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Singapore: Property Shares Get Burned

Despite the Dow Jones Industrial Average setting multiple new all-time highs and strong performances from some of the major Asian markets (see below), the Singapore market only managed a small gain this week, with the Straits Times Index (SGX: ^STI) up only 0.6%. Meanwhile, elsewhere in Asia:

 

Weekly Gain

Price-to-Earnings (Mar. 8)*

Nikkei 225 (INDEX: ^N225)

+5.8%

15.6

Hang Seng Index (INDEX: ^HIS)

+0.9%

13.8

Shanghai Stock Exchange Composite Index

(1.7%)

23.0

BSE Sensex

+4.0%

17.9

*Normalized earnings per share. Source: S&P Capital IQ

Bank shares heat up
Banks were among the biggest outperformers this week, with United Overseas Bank (SGX: U11), Oversea-Chinese Banking Corporation and DBS Group Holdings all among the top five gainers within the Straits Index, advancing 3.3%, 2.5% and 2.2%, respectively. On the basis of price-to-book value, none of these banks trade at an extravagant premium, but their earnings multiples are starting to look a bit rich (UOB trades at 15.6 times trailing-twelve-months’ normalized earnings-per-share, for example.) While they’ve managed to grow earnings-per-share at a very healthy clip off the lows of 2009, it’s not unreasonable to question whether these growth rates are sustainable, particularly in the context of an overheated domestic real estate market.

Property shares get burned
Speaking of which, property shares were among the worst-performing issues in the Straits Times Index this week. Prominent among them, CapitaLand (SGX: C31) dropped 3% on Friday, to close at its lowest level in three months. South-East Asia’s largest developer was the worst-performing Straits Index component on the week, registering  a 6.2% loss. Investors are concerned the Singapore government will introduce measures to rein in the red-hot housing market; both Hong Kong and China have already taken action this year to cool their own housing markets. Last year, CapitaLand generated more than half its revenues and more than three-quarters of its operating profits from Singapore and China, according to data from S&P Capital IQ.

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This article was written by Alex Dumortier, CFA. Alex Dumortier is a Fool.com contributor.

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