1 Key Investing Lesson We Can Learn From Six Consecutive Quarters of Declining Property Prices

The Urban Redevelopment Authority announced yesterday that it has revised the widely-followed Property Price Index (PPI) to better reflect price trends in Singapore’s private housing market.

Housing’s in the doghouse…

But while the methodology for calculating aggregated housing prices has changed, the downward price movement of private houses in Singapore hasn’t. As the Business Times reported earlier today, the PPI had dipped slightly by 1.1% in the first quarter of this year from the previous quarter (fourth quarter of 2014).

The dip marks six consecutive quarters of declining property prices following a peak in the third quarter of 2013.

…But property companies aren’t

Now, here’s something interesting: While the PPI has been sliding, the shares of leading real estate developers in Singapore, like CapitaLand Limited (SGX: C31) and Frasers Centrepoint Ltd  (SGX: TQ5), have actually been rising.

At the start of 2014, CapitaLand’s shares were worth S$2.98 apiece; as of today, they’ve grown by 20% since to S$3.58. As for Frasers Centrepoint, its shares actually put on 19% over the same time period, jumping from S$1.50 to S$1.78.

Tuning out the noise to focus on the important things

This phenomenon contains a key lesson for us as investors: Macro-economic data is not a reliable indicator of future stock price movements.

Many investors like to argue that an investment into a particular stock market or company is unwise because a country’s economy or the company’s industry is slowing down. But, there are many things in investing which are counter-intuitive.

The price of a company often reflects the market’s expectations of its prospects or of its industry. When the related macro-economic data is weak or the company has a poor quarter, the market’s expectations will be low and thus cause the company’s shares to trade at a low valuation.

This low valuation is what creates an investing opportunity. That’s because any positive improvement – even slight ones – in the performance of the company or its industry would be a pleasant surprise for the market and thus cause the market’s expectations to move upward.

Foolish Takeaway

So, the property market in Singapore hasn’t been doing well lately and market expectations have been low for awhile. But, it appears that market sentiment in that sector is finally improving.

If this type of reversal in sentiment is pretty normal, it might make sense to ask: Which industry is the market beating down now? Here’s a hint: “I wonder what powers your car?”

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns shares in Frasers Centrepoint Ltd.