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Are The Blue Chip Stocks in Singapore’s Market Simply Lousy Companies?

Anyone looking at the long-term stock price changes of the blue chip stocks in Singapore’s stock market could be forgiven for thinking that they are rubbish.

In our local context, the 30 stocks that make up the Straits Times Index (SGX: ^STI) are known as blue chips.

Let’s use Keppel Corporation Limited (SGX: BN4), Oversea-Chinese Banking Corp Limited (SGX: O39), and United Overseas Bank Ltd (SGX: U11) as examples. The trio are all long time components of the Straits Times Index. Keppel Corp’s an oil & gas and property development conglomerate while OCBC and UOB are established banks in Singapore.

Nine years ago on 12 July 2007, Keppel Corporation’s shares were worth S$11.64 each. Today, they are 52% lower at a price of S$5.55. In the case of OCBC and UOB, they have seen their stock prices decline by 7% and 18%, respectively, over the same period.

You can now see why it’s easy for someone to think that Singapore’s blue chips are lousy.

But, there is another important dimension to this picture. From a business perspective, the aforementioned trio of Keppel Corp, OCBC, and UOB, have actually not fared too badly.

From 12 July 2007 to 12 July 2016, OCBC has seen its book value per share – a proxy for the true economic worth of a bank – grow by 90% from S$4.32 to S$8.20. UOB’s book value per share has seen similar growth, climbing 66% from S$10.95 to S$18.22 over the same period. Meanwhile, Keppel Corp’s earnings per share has increased by 58% from S$0.48 to S$0.76.

So, it’s not really the companies’ faults that their stocks have been losers even after nine long years – it’s the market. The trio were all carrying high valuations back in 12 July 2007 – Keppel Corp had a price-to-earnings ratio of 24 and OCBC and UOB were valued at 2.2 and 2.1 times their respective book values – and that’s been one of the key drivers for their poor market returns.

Such information is important for investors to know as some may have shunned certain blue chip stocks, or sold out of frustration, purely because of their poor long-term stock price returns.

When faced with a stock that has seen its price fall over a multi-year period, it’s worth noting what the main driver for the situation is. Is it the business’s problem or is it the market? Such knowledge can provide useful insights as well as learning points.

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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 Chong Ser Jing doesn't own shares in any company mentioned.