SGX Market Updates - "STIs Strongest Sectors in YTD - Real Estate, Financials & Industrials"

28 August 2017

Market Updates

STI’s Strongest Sectors in YTD – Real Estate, Financials & Industrials

• The STI has generated a 13.2% price gain in the 2017 YTD, with its eight Real Estate stocks averaging a 24.1% price gain, its four Financial stocks averaging a 15.0% price gain and its 10 Industrial Stocks averaging a 13.6% price gain.

• Of these three STI Sectors, Real Estate and Industrials averaged turnaround price performances in the 2017 YTD after respective declines averaging 0.5% and 5.2% in 2016. Yangzijiang Shipbuilding, UOL Group, CapitaLand & A-REIT swung from price declines in 2016, to gains of 15.0% or above in the 2017 YTD.

• Valuations for the STI’s Real Estate & Industrial stocks are mostly at or above historical standards. The STI’s Real Estate stocks’ average P/B ratio at 1.0x is marginally above the five year average of 0.9x, while the average P/E ratio for the STI’s 10 Industrial stocks has advanced to 20x from a five year average of 17x.

The Straits Times Index (STI) provides a benchmark gauge for the performance of Singapore’s 30 largest capitalised and actively traded stocks. The results of the next quarterly review for STI inclusion will be published on Thursday 31 August after the market close, and these results will be effective from the start of trading on Monday, 18 September.

Last week the STI generated a marginal gain of 0.2% to take its 2017 year-to-date dividend-inclusive return to 16.4%. This compares to a year-to-date average total return of 10.8% in SGD terms for the benchmarks of Japan, Hong Kong and Australia.

Source: SGX StockFacts & Bloomberg (Data as of 25 August 2017). Note Total Return assumes dividend distributions are reinvested into the Index. Average of regional Indices is converted to SGD equivalent returns.

The illustrated returns above include STI price returns of 13.2%, with reinvested dividends boosting the STI total return to 16.4% in the year thus far. Note that while in its standard Index form (taking into account free-float capitalisation weightings) the Index generated a 13.2% price return, the simple average price return (i.e. non-weighted) of all 30 constituents was 12.7%.

In the 2017 year through to 25 August, the Real Estate and Industrial Sectors generated turnarounds in average price performance after respective declines of 0.5% and 5.2% in 2016. Conversely, whilst the STI’s Consumer Staples & Consumer Discretionary Sectors averaged a 16.2% price gain in 2016, the six stocks have averaged a price decline of 0.6% in the 2017 year through to 25 August.

The average price performances of STI constituents, grouped by GICS® Sectors in the 2017 year through to 25 August are illustrated below.

Source: SGX StockFacts & Bloomberg (Data as of 25 August 2017)

Three of the STI’s five strongest price performers in the 2017 year through to 25 August were Real Estate stocks - Global Logistic Properties, City Developments and UOL Group. This helped to boost the average price returns of the eight stocks that make up the STI’s Real Estate Sector to 24.1%.

Comparative Valuations

Valuation ratios are often used by investors to assess the operating and financial conditions of a stock against its historical or Sector average. Historical standards compare the stock’s ratio in a particular year to past years, while Sector standards can involve comparisons with Sector competitors.

Two such valuation ratios, the price-to-earnings (P/E) and price-to-book (P/B) ratios vary across the different Sectors represented within the STI. For Sector valuations, the P/E ratio is commonly used for the Industrials and Consumer Sectors, whilst the P/B ratio is commonly used for the valuation of Financials and Real Estate Sectors.

The P/E ratio indicates how much the market values a stock, relative to the income it has actually generated over the past 12 months, while the P/B ratio allows investors to compare the stock’s value on the market, relative to its book value. For the 30 STI constituents, the simple average P/E ratio is currently 17x and simple P/B ratio is 2.1x. Note this is not the P/E and P/B of the Index in its weighted form, rather a simple average of the P/E and P/B of each of the 30 stocks that make up the Index.

Average P/B Ratio of STI’s Real Estate Sector Marginally Above Historical Average

The three Banks all maintain similar P/B ratios, with their average P/B of 1.2x, just 0.1x above their five year average P/B of 1.1x. Over the past twelve months, the three banks have seen average price gains of 30.3%.

