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Singapore: Are stocks still attractive?

StockMarketBoardThe negative sentiment related to the Cypriot debacle appeared to subside in global markets this week — except, of course, in Cyprus, where there is now enormous fear and uncertainty.

Singapore stocks roughly recouped what they had lost the prior week, with the Straits Times Index (SGX: ^STI) up 1.5%, in line with several other major Asian markets:


Weekly   Gain (Loss)

Price-to-Earnings   (Mar. 29)*

Nikkei 225 (INDEX: ^N225)



Hang Seng Index** (INDEX: ^HIS)



Shanghai Stock Exchange Composite   Index



BSE Sensex**



*Normalized earnings per share **Trading week ended on Mar. 28  Source: S&P Capital IQ

Choose wisely
In an article published this Saturday, the respected financial weekly Barron’s cautions its readers [a sign-up may be required to read the article] that “selectivity” is the watchword when it comes to investing in Singapore, on the basis that the  economy’s growth profile is less compelling than some of its neighbors’ and that valuations look stretched:

Many Singaporean stocks are probably best avoided right now. Earnings growth for the broader market is likely to slow to just 5% this year before rising to about 15% next year. And the market isn’t cheap. It trades at 15.5 times this year’s earnings and just over 14 times next year’s.

The Straits Times Index has made new 5-year highs this year, but is it now overvalued?

The following graph shows an annual series for a broad valuation indicator, the ratio of Singapore stocks’ total equity market capitalization to Singapore’s GDP:











Source: Author’s calculations, based on data from Standard & Poor’s and the Department of Statistics, Singapore

The last point in the series, which represents the end of the first quarter of 2013 (based on estimated GDP for the trailing four quarters), puts the ratio of total stock market value-to-GDP at roughly 150%, which is right around the average of the annual series over the entire period (156%). On this measure, then, the Singapore market doesn’t look overheated.

Still, stock picking is, by definition, about selectivity; as such, Barron’s message is not lost on those who practice this discipline. Barron’s pitches two of its favorite stocks in the article, Genting Singapore (SGX: G13) and Singapore Telecommunications (SGX: Z64).

Here at the Motley Fool, we favor businesses that own a “franchise” (i.e. that are protected against competition by some type of barrier to entry), because that enables them to earn high returns on shareholders’ capital over extended periods of time. Both companies fall under that category; if you can verify that you’re not overpaying for the shares, it’s off to the races!

Enjoy your weekend, Singapore! Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.  The Motley Fool’s purpose is to help the world invest, better.

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