Looking for dark horses in the Singapore market

By GABRIEL YAP
THE Singapore economy continued to roar in the second quarter of this year and I reckon it will surpass the first quarter's reported year-on-year growth of 16 per cent. This would have been powered by the two key sectors - financials and manufacturing, both of which contribute close to 50 per cent of Singapore's GDP.
Bank loans rose for seven consecutive months to 8 per cent in May 2010 on the back of strong housing and consumer loans at 21 per cent and 15 per cent respectively.
Notably, the growth in consumer loans at 15 per cent was the highest in the past five years. Moreover, car loans and credit card loans grew at a commensurate 12 per cent and 27 per cent respectively.
The biomed sector was the lynchpin of industrial output growth which grew a whopping 58 per cent in May 2010. Excluding the volatile biomed sector, the rest of the economy would still have grown a respectable 33 per cent.
The other sectors like retail and hospitality services sectors saw visitor arrivals at 946,000 or up 30 per cent, beating the consensus forecast hands down.
This was the highest ever recorded in the month of May when most market pundits always caution a 'Sell in May and Go Away'.
I would expect the momentum of strong GDP growth to continue into the second half of this year and put our economy on course to exceed the last GDP peak in 2007 by 10 - 15 per cent in 2010.
How should investors position their investment portfolios then for 2H 2010 and 2011? Play the office recovery theme: One of the earliest investment themes when I became a stockbroker in 1990 was the takeover tussle of Singapore Land and Malayan Credit (now known as MCL).
Not only did I make good money for my clients and myself betting on the outcome (certainly more predictable than betting on the recent FIFA World Cup), I learned that office demand is highly leveraged to corporate profitability, fresh hiring and corporate expansion, all of which I expect to dig deeper into next year.
There has been a sharp pick-up in hiring activities since the beginning of the year as well as expected hiring activities particularly in the banking and financial services sector.
There are reports on ANZ planning to expand by another 500 headcount over the next 12 months as it scales up its businesses from recently-acquired RBS; Citigroup and HSBC both intending to hire another 200 positions as they recover from the global financial crisis.
Moreover, other major banking institutions like UBS and Bank of Singapore (the former ING Asia) are also looking to hire another 400 and 100 people respectively.
The other critical factor to watch is the turnaround in office rentals.
The inflexion point could have been reached in Q2 2010 after 11 consecutive quarters of rental decline which saw prime rental fall like a bomb from $18.50 psf in Q3 2007 to $5.75 to $6.25 psf in Q2 2010.
Coupled with lower vacancy rates of 10 per cent (from a trough of 12 per cent), I would expect my hot stock picks of Keppel Land, CapitaCommercial Trust, Suntec Reit and KReit (all of which have seen share prices surge by an average of 33 to 50 per cent from current year's lows) for my clients' and my own investment portfolios, to continue to do well into 2011. Go where the tourists go: One of my best returns (in excess of 80 per cent) in my clients' and my own portfolios in 2009 was investing in the casino stocks of Wynn Macau, SJM Holdings and Sands China as tourists and punters flew, sail and rode to Macau where casino revenues soared to 50 per cent of Macau's GDP.
I think this will happen to Singapore this year and well into 2011.
Singapore tourist arrivals will be bolstered further in 2H 2010 by the inaugural Youth Olympics this month, Formula One in September and various new mega business conventions staged at the Marina Bay Sands and Resorts World Sentosa as well as Universal Studio's new thrill rides.
I believe the highest tourist arrival of 946,000 in May 2010 marked another inflexion point in the Singapore tourism, retail and service industries as I expect a structural change to permutate through the new decade with the opening of the two casinos and stabilisation of Asian economies after the global financial crisis.
In this regard, I will continue to stay with beneficiaries like CapitaMall Trust, Frasers CT, CDL HT, M1, Singtel, StarHub, SMRT, SPH and SingPost as tourists are likely to continue to fly, sail and ride to Singapore, a vibrant world-class city. The Empire Strikes Back: One idea I hold close to my heart as an investor (and also now in my philanthropy work) has been to always love the unloved and touch the untouchable stocks which have fallen out-of-favour, ignored by the investment community (which in my view, suffers from short-transom, is very fickle and too driven by corporate profitability) or have earnings blips.
My big winner this year thus far for my clients and myself were the Jardine empire group of companies. JMH, JSH, Jardine C&C, Dairy Farm and Hong Kong Land are easily the largest of the top 30 companies listed on the Singapore Exchange.
For years, they were largely ignored by investors, and not surprisingly, only two stockbrokers have research coverage on them.
Up till the beginning of this year, JMH traded at US$30 and JSH traded at US$17. Upon the release of its Q1 2010 better-than-expected results, JMH has traded up to US$40 and JSH traded up to US$24, registering stupendous gains of 33 per cent and 41 per cent respectively.
There are still many dark horses in the current market environment like the Jardine empire to be unearthed by thorough and consistent research and coverage.
The smart investor should always be looking for an 'empire strikes back' kind of stock. It was Ezra, Midas Holdings and OSIM last year.
So do come to the INVESTFair for more information and possible tips.