Stick with defensive blue chips as volatility escalates, investors urged

Valuations will stay depressed in coming months.

Investors seeking to ride out the intensifying volatility in local markets should stay defensive and stick with well-established blue chips, according to a report by UOB Kay Hian.

UOB Kay Hian said that investors should be selective as the FSSTI will remain volatile in coming months, on back of unresolved macro concerns such as weaker growth, diverging monetary policies and geo-polictical tensions.

“We take a defensive and selective approach, buying on weakness and focusing on solid blue chips with reasonable yield and strong financials. Market valuations are likely to remain below mean on weaker growth prospects and lower-than-mean ROE,” UOB Kay Hian said.

The brokerage firm favors stocks that display capacity-driven growth and reasonable prices, as well as companies which benefit from secular trends and regulatory changes.

In January, the local bourse fell 8.8% month-on-month to 2,629.11 as investors took risks off the table. Key concerns included a collapse in the price of oil and China’s renminbi weakness that sparked off fears over a currency war with its Asian neighbours.

Sectors that suffered the brunt of the sell-off were shipyards, which dropped -19.1% month-on-month, oil services, which slipped -18.3% month-on-month, and banks, which fell -11.3% month-on-month.

Against this backdrop, sectors with earnings visibility such as healthcare and REITs outperformed, gaining 3.5% and 0.4% month-on-month respectively.