And the key questions for this time are: Is there an Asian asset bubble in the making; is the equity rally over
By OH BOON PING 16 February 2010
It seems that the Year of the Tiger has historically been linked to tumult and upheaval.
A look into the last century showed that almost every year of the Big Cat has been accompanied by either market downturn, wars, or crises of other forms. In many cases, the markets walked into crises in a Tiger year, while on some occasions, they climbed out of turmoil.
For example, there’s the Asian financial crisis in 1998, which triggered a meltdown across major currencies and markets in the region. Then in 1986, Singapore suffered from its first major slowdown since independence, followed by Black Monday the year after.
Meanwhile, the 1973-74 oil embargo saw a spike in fuel prices, while shares on the New York Stock Exchange lost US$97 billion in value in just six weeks.
The Cuban missile crisis in 1962 (another Tiger year) brought the United States and Russia to the brink of a nuclear war, while the first China-India war broke out in the same year.
As the world now stands on the brink of yet another Tiger year, the top questions on every market player’s mind are: Is there an Asian asset bubble in the making and is the equity rally over.
On the first point, the consensus is that although markets have rebounded, they still fall short of the dizzying heights seen during the 2006-2007 years.
‘Yes, some equity markets posted spectacular gains in 2009, but the increases only offset some of the outsized losses that were registered during the preceding year,’ said Wells Fargo economists Jay Bryson and Yasmine Kamaruddin.
Likewise, Mark Mobius, who oversees US$34 billion of developing-nation assets at Templeton Asset Management, doesn’t consider China to be experiencing a property bubble as ‘you can see much higher prices in Australia and or Hong Kong’.
Indeed, analysts felt that most Asian stock indexes remain well below peaks that were reached in 2007 and although forward-looking price-earnings ratios in Asia may have gone up a lot, they are not at levels yet that most would associate with asset bubbles.
Plus, Kenneth Ng of CIMB in Singapore pointed out that governments ‘will be particularly watchful of signs of asset inflation in property sectors, in particular. Any sell down should give yield-buying opportunities as markets would eventually get used to the idea that governments are not going to over-tighten.’
That said, market watchers believe that the 10-month rally which started last year has already ended and stocks are now in a correction phase.
This came as risk appetite for Asian equities has sunk due to credit tightening in China, while equities have priced in the V-shaped recovery.
Plus, growth will moderate going forward, with uncertainty about the impact on recovery as central banks wind down stimulus programmes, said DBS Vickers strategist Joanne Goh.
RBC Capital Markets’ technical strategist George Davis warned of further weakness in stocks as the copper/gold ratio - a good leading indicator of equity market peaks - has posted a bearish trend reversal below 6.36. This ‘implies further downside risks for stocks and commodities and elevated levels of risk aversion’, he wrote.
In this environment, CIMB maintains an overweight position on the Singapore market and a year-end Straits Times Index target of 3,200.
‘Our key theme for 2010 is to be aware of valuations, avoid well-known themes and search for value laggards. Before we were even half-done with our marketing, markets weakened in the latter half of January, with investors reacting to an earlier-than-expected tightening in China,’ said Mr. Ng.
OCBC Investment Research head Carmen Lee believes that ‘smart money will take note of the more reasonable valuations now and will be ready to re-enter the market’.
‘Overall, we expect volatility to remain, and advocate sticking with the blue chips,’ she said, adding that the house favours Ezra, Genting Singapore, Hyflux, Keppel Corp and Keppel Land.
Its other stock picks include MobileOne, Noble Group, Olam International, Sembcorp Marine and Wilmar International.
CIMB has named Keppel Land as its large-cap conviction pick as ‘we believe the office sector will prove to be the surprise package in 1H10’. The brokerage also favours Allgreen as it has the biggest unsold inventory and selling prices could surprise on the upside.
Meanwhile, Keppel Corp replaces Sembcorp Industries as its top conglomerate pick, partly on its optimism on Keppel Land and partly on what ‘we see as nearer-term offshore & marine catalysts’. NOL replaces STX Pan Ocean as a cyclical pick as the export boom seems to be gaining momentum.
For investors looking for liquid, defensive names with sound business fundamentals and reasonable valuations, CLSA Singapore recommends StarHub, CapitaMall Trust, A-Reit, SMRT, ST Engineering and SingTel.
