Investors abandon trading Singapore stocks as turnover slumps 25%

STI is languishing in a tight range. Reflective of the muted interest in the market, the Straits Times Index (STI) has also been languishing between the 3100 to 3200 level for the large part of 2Q. Based on these trends, the STI is likely to continue to consolidate around this region, with a slight downwards bias, as we head into the traditional lull periods in late May to June.

Fundamentally sound, but no price drivers. While the official Singapore economic growth has been revised up recently to 5-7%, there are no clear drivers on the corporate front. Order books and earnings guidance have so far been in line with our expectations and we are projecting average earnings growth of about 10% for the blue chip companies. For the STI to move up, corporate earnings is critical and with a fairly in line set of 1Q results and with guidance being broadly in line with market expectations, there are limited price impetus currently. In addition, global issues continue to dominate with the recent market concerns surrounding the debt crisis in Europe and slowing economic growth prospects, translating into higher risk aversion.

Some sectors will outperform. While the global outlook is fairly muted for now, we believe that some Singapore sectors will outperform for this year. So far, the key outperforming sectors are Oil and Gas and Telecommunications, up 2.7% and 3.1% YTD (based on sector indices) versus -2.4% for the STI. Both have been our core favourites for outperformance in 2011 and remain as our key picks. We believe that the current market concern over the European debt situation as well as the slowdown in the US economy recovery are likely to remain as recurring issues, and are unlikely to be resolved in the near term. In Singapore, and post the General Elections, we believe that the government's policies will be directed towards meeting the needs of the masses in areas such as housing, wages, cost of living, healthcare and facing an aging population.

Of concern is the increased likelihood of more property measures to ensure affordable housing for the masses, and we maintain our Neutral view on the residential property sector. We believe that valuations in the Singapore market remain undemanding and the STI is currently trading at around 14.3 times this year's earnings and 12.9 times next year's earnings. We reiterate our overweight on several sectors including Telecommunications, Oil & Gas, Healthcare and Water. Some of our preferred stock picks include Keppel Corp, SembCorp, Hyflux and the three telecommunication stocks for good dividend yields. (Carmen Lee)