Excerpts from CLSA’s market strategy report dated 13 Jan 2012 and titled 'Run Singa, Run' by analyst Ashwin Sanketh.


WITH LOWER expectations on sales and margins priced in to a large extent, and with investors keen to put money to work, the market is likely to rally near-term.

We recommend rotation into laggard beta plays with good balance sheets, noting that momentum-based investing has been particularly successful in Singapore.

Beyond the next quarter, renewed concerns regarding margins and profitability will warrant a return to defensive investing, reflecting our modest market upside of 4%.

350_uob_hq
UOB is a top pick of CLSA. NextInsight file photo

Favour beta near-term…

  • Investor feedback suggests there are sizable funds awaiting deployment in the markets, pending some directional clarity.
  • With GDP growth expectations lowered and 4Q11 results unlikely to disappoint enough to warrant another leg down, in the near term, the market could rally.
  • Work by the Microstrategy team indicates momentum has been the most successful strategy in Singapore, reflecting the limited breadth of the listed market.
  • Anaemic forecast returns suggest sector rotation will determine relative returns.

…but not throwing caution to the winds

  • In the medium term, any real solution for the Euro zone will imply pain, not just for the Euro zone, but also for all regions exposed to it.
  • Earnings growth expectations, while dramatically lower than a year ago, are still too optimistic.
  • Valuations, although much more reasonable than 2 quarters ago, is more fair than attractive after taking into account forecast ROE.

resorts_world
Genting Singapore, which operates Resorts World Sentosa (above), is also a top pick of CLSA.

Musical chairs

  • In the near term, 2011’s laggards with strong balance sheets are likely to benefit and the winners likely to underperform, owing to sector rotation.
  • Over the year, given the macro uncertainty, a buy-and-hold strategy that includes quality companies with strong balance sheets and cash flows is likely to succeed.
  • The absolute-return Dividend cocktail portfolio is our favoured approach; it includes 7 stock picks – Hutchison Port Holdings Trust, Keppel Corp, Singapore Press Holdings, SingTel, ST Engineering, StarHub, and United Overseas Bank.

We remain underweight financials, transport and consumer discretionary, overweight staples and industrials, and neutral property and telecom.

Top BUY ideas are UOB, CapitaLand, CapitaMalls Asia, Genting Singapore, Noble, and SembCorp Marine.

Top SELL ideas are SGX, City Developments, COSCO.

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Comments  

#2 Richie 2012-01-18 15:35
The euro crisis is not resolved but there are positive developments every other day. Investor sentiment has cheered up considerably, so it's getting easier for some people to pick stocks that are bargains and look more attractive than the safe REITs and telcos. How about World Precision Machinery & Trek 2000 & China Minzhong & China Animal Healthcare?
#1 Rich_Gal 2012-01-17 12:01
The CLSA picks are the big caps. What are solid mid- and small-caps worth putting money into now, taking into account the Euro risks and what not?

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