Bank and held at The Ritz-Carlton, Millenia Singapore.

The event kicked off with Mr Lim Say Boon, chief investment officer at DBS Group Wealth Management and Private Bank, sharing his outlook on trends in Asian markets in response to the impending rise in interest rates, as the United States Federal Reserve gradually reverses its monetary stimulus policy.

Mr Lim said the United States economy is likely to continue on its recovery path this year and that the market there is still likely to remain buoyant.

In the subsequent discussion session with The Straits Times assistant money editor Aaron Low, Mr Lim suggested that investors might want to look at sectors here that might benefit in the long term from the global economic recovery, such as the offshore and marine sector, and the banking sector.

When asked about investment strategies, Mr Lim urged investors to stay invested at all times and diversify their portfolios. "One successful investor told me his secret to building wealth is to 'buy cheap, buy good, don't sell'. It is good advice."

The next speaker at the event was The Straits Times money editor Lee Su Shyan who gave her take on the overall investment climate in Singapore.

She noted that the global recovery in Europe and the US would be beneficial to Singapore's trade-focused economy even as Singapore faces the challenges of a tight labour force and a greying population. Ms Lee also projected a renewed focus on value investing. "Investors should always do their homework and invest wisely," she added.

A panel discussion, moderated by Mr Lim, on investment strategies covering equities, commodities, currencies as well as bonds followed.

It featured The Straits Times deputy money editor Dennis Chan and economics correspondent Alvin Foo, alongside Mr Philip Wee, a senior currency economist with DBS Group Research, and DBS' head of fixed income Clifford Lee.

Mr John Lim, a private investor in his early 20s who attended the seminar, said he found the discussion interesting and informative. "It really helps us understand more about how investing works."

Another private investor who attended the seminar, Ms Julianna Sukardi, 40, praised the scope of the seminar. "This seminar is insightful and covers a number of the important topics which I find helpful when making investment decisions."

Ms Lee said that the seminar aimed to provide wide-ranging investment insights. She added: "It was an opportunity for us to engage The Straits Times readers. We are looking forward to holding more such events."

ivantyh@sph.com.sg

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What to buy as interest rates are set to rise

The Sunday Times Invest Seminar yesterday centred on strategies in the Year of the Taper. This week, we take a closer look at how investors should position their portfolios to prepare for a new era of higher interest rates.
Published on May 11, 2014 1:23 AM


By Chia Yan Min

Gold and property prices may fall

There cannot be too many of us around who do not know that interest rates are expected to rise, but it is a bit harder to work out what the next step should be.

No one outside United States Federal Reserve chair Janet Yellen quite knows when the hit will come but the first increase could land as early as next year.

That might be a blink of an eye in investing terms but it still gives savvy investors time to work out a strategy.

So as we prepare for a new era of pricier personal loans and mortgages, The Sunday Times looks at how investors can position their portfolios for leaner times ahead.

Stocks

All the investment strategists The Sunday Times spoke to agreed that investors should be going heavier on stocks than on bonds in what has been dubbed the Year of the Taper.

Taper is the much-used word to describe the US Fed's policy of winding back the huge stimulus programme that has kept rates at rock bottom for several years.

Certain sectors - including consumer goods and health care - are expected to be more resilient to interest rate changes while the cooling property market means related stocks are likely to do less well this year.

The brighter global economic outlook is also tipped to boost corporate earnings.

The Fed's bond-buying programme is expected to end in October at the earliest, with rates likely to stay low until mid-2015, says Mr Howie Lee, an investment analyst at Phillip Futures.

So with interest rates and bond yields still low, stocks are expected to offer better returns than fixed income assets for the rest of this year, adds Mr Lee.

However, investors should be "quick to take profit the moment it becomes clear that the Fed is looking to tighten money supply", given that equity markets have been on a five-year bull run since the global financial crisis.

Mr Benjamin Goh, retail market strategist at CIMB Research, says the Singapore stock market is likely to end the year higher, buoyed by strengthening US economic data and markets.

