THE PAST WEEK couldn’t have ended on a weaker note, what with the closing of a disappointing 3Q2011 earnings reporting season and weaker than expected October exports, which were down 16.2 % y-o-y, the worst figures in 30 months and more than double what economists had expected for the period.

 

Already bruised and battered by Europe’s debt crisis and stagnation in the US, the local bourse took a further hit, with the Straits Times Index falling almost 100 points during the week to close at 2,739 points on Nov 18. As such, research houses in Singapore have released a flurry of reports recommending investment strategies and value buys to ride the upcoming quarters -- which most believe could be as bleak as the recent 3Q, or worse.

 

In The Edge Singapore this week (No. 499), we highlighted the views of local research house DMG & Partners, which is recommending that investors shore up their portfolios with defensive blue chip stocks to ride the weaker earnings environment. Since then, several other research houses have also released strategy reports, including local brokerage DBS Vickers.

 

DBS Vickers -- which cut target prices for 48% of the stocks under its coverage compared to the 19% which received upgrades -- believes that the Singapore economy has yet to bottom out, and that investors should expect weaker earnings for another two quarters. In 3Q2011, corporate earnings as a whole were down 10%, dragged down by losses incurred by Neptune Orient Lines, Noble Group and Broadway Industrial Group, as well as lower earnings from Sembcorp Marine, Cosco Corporation, Keppel T&T, tech companies Amtek and Hi-P, Singapore Airlines and SMRT.

 

DBS Vickers also cut valuations by 20% on several stocks, including Indonesian instant noodle maker Conscience Food, palm oil players Kencana Agri and Mewah, SIA, Amtek, Ezra Holdings, CapitaLand, CapitaMalls Asia and CSE Global. On average, it has reduced its target valuations by about 8%. “As earnings have yet to come to an end, signaling that the market has yet to find its floor, we believe it is too early to take positions in cyclical, which remain vulnerable,” DBS notes in its report. “Marco risks prevail, and a deleveraging of European banks is giving rise to a liquidity squeeze, which could take the STI down to the 2,500 level.”

 

Where then, should investors place their bets to make money during the downturn? DBS Vickers recommends while accumulating stocks with high earnings visibility, low earnings risks and high yields. On its buy list is Singapore Telecommunications, ComfortDelgro, CapitaMalls Trust, Global Logistic Properties, Mapletree Commercial Trust, Sembcorp Industries and UOL.

 

Meanwhile, the brokerage house urges investors to take advantage of temporary spikes in the market to sell cyclical as well as high global exposure stocks. “High risk sectors that are most vulnerable to earnings downgrades include transport and logistics, technology, banks, offshore and marine, plantations, supply chain management and property,” it notes. The brokerage is calling a sell on City Developments, SGX, Cosco, NOL, Goodpack and SIA.