WHAT LIES AHEAD FOR THE SINGAPORE STOCK MARKET?

The war in Iraq is over but concerns about Sars lingers on. But even before the onset of these events, local stocks were already languishing. How will they fare in the months ahead? We spoke with Mr Christopher Wong, Investment Manager for Asian Equities at Aberdeen Asset Management, to seek his views. Mr Wong also helps to manage the highly rated Aberdeen Singapore Equity Fund which has won several awards for outstanding performance in the last few years.

Vasu: Does the local market look attractive at this juncture?

Christopher: Valuations look attractive. Companies here are generally well-run and have stronger balance sheets compared to their regional peers. Corporate governance here is also superior. Significant corporate restructuring has taken place in the last 18 months and this has gone down well with fund managers. Despite this, it pays to be caution at this juncture as it is difficult to predict how SARS will impact the local and regional economies.

Vasu: Where do you see the ST Index headed?

Christopher: It's hard to predict. If Sars impacts the economy negatively, the local stock market will also be affected. But if the Singapore government is successful in containing the spread of the diseases, the ST Index could head higher. But a lot also depends on how the regional countries deal with Sars. If it is not contained regionally, especially in China, it will impact Singapore's economic growth negatively, especially since many Singapore companies have operations in the region and China.

Vasu: How much of the negative news about Sars is already discounted in markets?

Christopher: I believe that in the short term, the market has probably discounted the likelihood of Sars lasting up till June. If it stretches beyond that, companies may turn cautious on the outlook. If this is the case, it is difficult to see the market heading significantly higher.

Vasu: Have cash levels for the Aberdeen Singapore Equity Fund increased given your cautious outlook?

Christopher: When investors put their money into the fund, it means that they want it invested and not kept idle as cash. So we try and keep our cash level below 5 per cent. In the current environment, we continue to stay invested but we've taken on a defensive posture, seeking companies with strong balance sheets and cashflows and those which offer good dividend yields. The 24 companies that make up Aberdeen Singapore Equity Fund are largely in a net cash position. The portfolio has a dividend yield of about 4 per cent, which is high relative to deposit rates here.

Vasu: The fund has a significant exposure to the financial services sector. Why?

Christopher: Singapore is a major financial centre and fund managers who invest in the local market cannot ignore the financial services sector. Given the weak economy, earnings growth may not be spectacular for the sector. But the price-to-book multiple of some banks look attractive. Also, the local banks have shown resolve in restructuring, capping cost and trying to boost revenues through fee-based activities.

The top holdings in the Aberdeen Singapore Equity Fund are UOB and OCBC. At the end of the first quarter, they accounted for 16.6 per cent and 9.9 per cent of the fund respectively. We also have significant exposure to Hong Leong Finance, which is a well run financial institution, and enjoys loans growth despite the current lacklustre environment. The Singapore Exchange (SGX) is another stock we own and it has a strong balance sheet, a sizeable cash hoard and attractive dividends. SGX is also a high beta stock, which means that when the market recovers, it could do well.

Vasu: Aside from finance stocks, which others do you like?

Christopher: The Aberdeen Singapore Equity Fund has a significant stake in ST Engineering which has a strong order book, a sound balance sheet and attractive dividends. Other stocks we like include Robinson, ComfortDelgro, Singapore Food Industries (SFI) and Eu Yan Sang. About 70 per cent of Robinson's share price is backed by cash and if this is stripped out, the core retail operation is trading at a price/earnings ratio of only 3-4 times. As for SFI, the company has stable earnings, having renewed its contract with the Singapore Armed Forces recently. Its UK operation has also turned around. In the case of ComfortDelgro, it was recently included in the Morgan Stanley Capital International indices, which means that it will now appear on the radar screens of more fund managers. But even before this, we were positive on the stock which has a strong cashflow. Also the company will get an additional stream of revenues once the North-east MRT line starts operating. As for Eu Yan Sang we had exposure to the stock well before the Sars outbreak. We like it for its forward-looking yet conservative management, steady build-up of its brand name and its cautious regionalisation plans.

Vasu: Venture Manufacturing has a good following among fund managers? But you don't own it?

Christopher: Not at this juncture. We do track Venture and it has certainly delivered in terms of earnings. We may consider buying it at lower levels.

Vasu: What about Keppel Corp? It's been gaining favour.

Christpoher: We added the stock to our portfolio in February. It's a restructuring play and management has promised to improve returns to shareholders and pay out good dividends. Tracking its progress so far, the company has done well by staying focused on its core businesses. Its offshore division is the main growth driver and the company is well placed to benefit from the current pent-up demand in the offshore oil and gas exploration industry.

Vasu: What about SingPost? Do you like the stock?

Christopher: Yes it is a stock that interests us because its yields are attractive. The company has indicated a dividend payout of 4.2 cents per share this year and another 4.2 cents next August. This translates to a yield of 7 per cent or more, depending on the share price of SingPost.

Vasu: The Fund has a significant stake in City Dev. What's the rationale for the exposure to the property sector which is in doldrums?

Christopher: It is important to have a diversified portfolio and the property sector is an integral part of the local market. City Dev is an exceptional player in the sector and it has a diversified portfolio of properties and hotels. The company has a conservative accounting policy and management has proven itself to be savvy. City Dev's fortunes should improve when the economy turns around.

Vasu: Do you trade actively in the market?

Christopher: No we don't. Turnover of the Fund is only 25 per cent as we emphasise a long-term view with our investments. Investors who put their money in the Aberdeen Singapore Equity Fund should be prepared to stay invested for 3-5 years.