Stocks in sectors like telecoms, consumer staples and health care are usually more stable in the face of interest-rate movements, adds Phillip Futures' Mr Lee.

On the other hand, real estate investment trusts (Reits), utilities and consumer cyclicals are more sensitive to an increase in borrowing costs, he notes.

Singapore Reits are likely to be hit by higher rates after having outperformed amid the global hunt for high yield over the past five years, says Mr Kelvin Tay, regional chief investment officer for Southern Asia Pacific at UBS Wealth Management.

"Any investments into Singapore Reits will need to focus intensively on asset quality," he adds.

CIMB Research's Mr Goh says higher rates will be a boon to banks as their net interest margins will increase.

"This is already happening and is partly why the earnings of the local banks have exceeded expectations. This trend is probably going to continue as interest rates gradually rise," he notes.

Mr Tay advises investors looking beyond Singapore to be exposed to export-oriented Asian economies such as Taiwan and South Korea.

"The strong growth momentum in the US and economic recovery in the Eurozone will benefit Asian economies with a high degree of export-orientation," he says.

For the first time since the 2008 financial crisis, developed markets are expected to drive global economic growth this year, says Mr Steve Brice, chief investment strategist at Standard Chartered Bank.

Stronger growth in these markets should support corporate earnings in a period of low inflation, he adds.

While emerging market equities have been underperforming, an improving global economy should eventually lead to an upturn in earnings and reverse three years of steady pessimism, says Mr Brian Tan, head of fund sales at JP Morgan Asset Management (Singapore).

Bonds

Higher interest rates will have a mixed impact on various types of bonds.

With US economic growth gaining momentum, yields on Treasury bonds are likely to start going up due to stronger inflationary pressures, says Ms Fan Cheuk Wan, chief investment officer for Asia-Pacific at Credit Suisse Private Banking and Wealth Management.

"Returns on government bonds are expected to turn negative over the coming months as US growth accelerates," she adds.

While prices on the whole will start to fall as global interest rates rise, demand for corporate bonds should remain strong.

This is because investors will keep searching for yield amid a gradually improving global economy and while corporate balance sheets remain generally healthy, says Mr Matthew Colebrook, head of retail banking and wealth management at HSBC Singapore.

Conversely, government bonds, such as US Treasury bonds, "are pricing in an overly pessimistic macro scenario", he adds.

German bunds should also be viewed with some caution, given that they have benefited from being perceived as a "safe haven".

The asset class may still offer some opportunities for income-oriented investors but further underperformance, especially relative to equities, looks likely, says StanChart's Mr Brice.

Investors should focus on high-yield bonds from developed markets, while investment-grade bonds are expected to yield negative returns, he adds.

UBS' Mr Tay says rising US Treasury yields will put upward pressure on all global government bonds, including Singapore Government Securities.

"While the timing might be a little early, floating rate notes might be an interesting alternative for conservative investors," he suggests.

Commodities

Higher interest rates and a more positive global economic outlook will take the shine off gold this year.

The metal, which does not pay interest or a yield, is traditionally held as a hedge against inflation and volatility.

Low interest rates make gold attractive, as the opportunity cost of owning it is lower.

Gold has defied bearish forecasts to climb about 7 per cent so far this year to about US$1,290 an ounce on the back of sluggish economic data from the US and China, and the Ukraine crisis.

As the world's largest economies are expected to do better in the second half of the year, gold prices are likely to come down, strategists say.

Phillip Futures' Mr Lee adds that gold is expected to stay at about US$1,300 in the short term due to heightened tensions in Ukraine, but the metal's allure is likely to dim as a stronger US dollar makes it more expensive to buy.

Rising US Treasury bond yields are also prompting investors to shift their holdings out of gold, says UBS' Mr Tay.

"The only precious metal we favour is platinum, which is an industrial metal and hence a call option on global growth," he says.

Property

A deep gloom has settled over the Singapore housing market since the start of the year amid weak rental demand and tight loan curbs.

