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Are Government-Linked Companies In The Stock Market Always Good Investments?

Retail investors in Singapore have many choices when it comes to government-linked companies in the local stock market. Some well-known names include Singapore Technologies Engineering Ltd (SGX: S63)Starhub Ltd (SGX: CC3), and Singapore Airlines Ltd (SGX: C6L).

It’s the same in Malaysia, where the Bursa Malaysia, the country’s stock exchange, has a long list of companies that were pushed into the public markets by the government in high-profile initial public offerings. Companies such as Tenaga Nasional Bhd (KLSE: 5347.KL), Petronas Gas Bhd (KLSE: 6033.KL), and Telekom Malaysia Bhd (KLSE: 4863.KL) come to my mind.

Singapore and Malaysia GLC returns table
Source: S&P Global Market Intelligence

The six companies mentioned have all generated positive long-term returns as the table above shows. Some have in fact, been multi-baggers, with Telekom Malaysia, Petronas Gas, and StarHub being good examples.

With such a track record, does it mean that all GLCs will be great investments for investors? Thing is, investors should be careful when making such assumptions. There have been GLCs that end up being poor investments.

A good instance would be Neptune Orient Lines Ltd (SGX: N03), which is in the midst of being taken private. The shipping firm has provided a negative total return to its investors over the past 10 years. Logistics facilities provider Global Logistics Properties Ltd (SGX: MC0) is still down by 11% since its 2010 listing even when gains from reinvested dividends are factored in.

In Malaysia, Malaysia Airlines System nearly went bankrupt after years of losses and had to be privatized at a very low price so that it could be restructured.  Felda Global Ventures Holdings Bhd (KLSE.5222.KL), which was  listed only in 2012, has seen its shares lose nearly 70% of their value since.

When investing, it is important for investors to look at each company based on its individual merits. Making generalized assumptions such as “all government-linked companies are safe investments” is a sure path to disaster in the stock market.

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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 doesn’t own shares in any companies mentioned.