Similarly, the current P/B ratio of the Real Estate Sector stocks at 1.0x is also marginally higher than the five year average at 0.9x. As noted above, the eight Real Estate stocks in the STI have averaged a 24.1% price gain in the 2017 year thus far, after averaging a 0.5% price decline in 2016.

The three strongest year-to-date performers of the STI’s eight Real Estate stocks – Global Logistic Properties, City Developments and UOL Group currently maintain P/B ratios that are above their five year average. The P/B ratios of the remaining five real estate plays are 0.1x above to inline their five year average P/B ratios.

Average P/E Ratio of STI’s Industrials Sector Above Historical Average

The STI stocks representing the Industrials Sector currently maintain an average P/E ratio of 20x, higher than the five year average P/E ratio of the 10 Industrial stocks at 17x. The P/E ratios of these 10 STI stocks currently vary from 7x for Jardine Matheson Holdings to 37x for Singapore Airlines.

Six of the relevant 10 stocks of the Industrials Sector have P/E ratios that are above their five year average, which include Singapore Airlines, SIA Engineering Co, Hutchison Port Holdings Trust, Yangzijiang Shipbuilding Holdings, Keppel Corp and Singapore Technologies Engineering.

Sembcorp Industries and SATS currently maintain P/E ratios in line with their five year average, while ComfortDelGro Corp and Jardine Matheson Holdings maintain P/E ratios below their five-year average.

The 30 STI stocks are tabled below. To see more information on each stock including financial history in SGX StockFacts click on the stock name.

Source: SGX StockFacts & Bloomberg (Data as of 25 August 2017)* Note traded in USD, performances & market cap are all SGD-adjusted.

My Gateway

SGX’s investor education portal with market, product and investment information and events. Sign up now at sgx.com/mygateway to receive our investment updates and economic calendar.

SGX StockFacts

Whether you are seeking new or established companies to invest in, SGX StockFacts can provide you with the information you need to identify and understand the stocks that best fit your investment strategy. Visit now at sgx.com/stockfacts.

This document is not intended for distribution to, or for use by or to be acted on by any person or entity located in any jurisdiction where such distribution, use or action would be contrary to applicable laws or regulations or would subject Singapore Exchange Limited (“SGX”) to any registration or licensing requirement. This document is not an offer or solicitation to buy or sell, nor financial advice or recommendation for any investment product. This document is for general circulation only. It does not address the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a financial adviser regarding the suitability of any investment product before investing or adopting any investment strategies. Use of and/or reliance on this document is entirely at the reader’s own risk. Further information on this investment product may be obtained from www.sgx.com. Investment products are subject to significant investment risks, including the possible loss of the principal amount invested. Past performance of investment products is not indicative of their future performance. Examples provided are for illustrative purposes only. While each of SGX and its affiliates (collectively, the “SGX Group Companies”) have taken reasonable care to ensure the accuracy and completeness of the information provided, each of the SGX Group Companies disclaims any and all guarantees, representations and warranties, expressed or implied, in relation to this document and shall not be responsible or liable (whether under contract, tort (including negligence) or otherwise) for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind, including without limitation loss of profit, loss of reputation and loss of opportunity) suffered or incurred by any person due to any omission, error, inaccuracy, incompleteness, or otherwise, any reliance on such information, or arising from and/or in connection with this document. The information in this document may have been obtained via third party sources and which have not been independently verified by any SGX Group Company. No SGX Group Company endorses or shall be liable for the content of information provided by third parties. The SGX Group Companies may deal in investment products in the usual course of their business, and may be on the opposite side of any trades. SGX is an exempt financial adviser under the Financial Advisers Act (Cap. 110) of Singapore. The information in this document is subject to change without notice. This document may only be onward disseminated by the recipient wholly or in part if its content is attributed to SGX. This document shall not otherwise be reproduced, republished, uploaded, linked, posted, transmitted, adapted, copied, translated, modified, edited or otherwise displayed or distributed in any manner without SGX’s prior written consent.