Cooling measures to rein in the once red-hot sector are having an impact, with both private home and HDB resale prices sliding in the first three months of the year.

A combination of higher interest rates, increased supply and slower foreign population growth are likely to depress prices further, says Mr Tay, adding that they are expected to dip a further 15 per cent over the next three years.

CIMB Research's Mr Goh agrees: "With a lot more new units coming onto the market over the next two years, we expect prices and rental yields to moderate further."

Rents and prices for industrial property, which showed signs of moderating in the first quarter, are expected to keep rising at a slower rate.

An average of 2.1 million sq m of industrial space is expected to become available every year for the next three years.

This is about 4 per cent to 5 per cent of the existing stock of industrial space, and significantly higher than the average annual demand in the last three years.

chiaym@sph.com.sg

Background story

Eye on stocks

Investors should be “quick to take profit the moment it becomes clear that the Fed is looking to tighten money supply”, given that equity markets have been on a five-year bull run since the global financial crisis.

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If tapering doesn't turn out to be a yawn, how would investors be more emboldened to take on more risks even though there is a lack of real values? If economic growth can result in earnings growth that outdo the impact of interest rate rises then when should investors start to underweight equities? These 2 questions will be key ingredient in the return of complacency of investors in global equities (especially new money) that is needed for the busting of equities bubble in time to come - we are transitioning into the phase soon...

Year of the Taper proves to be a big yawn

Stock prices grind higher with only small gains as US Fed cuts back on bond purchases
Published on May 11, 2014 1:14 AM

By Lim Say Boon

The Year of the Taper has so far been uneventful. Far from "fear and loathing", it has been more like "grind and yawn".

The Taper has been benign for equities. Stock prices have ground higher but the gains have been small.

While the Taper has favoured the United States and Europe over emerging markets, the outperformance has been modest. Markets have generally been a bore.

The standout surprise has been global bonds, which have generally outperformed equities, notwithstanding the expectation that US Treasury yields would rise ahead of the end of quantitative easing.

The three big questions are:

Does the slowing of gains in US stock prices mean the equities bull is about to terminate?

Is the outperformance of bonds over equities sustainable?

Is the stabilisation of emerging market equities a buy signal?

Q: Is the recent "mini-crash" in US tech stocks a prelude to the end of the bull market?

No. The recent sell-off in so-called US "new tech" (mostly social networking) stocks is not likely a prelude to a broader crash in equities.

They were grossly over-valued and richly deserving to be sold down. And indeed, we said so before the mini-crash.

But the broader US market is not in bubble territory. So that was about sector rotation and shifts in market leadership. Mind you, US equities are struggling at their late-March and early-April highs (around 1,900 on the S&P500 and 16,600 for the Dow Jones).

And a significant correction - in the region of 10 per cent - is overdue. But the US equities bull is likely to pick itself up and continue its climb after that.

The US economy continues to grow. Indeed, it is expected to record a faster pace of expansion than it did last year.

It is unusual for US equities to go into a bear market in the absence of a recession.

Indeed, over the past quarter-century, there has been only one US bear market (using a 20 per cent decline as the benchmark) that was not associated with a recession. That was the sell-off of July-October 2011, which was driven by a perfect storm of a sovereign debt crisis in Europe, debt ceiling brinksmanship in Washington, and Standard & Poor's downgrade of US government paper.

The US Treasury yield curve is still a long way from the inversion that typically heralds the arrival of a recession and an equities bear market.

Monetary conditions remain supportive, with the first federal funds rate hike expected only in the second half of next year.

And even then, it will likely take a lot longer before the Fed policy rate cuts above the 10-year US Treasury yield - another signal that had previously heralded bear markets.

Corporate earnings continue to grow, albeit at a slower pace than in recent years.

Q: Is the outperformance of bonds over equities sustainable?

No. There is substance in the argument that government bond yields are being suppressed by ageing demographics, the rise of self-funded retirement, and the consequent growth of fund manager demand for government bonds.

This is a structural component that could moderate rises in yields. But that is long-term stuff.