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Tiger year has history of tumult, turbulence
And the key questions for this time are: Is there an Asian asset bubble in the making; is the equity rally over
By OH BOON PING
16 February 2010
It seems that the Year of the Tiger has historically been linked to tumult and upheaval.
A look into the last century showed that almost every year of the Big Cat has been accompanied by either market downturn, wars, or crises of other forms. In many cases, the markets walked into crises in a Tiger year, while on some occasions, they climbed out of turmoil.
For example, there’s the Asian financial crisis in 1998, which triggered a meltdown across major currencies and markets in the region. Then in 1986, Singapore suffered from its first major slowdown since independence, followed by Black Monday the year after.
Meanwhile, the 1973-74 oil embargo saw a spike in fuel prices, while shares on the New York Stock Exchange lost US$97 billion in value in just six weeks.
The Cuban missile crisis in 1962 (another Tiger year) brought the United States and Russia to the brink of a nuclear war, while the first China-India war broke out in the same year.
As the world now stands on the brink of yet another Tiger year, the top questions on every market player’s mind are: Is there an Asian asset bubble in the making and is the equity rally over.
On the first point, the consensus is that although markets have rebounded, they still fall short of the dizzying heights seen during the 2006-2007 years.
‘Yes, some equity markets posted spectacular gains in 2009, but the increases only offset some of the outsized losses that were registered during the preceding year,’ said Wells Fargo economists Jay Bryson and Yasmine Kamaruddin.
Likewise, Mark Mobius, who oversees US$34 billion of developing-nation assets at Templeton Asset Management, doesn’t consider China to be experiencing a property bubble as ‘you can see much higher prices in Australia and or Hong Kong’.
Indeed, analysts felt that most Asian stock indexes remain well below peaks that were reached in 2007 and although forward-looking price-earnings ratios in Asia may have gone up a lot, they are not at levels yet that most would associate with asset bubbles.
Plus, Kenneth Ng of CIMB in Singapore pointed out that governments ‘will be particularly watchful of signs of asset inflation in property sectors, in particular. Any sell down should give yield-buying opportunities as markets would eventually get used to the idea that governments are not going to over-tighten.’
That said, market watchers believe that the 10-month rally which started last year has already ended and stocks are now in a correction phase.
This came as risk appetite for Asian equities has sunk due to credit tightening in China, while equities have priced in the V-shaped recovery.
Plus, growth will moderate going forward, with uncertainty about the impact on recovery as central banks wind down stimulus programmes, said DBS Vickers strategist Joanne Goh.
RBC Capital Markets’ technical strategist George Davis warned of further weakness in stocks as the copper/gold ratio - a good leading indicator of equity market peaks - has posted a bearish trend reversal below 6.36. This ‘implies further downside risks for stocks and commodities and elevated levels of risk aversion’, he wrote.
In this environment, CIMB maintains an overweight position on the Singapore market and a year-end Straits Times Index target of 3,200.
‘Our key theme for 2010 is to be aware of valuations, avoid well-known themes and search for value laggards. Before we were even half-done with our marketing, markets weakened in the latter half of January, with investors reacting to an earlier-than-expected tightening in China,’ said Mr. Ng.
OCBC Investment Research head Carmen Lee believes that ‘smart money will take note of the more reasonable valuations now and will be ready to re-enter the market’.
‘Overall, we expect volatility to remain, and advocate sticking with the blue chips,’ she said, adding that the house favours Ezra, Genting Singapore, Hyflux, Keppel Corp and Keppel Land.
Its other stock picks include MobileOne, Noble Group, Olam International, Sembcorp Marine and Wilmar International.
CIMB has named Keppel Land as its large-cap conviction pick as ‘we believe the office sector will prove to be the surprise package in 1H10’. The brokerage also favours Allgreen as it has the biggest unsold inventory and selling prices could surprise on the upside.
Meanwhile, Keppel Corp replaces Sembcorp Industries as its top conglomerate pick, partly on its optimism on Keppel Land and partly on what ‘we see as nearer-term offshore & marine catalysts’. NOL replaces STX Pan Ocean as a cyclical pick as the export boom seems to be gaining momentum.
For investors looking for liquid, defensive names with sound business fundamentals and reasonable valuations, CLSA Singapore recommends StarHub, CapitaMall Trust, A-Reit, SMRT, ST Engineering and SingTel.
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