Banks, telcos said to be safe bets in 2012

29 December 2011
Yvonne Chan

SINGAPORE - Singapore banks and telcos have been pitched as safe bets for investors next year - away from more volatile sectors such as commodities and property.

Analysts expect the wider market to dip further in 2012, before a rebound later in the year. A decline of 16 per cent thus far, makes Singapore the worst performer in Southeast Asia. It is about on par with Japan's decline but not as steep as the drop in Hong Kong, India or mainland China.

Company valuations have suffered in lock-step with the slide, with Singapore stocks trading at around 1.2x book value, which is now below the four-year average of 1.5x, says OCBC Research.

Residential property developers are expected to remain under pressure. The sector underperformed this year - down about 40 per cent on year following recent unexpected cooling measures by the government, and slower foreign investment.

Offshore industries such as shipping may also continue to hurt from slowing global trade. In this context, defensive, dividend yielding stocks are commonly recommended.

"We'll muddle through an economy where we'll see sluggish growth, but not outright recession and in those environments, dividend yield is very important," said Steve Brice, Chief Investment Strategist at Standard Chartered Bank.

While some analysts are underweight on financials, some say Singapore banking stocks hold great appeal. "Valuations in terms of dividend yield stocks are actually yielding between 4.5 to 5 per cent. So it's ... very, very attractive compared to your current cash deposits rates," said Kelvin Tay, Chief Investment Strategist at UBS Wealth Management.

OCBC Bank is also overweight in banking and telecommunications with stock picks for 2012 including DBS, UOB, M1, SingTel, and StarHub.

Receiving a reasonable dividend offers some protection in a market so open to the swings of the international economy.

"We believe there will be a recession in the euro zone next year, about minus 0.7 per cent. The Singapore stock market could ... fall anywhere between 30 to 35 per cent before it actually hits the bottom," said Mr Tay.

There is also the risk that European banks will pull investment from their Asian operations. While that is a potential risk for Singapore's economy, some experts say that the country's inherent strengths will keep it in good stead. If there is one consistent mantra among fund managers and analysts - it is, to look for the long-awaited upswing, in the second half of 2012.