The recent weakness in the 10-year US Treasury yield was about the economy - more specifically, the weakness in the US economy caused by severe weather conditions early in the year.

As the US economy gains growth momentum, the 10-year US Treasury yield should pick up again, with implications for asset markets around the world.

In Asia, credit spreads are already very tight following the rally in credits in the first quarter. Again, there is a structural element which should lend support to Asian credits - that is, the high savings rate and huge pools of retained corporate earnings in Asia.

But it is difficult to see further gains against the background of the huge issuance pipeline in the region and the possibility of higher government bond yields in the US.

Q: Is the stabilisation of emerging market equities a buy signal?

Possibly, but be patient. There are shorter-term problems that continue to weigh on emerging market and Asia ex-Japan equities. But there is a longer-term valuation and structural change story.

There is a "disconnect" between economic growth - which remain robust by international standards - and weak stock markets. This is a valuation opportunity.

Near-term, there are structural problems in Asia ex-Japan. In India and Indonesia, they are related to the loss of competitiveness reflected in current account deficits.

Currencies have weakened to restore some of that lost competitiveness. Interest rates have been hiked to stop the economy spending beyond its means.

But the jury is still out on whether these gains are sustainable, particularly if their domestic currencies continue to strengthen.

Meanwhile, their economies will face growth challenges from recent rate hikes.

Remember also that the recent stabilisation in emerging market and Asia ex-Japan stock prices coincided with weakness in the US economy and a soft 10-year US Treasury yield.

The real test will come when stronger US economic growth data in the United States starts driving the 10-year yield higher again.

And in China, problems of easing growth are joined by concerns over the related problems of troubled local government debt, defaults in the shadow banking sector, and a high level of corporate indebtedness.

But everywhere in Asia, a high level of pessimism is already in stock prices. Valuations are close to cyclical lows. Indeed, Chinese stock valuations are back to 2008-2009 global financial crisis lows.

But the super-cycle of Asia ex-Japan demographics and urbanisation remains intact.

The big trends - the big tailwinds - in economic growth, the rise of the middle class, and consumerism, remain with Asia. Asia ex-Japan is on the cusp of overtaking the US in sheer economic size.

By 2020, the so-called Asia-10's gross domestic product will be 30 per cent larger than that of the US. In the process, Asia will generate three times the incremental GDP growth created by the US.

Despite these growth numbers, most Asian countries' per capita income will remain 20 to 50 years behind that of the US in 2020 - which means there will continue to be considerable growth opportunities for a long time to come.

At some point over the course of the year, I believe markets will exhaust their pessimism about Asia. The big themes will reassert themselves. Asia should then outperform the developed markets.

The writer is the chief investment officer for DBS Bank, Group Wealth Management and Private Bank.

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Experts tackle burning questions

The Sunday Times Invest Seminar presented by DBS Bank on May 10 covered investing ideas and the economy's outlook. Here are some questions posed by the audience. We ask our panel of Money Desk journalists and DBS Bank experts to answer a selection of them. Visit http://www.straitstimes.com/news/business for more.

Published on May 18, 2014 1:11 AM


A screen displaying Twitter's logo and share price as it started trading on the New York Stock Exchange in November last year. Twitter shares have plummeted since the company's Wall Street debut. The equity bull run is currently in its sixth year and shows signs of tiredness, especially in the US tech sector. -- PHOTO: AFP

Investors could consider buying gold exchange-traded funds in the next one to two years for the medium term. -- ST FILE PHOTO
The Australian dollar is expected to trade with an upside bias against the US dollar this year. -- PHOTO: BLOOMBERG

Q: On "buy good, buy low and keep": If there is an impending correction or when the market plunges, should a fundamental investor sell his shares and buy them back later, or should he still hold on to them?

First of all, if you are certain there is an impending market correction, the straight answer is to sell your shares and buy them back later at a lower price. The question is: How sure are you that the market will take a fall? And even if you get the direction right, can you tell with a high degree of certainty the timing and extent of the fall?

