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Tue, December 29, 2020 – 5:52 pm
The Singapore Stock Exchange (SGX) has highlighted value investing as a significant contributing factor to the recent rally in the Straits Times Index (STI) in the quarter to date, noting that four of the STI’s top 10 results for the period were ranked highly by value factors early in the second half of 2020.
The four stocks were Jardine Matheson Holdings, Sembcorp Industries, Jardine Strategic Holdings and CapitaLand. These averaged 26 percent of total returns in the current quarter compared to 16 percent for the STI, SGX said in a market update released Tuesday.
According to the exchange, the recent turnover of investors from tech and healthcare stocks to more cyclical sectors and stocks that are considered to be trading at value has caused the STI to generate about double the gains of the US S&P 500 index. the quarter and the year to date. SGX said that during both periods, the 30 largest and most actively traded Singapore stocks with the highest factor exposure to value have averaged total returns that are broadly in line with the STI.
Sunpower Group was the largest winner of the 30 value stocks in the quarter to date, posting total returns of 50 percent during the period. The environmental protection solutions specialist’s underlying net profit increased 47 percent year-on-year to a record 278.7 million yuan (S $ 56.6 million) during the nine months ended September 30, 2020.
On a 2020-to-date basis, Sembcorp Industries emerged as the top contributor to all 30 value stocks, posting total returns to date of 50 percent. The company recently parted ways with Sembcorp Marine in September this year to become a focused energy and urban business, with a renewed mandate to unlock value for investors. It is also one of the five SGX named value stocks that has seen the most institutional inflows proportional to its market capitalization, with net inflows of S $ 39.1 million for the quarter to date.
Other value stocks with notable net institutional inflows include BHG Retail Reit, CDL Hospitality and Hong Fok Corporation. Together with Sembcorp Industries and CapitaLand, these five stocks averaged a 17 percent total return in the quarter to date, in line with STI earnings.
SGX also said in its update that most of STI’s 16 percent total return in the quarter to date has depended on earnings from DBS, UOB and OCBC. While the trio of banks weren’t in the top 30 for value, the stock market said this quarter has seen the average price-book value (P / B) of banks rise from 0.84 to 1, 02 times, in line with the revaluation of world banking stocks due to news of the development and deployment of the Covid-19 vaccine this quarter
SGX estimated that this shift to finance in the current quarter saw the three banks revalued from an average of 16 percent to book value, at a marginal premium. Historically, the trio averaged a P / B ratio of up to 1.38 times at the end of the first quarter of 2018.
Factor investing is a relatively new method of grouping that seeks to link the past and potential returns of stocks according to attributes of common factors, including value, which measures a company by fundamentals such as income, dividends, performance and profit margins.
The 30 stocks of value identified by SGX were considered by the exchange as those with the cheapest valuations or the lowest valuations in terms of a selection that applied a combination of equal weight of P / B and price-earnings (P / E) multiples. These counters were ordered by the highest positive value factor based on data from Factor Investing in Singapore by Nicolas Rabener and backed by SGX, at the time the report was released in August 2020.
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