2016 is shaping up to be a tricky year for investments. Some of you would have read about the China’s stock market rout, the US Fed increasing interest rates, the cooling property sector in Singapore, the uncertain oil and gas markets, and many others.
These events may seem to scream “What are you doing thinking about investing!” And you won’t be wrong if you wanted to keep out of this challenging market. However, 2016 also brings with it many opportunities for investing.
The Straits Times Index Is Cheap
Being that so much uncertainty exists in the market currently, you would be purchasing stocks for a relatively cheaper price than “usual”.
What we mean by this is that the historical Price/Equity (PE) ratio of the Straits Times Index (STI) is 16.9 (according to Motley Fool). In layman terms, as a whole, for every $1 of earnings by companies, we are “usually” willing to spend $16.90 to own its stock. This is compared to the current economic climate where we are only paying $11.59.
If you decide to go ahead to invest in 2016, you’ll wonder what kind of stocks you should be looking at. We like suggesting for people to buy the STI ETF for a start, but if that’s not your cup of tea, we’re going to look at some sectors that we think might do well in 2016.
The technology sector in Singapore is proving to be vibrant and resilient. As an established regional hub for the biggest technology companies in the world such as Twitter, Facebook, LinkedIn, Bloomberg, Microsoft and many more, Singapore is well on its way to becoming a hotbed for innovation and creativity.
And we don’t think it is by chance that the likeliest candidate for this year’s first IPO Singapore will be software providers Deskera. This was also seen in the REIT market, which saw relatively new REIT counter that only leases data centres. Keppel DC REIT, increase 4.1% in price compared to a drop of over 12.1% in the FTSE ST REIT index. There are several other instances, such as Silverlake Axis, that has produced good results in recent years.
Singaporeans are fixated on education. From getting babies into new-age parental bonding classes to requiring university education to start out at entry level jobs to educating old workers via Workforce Development Authority’s (WDA) schemes and government initiatives such as SkillsFuture. Singaporeans’ thirst for education is unquenchable if slightly lacking in empathy or wisdom.
Some companies in this field include Overseas Education, a private foreign school system offering education to children between ages 3 and 18, and Raffles Education, one of the biggest private education company in Asia Pacific. However, both aren’t exciting companies at the moment, delivering lower net profits in their latest financial years respectively, and should be monitored closely for growth potentials.
As a healthcare hub and choice medical tourism destination in ASEAN and Asia, healthcare stocks in Singapore have the ability to grow their expertise and expand their presence regionally.
The added bright spark is that the healthcare industry seems to be immune to the stock market jitters that has seen stocks decline in Singapore. In fact, as a whole, the SGX’s healthcare Index has been the best performing index in Singapore in 2015. Companies such as newly listed women’s healthcare company, Singapore O&G, Q&M Dental Group and cleanroom gloves and bags manufacturer, Riverstone, have seen the best improvements in price and could be worth monitoring.
Other strong companies in this sector include healthcare REITs Parkway Life REIT and First REIT and Raffles Medical Group.
Food & Beverage
Singaporeans are foodies and it is no surprise that the current market volatility has not impacted F&B stocks as much with its people willing to travel all over the island to satisfy a craving or to try up a new recommendation from food bloggers. Given this somewhat recession proof operating industry, F&B companies delivered a strong performance in the latest quarter in 2015.
Many firms including Japanese cuisine specialists, Japan Foods, puffs and pastry maker Old Chang Kee and Swensen’s outlet operator ABR Holdings have all clocked in good performances, boding well for the industry. Foodies and investors should definitely watch this space.
We want to end off by saying we are not recommending any of the stocks mentioned or putting down those not mentioned. Our intention was to focus on what we thought were sectors with interesting prospects in Singapore. As usual, you are advised to do your own research before making any investment decision. It is important for one to understand the business model of a company before one invest in it.
Share with us on Facebook if you think there are any other sectors that are worth looking into or if there are companies that you think we might have missed out on.