It is all right to be cautious as the equity bull run is currently in its sixth year and shows signs of tiredness, especially in the United States technology sector. But unlike previous bull runs, there is no buying frenzy or euphoria - which are traditionally seen as a warning sign of an overheated market - in the Singapore market. The local market does not appear overvalued.

A local research house noted recently that the Singapore market's valuations remain undemanding. It calculated that the Straits Times Index is currently trading at a forward price of 14.4 times FY14 earnings and 13 times FY15 earnings, below key regional markets, and with dividend yield estimated at a very decent 3.3 per cent.

Furthermore, one should not be unduly worried about daily or weekly market movements. In my presentation at The Sunday Times Invest Seminar 2014, I highlighted an article headlined "How to win at a winning game" by Teh Hooi Ling. It tells investors not to be sidetracked by short-term price gyrations as long as they are invested in a diversified basket of stocks that represent the real economy. In the event of a sudden downturn, avoid the herd instinct. Don't sell when everyone else is selling, for you will not get a fair value for your assets. On the contrary, look out for opportunistic buys for stocks and shares of fundamentally sound companies at depressed market conditions.

If you are unsure as to where the market is heading and want to stay invested, adopt a dollar cost averaging approach by setting aside a fixed sum every month to invest. Under this approach, you will acquire fewer shares when prices are high and more shares when they are low.

Deputy Money Editor, Dennis Chan

Q: For Europe, is it a good time to invest now? Should we be stock-specific or more broad-based - for example, mutual funds? What industries should we look at?

We remain positive on European equities as valuations are more attractive compared to other developed markets. Further, Europe offers a margins recovery story that is likely to be played out over the coming quarters, as profit margins at European companies play catch-up with those for their US counterparts.

Within Europe, we favour the consumer discretionary, consumer staples and energy sectors. We are also positive on selected European financials.

European consumer stocks are likely to continue benefiting from stronger retail sales and improving consumer sentiment. Household savings remain low and this should support spending. Within the consumer discretionary sector, automakers are likely to benefit from this increased spending and, to some extent, also from a revival in the European capital expenditure cycle.

Our positive view on energy is based on valuation, with the sector trading at cycle-low relative price to book ratios and cycle-high dividend yields.

Among European financials, we favour insurers which are long-term beneficiaries of higher core rates and offer a "growth plus yield" proposition.

Equities Strategist, CIO Office, DBS Bank, Jason Low

Q. Commodities have taken a beating. Are you buying? If not, why? What is your outlook for commodities?

Commodity prices could remain volatile this year, given the weather and geopolitical uncertainties from factors such as the El Nino effect and the Ukraine crisis. Experts say that commodities prices will mostly be driven by the individual fundamentals for each commodity rather than an overall sector trend.

Investors could look at buying gold exchange- traded funds in the next one to two years for the medium term, as there is likely more downside for gold prices in the near future. They may also wish to consider commodity-related counters, especially those which may be involved in merger and acquisition activity, as there is a wave of consolidation among large companies in the sector currently.

They could also set their eyes on European integrated oil companies, as fund managers are seeing attractive valuations for those stocks. Mining companies are also looking cheap as they are moving out of the doldrums as management improves and economic factors shift in the sector's favour.

Economics Correspondent, Alvin Foo

Q: What is the prospect of the Aussie dollar falling further and is it the right time to invest in property there?

The Australian dollar has been recovering from last year's aggressive sell-off. In February, the central bank upgraded Australia's growth and inflation outlook, ended its rate cut bias and stopped jawboning the exchange rate lower. By end-April, Australian stocks had risen to their highest levels since mid-2008.

Against this constructive domestic background, the Australian dollar has been notably resilient to external pressures such as the Chinese yuan's depreciation and the Fed tapering asset prices. As long as the economic recovery prospects hold up, the Australian dollar is expected to trade, with an upside bias, between 0.90 and 1.00 against the US dollar this year.

Senior currency economist with DBS Group Research, Philip Wee