by Ernie B. Calucag
While 2010 may well end up as a “dramatic” year for equities, no thanks to US’ QE2 and Europe’s debt problems, investors can look forward to a more peaceful and positive market in 2011 as analysts offer a bullish outlook for the coming year of the rabbit.
Analysts believe that 2011 will be a positive story for a strong economic recovery in Asia, buoyed by its robust consumer spend- ing and more “accommodative” monetary policies. And with macro economic uncertainties still concentrated in other parts of the world, Asia is still expected to benefit from a heavy flow of funds into the region.
In an e-mail response to Biz Daily, Henderson Global Investors said the bullish outlook extends to the corporate sector as most companies posted revenue growth late this year, which helped them accumulate a healthy cash reserve amidst the low interest rate environment.
“Earnings growth around the world has been so strong in 2010 that it has outpaced the rise in stock prices, meaning that most of the main markets are set to close 2010 on a lower price/earnings multiple than (when) they started the year. This should help to offer a floor to capital values and provide an attractive valuation platform for future growth,” Henderson Global Investors said.
Eubee Ong, senior fund analyst from Phillip Capital, sees a similar scenario for Singapore in 2011 where investors can look forward to undemanding valuations.
“The Singapore market is currently priced at about 13x PER (price-earnings ratio) and 3 per cent dividend yield, which is relatively cheaper than regional peers. With a targeted 14-per cent EPS (earnings per share) growth for (the) Singapore corporate in 2011, the current valuations look attractive,” she said.
In agreement, a report by OCBC Investment Research said that investors looking for good yielding assets might well place their bets on stocks offering potential capital appreciations.
“We believe that this will favour companies that will continue to deliver good revenue and profit growth as output rises. In this space, Singapore’s blue chips will continue to dominate as most have emerged from the 2008 crisis relatively unscathed and are poised to deliver good growth in 2011. Based on consensus estimates from Bloomberg, STI (Straits Times Index) component stocks are projected to grow 10 per cent per year in 2011 and 2012,” the report said.
While the STI made some gains this year, the gains were not broad-based. Some of the underperformers include certain property and banking stocks. The OCBC report indicated this could mean possible re-rating for some of the laggards (select property and banking stocks) for 2011, not in terms of earnings, but more of their undervalued positions.
For other sectors, OCBC gave an “overweight” call on Oil & Gas and Commodities. Similarly, the DBS Group Research is bullish on the Oil & Gas sector to create waves in the next few months.
“With oil prices hovering above US$60/barrel, oil majors are expected to increase exploration and production capex (capital
expenditure) in 2011, after two years of low investment in capital spending due to the global crisis and tight credit environment,” the DBS report said.
DBS is also positive on integrated resorts (IRs), airlines and hotels as Singapore, being the new playground of Asia, will continue to attract strong tourist arrivals in 2011. As at October this year, Singapore has seen a new record of 8.6 million visitors, up 21 per cent year-on-year.
“We believe the growth rate is sustainable into 2011 as the global economic recovery becomes broad-based combined with the gradual opening of rides and attractions, expanded meetings facilities, and tables at the IRs.”
On the regional front, Ong of Phillip Capital views the Chinese life insurance industry as one of the most attractive investment oppor- tunities as it offers a secure earnings growth story.
“We believe this sector offers a structural growth story, under- pinned by a low level of penetration and potential leverage to the rising interest rate environment,” she said.
“We also like the commodity sector, particularly because of the expected inflationary environment as well as strong demand for commodities from emerging economies as economic activities accelerate,” she added.
Henderson Global Investors, meanwhile, favours the technology sector in line with the rising incomes of consumers in the emerging markets.
“We believe that technology will take on a more prominent role in emerging markets as rising wages cause companies in these markets to consider the productivity benefits of greater technology expenditure. Similarly, increasing disposable income from rising real wages, together with cost efficiencies from innovation, are bringing the price of more and more technology goods within the reach of consumers in emerging markets,” it said.
