Three investment plays for 2013

Teh Hooi Ling
6/2/2013

DOMESTIC consumption, infrastructure plays in the transport and oil and gas sectors, and yield stocks are three investment themes that will remain attractive in the Singapore market in 2013, according to Manulife Asset Management.

"Low unemployment and strong household balance sheet will add to the resilience of domestic consumption and is positive for the consumer sector," said Amy Low, Manulife Asset Management's head of equities. But in the Singapore market, companies in this sector are quite small, and their performance may not be captured in the Straits Times Index.

Ms Low cited operators of supermarkets as an example of a business that will ride the rising consumer trend. Meanwhile, increased infrastructure spending in transport and in oil and gas industries will benefit companies in the sector. Crane operator Tat Hong is one candidate.

And finally, yield stocks are still favoured given the low interest rate environment. "Despite slowing growth, many companies are generating strong cash flows and paying out healthy dividends, for example, the telco sector," said Ms Low at a luncheon briefing for the media. There is still value to be had in mid-sized retail real estate investment trusts (Reits) as well as some industrial Reits.

According to Ms Low, the Singapore market was trading at 14 times earnings and 1.4 times its book value as at end-December 2012. "Valuations are fair and we are trading at close to long-term average mean."

Despite improving economic outlook, Ms Low doesn't expect significant expansion of market valuation or earnings as we had seen in 2007.

"The easy money has been made," she said. "Any upside from a top-down perspective would be very moderate."

But the positive factors are: We are at the tail end of downward earnings revisions, and liquidity is buoyant.

Looking ahead, it will be about picking the right stocks.

In her 17 years in the industry, Ms Low has gone through the Asian financial crisis, the dot.com bust, the 9/11 terrorist attacks, the Sars outbreak and the most recent global financial crisis. Here are a few things that she observed:

One, cycles are getting shorter. So companies need to constantly revisit their strategies. As such, the quality of management and the ability of the company to change is important.

Two, companies which have access to financing in times of crisis, those with focused strategies, will be able to deliver.

Three, even in a bad patch, some companies can still do well by unlocking the value in the assets they own. Ms Low's approach is to focus on bottom-up stock-picking, and try to pick stocks that can deliver value across cycles.

Her colleague, senior portfolio manager for Indian equities, Rana Gupta, meanwhile, is positive on Indian equities in the medium term. The bias is towards domestic rate-sensitive sectors such as banks and real estate, he said.

This is premised on continued policy reforms which will be structurally positive for the economy; a favourable domestic rate cycle; supportive global liquidity, and lower-than-mean valuation in the past 10 years.

At the company level, he expects earnings per share downgrades to be behind us. Looking ahead, sales growth could bounce back with moderate economic recovery.

Meanwhile, the longer-term trends in India include: the diffusion of the central government's power to regional parties, resulting in more diversified and balanced growth across the country; growing urbanisation in rural India; and increased export opportunities for IT services companies, pharmaceuticals and light industrials if the rupee continues to weaken against the yuan.

Manulife Asset Management has US$13 billion in assets under management for Asian equities. It has a team of over 85 equity professionals located on the ground in ten territories across Asia.