Tuesday, February 16, 2010
The Hopeful Tiger Year 2010 ?
Some agree the Singapore economy expected to expand between 3-5 per cent by year end and may present opportunities for investors to buy in anticipation of a price recovery. But the element of risk remains. Like the tiger, the market is likely to remain active for the first half, but the second half of 2010 remains unpredictable. Although property prices have already reached a high level in the past 12 months, the prospect of further increases would be tempting to some investors. However, further price growth would also bring higher risks of a correction.
The last Tiger Year came around in 1998, smack in the middle of the Asian financial crisis. Then, the property price index for private homes shrank 34 per cent over 12 months. There was a very pessimistic mood at the start of 1998 in the property market.
But by the Chinese New Year of 1999, people were optimistic again. The market rebounded from Q1 1999 and, over the next two years, prices rose more than 40 per cent on the back of strong pent-up demand, increased investor confidence and a global IT boom.
Twelve years before that, in 1986, Singapore was in the midst of another crisis.
That Year of the Tiger (1986) came after the 1984-85 economic recession, which was exacerbated by the collapse of Pan-Electric. The property market dived to the lowest point in Q2 1986. But it then made a remarkable, long recovery over the next 10 years until May 1996 (when anti-speculation measures were introduced by the government), with prices rising more than five times. [ Maybe, I should take a side-step look at the car COE prices, which probably behave the same phenomena effect of rise and fall ? ]]
Similar history applies to 1974. The global oil crisis hit Singapore that year - the first major economic crisis the island had to weather post-independence. But property prices then went on to rise steadily from 1974. Over the next seven years until 1981, prices of residential properties rose more than four times.
IT seems that the Year of the Tiger has historically been linked to tumult and upheaval.
As the world now stands on the brink of yet another Tiger year, the top questions on every market player's mind are: Is there an Asian property bubble in the making and is the equity rally over.
On property, the consensus is that although markets have rebounded, they still fall short of the dizzying heights seen during the 2006-2007 years.
On equity, markets posted spectacular gains in 2009, but the increases only offset some of the outsized losses that were registered during the preceding year. Likewise, China is not experiencing a property bubble as compare to what you can see with much higher prices in Australia and or Hong Kong and lately the Chinese government stepped in to cool down the market.
Indeed, analysts felt that most Asian stock indexes remain well below peaks that were reached in 2007 and although forward-looking price-earnings ratios in Asia may have gone up a lot, they are not at levels yet that most would associate with asset bubbles.
Plus, the governments will be looking at signs of asset inflation in property sectors, in particular. Any selldown should give yield-buying opportunities as markets would eventually get used to the idea that governments are not going to over-tighten. Market watchers believe that the 10-month rally which started last year has already ended and stocks are now seemed to be in a correction phase rightly or not.
This came as risk appetite for Asian equities has sunk due to credit tightening in China, while equities have priced in the V-shaped recovery. At current environment, an overweight position could see the Singapore market and a year-end Straits Times Index target of 3,200.
Be aware of valuations, avoid well-known themes and search for value laggards. OCBC Investment Research believes that 'smart money will take note of the more reasonable valuations now and will be ready to re-enter the market'. Some estimates are that Singapore's economy shrank 2.1 per cent last year, while growth of between 3 and 5 per cent is expected for 2010, and private sector economists are even more bullish.
But leading indicators from a recent BT-UniSIM study showed that the present recovery may look more like 1986's gradual recovery, even though it lasted about as long as the crisis of 1998.
This Tiger year brings political uncertainties too. Economists say oil price spikes, a top risk in 2010 according to the World Economic Forum's recent report, could be triggered by a conflict in the Middle East.
And for the global economy, looming concerns over the withdrawal of stimulus plans and sovereign debt persist.
Labels: Investment Pointers