Sunday, January 11, 2009
Time to start looking at stock markets
*taken from bloomberg
At the STI index of 1780.57 the STI is trading at 1.1x P/B which is similar to the that during SARs. However the lowest it did go to was 0.7x P/B which was in 1998's Asian's financial crisis.
Looking at the above graphs. We can see that the STI levels is around the level of SARs in terms of price to book ratios. ( This might be a better gauge than absolute number in terms of the index, as earning by the respective companies would have changed since SARs in 2003 )
Even though there is still the possibly of valuations to go even lower, it might be time to start searching for stocks and put them in your watch lists. In general I will recommend blue chips first, as they are more unlikely to pull through this crisis,however after the fall of Lehman Brothers, anything is possible..
Particular counters could be like Keppel Corp. They are specialized in shallow water rigs, which are usually used as a short term investment in infrastructure for oil rig companies, and their production can be easily stopped ( which is what is happening now). Hence they are more affected by the crisis. However when the economic picks up, they should be able to recover faster than other oil rig companies who specialize in deep sea digging which are less prone to market cycles. ( Reason: Rigs for deep sea is more expensive but the rigs can last longer,as there is more oil there. Shallow sea rigs are cheaper as usually they dun have as much oil , hence its a case of having a quick/simple rig to dig for oil and to move on)
REITs are looking really really good with yields that are crazily high. Imagine that you bought a stock of $1 now a getting a 10% dividend. When the economy recovers and the price goes back up to $2, if the dividend percentage stays the same, you effectively get a dividend of20%! Of course that is provided the absolute amount of dividend increases too.
Commodities too. SPC, Wilmar , noble. These are companies who deal in commodities. I have not looked at them yet, but shall be starting my research soon. ( I am personally bullish on commodities)
And many more... shall update more when I have the time.