Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
The lack of excitement over Singapore shares, however, delights fund managers who take the time to research its undervalued companies.
ôBecause Singapore its not looked at as closely as markets such as China or Korea [by many international investors], the market provides a lot of opportunities for bottom-up stock selection and thatÆs how we can add a lot of value to our unit holders,ö says Pauline Ng, JF Asset ManagementÆs co-manager of the $700 million JF Singapore and the $2 billion JF Asean funds.
Many long-only fund managers like Ng steer clear of speculative trading which usually come with being a hot market, not wanting to sacrifice their fundsÆ longevity for quick profits.
As of end-August, the JF Singapore fund was up 23.4% from the start of this year, with DBS Group, Oversea-Chinese Banking Corporation, Keppel Corporation, United Overseas Bank, and City Developments among its top 10 holdings. Ng often looks at a one- to three-year investment horizon when choosing companies to add to the JF Singapore portfolio, which usually has between 40 to 45 stocks.
Liquidity is among NgÆs key considerations when looking at stocks.
ôWe should have at least a decent exposure to a company. ThereÆs no point in investing if itÆs a minimal exposure because even if the share price goes up by 30%, that translates to very small gains for us,ö Ng says.
Ng is unfazed by the subprime mortgage crisis in the US and the volatility it continues to unleash in stock markets globally, even though the uncertainty caused by those credit quality woes contributed to a dramatic shrinkage in her Singapore portfolio û by about $80 million over the past month, due to the fall in share prices.
ôWe have not let the recent sell-off affect our investment view on banks or the overall market,ö said Ng, who believes banks in Singapore have been punished too much by investors in the sell-off.
Ng notes that in many cases, the market capitalization losses of banks in Singapore have far outweighed the banksÆ actual exposure to collateralized debt obligations (CDOs). A case in point is DBS, which Ng said has a direct CDO exposure of around S$1.3 billion and an asset-backed commercial paper exposure of around S$1.4 billion. That combined exposure is just around a third of DBSÆs market capitalization loss of around S$6.4 billion ($4.2 billion), with its share price having fallen to its closing price of S$20.70 on Tuesday from a peak of S$25.00 in May.
Ng says banks in Singapore will likely continue to be vulnerable to sell-offs in reaction to the news-flow cycle from the subprime mortgage crisis. But she will continue to set her sights on the banksÆ overall growth outlook. Investments in commercial banks made up around 22% of the JF Singapore fund in end-July.
On the whole, SingaporeÆs booming domestic economy and its reduced dependence on exports to the US are among that marketÆs strengths in the long-term, Ng argues.
SingaporeÆs domestic economy expanded at its fastest quarterly pace in two years in the April to June period. Gross domestic product (GDP) grew 14.4% in the second quarter compared with the first three months of this year, its sharpest growth since May 2005. The services sector, led by financial services, has been key to SingaporeÆs overall growth so far this year.
The latest economic data has led to an upgrade of the Singapore governmentÆs GDP forecast for 2007 to 7-8% from the previous 5-7% projection.
ôThe latest GDP figure ties in with our confidence in the Singapore domestic story û very low unemployment, very strong job creation, very strong foreign direct investment (FDI). We have seen asset reflation over the last 12-18 months. The consumer sentiment on the ground has been fairly robust,ö Ng says.
Much of SingaporeÆs domestic growth story is driven by FDI in Jurong Island and the two integrated resort developments in Marina Bay and Sentosa. Jurong Island is being developed as SingaporeÆs petroleum and petrochemical belt and investors there include Exxon Mobil and Royal Dutch Shell. The integrated resorts, which are expected to cost a combined $10.25 billion to build, are being developed as casino resorts in the hopes of doubling tourist arrivals to 17 million people and tripling tourism receipts to S$30 billion by 2015.
SembCorp Industries, which is among NgÆs top 10 holdings in the JF Singapore fund, is an example of a company that is expected to directly benefit from the Jurong Island development. SembCorp provides infrastructure services and integrated industrial site services such as power, gas, steam, and water.
ôOver the next two years, we expect to see SembCorp IndustriesÆ growth from Jurong Island to come through,ö Ng says.
The best way to gain exposure to the integrated resort developments is through the gaming companies building the casinos there: MalaysiaÆs Genting and AmericaÆs Las Vegas Sands. The JF Singapore fund gets its exposure to the developments by investing in construction and building material companies.
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