Some investments thoughts: May - Jun 06

This is a period of stock market turbulence. The local stock market peak at early May and begin its big swings downwards, mirroring the world markets, in the backdrop of rising interest rates in US & institutional investors & hedge funds pulling out.

Between Jan06 to May06, my stock prices grew significantly and I had progressively sold my China stocks and other small caps. On the hindsight, I was lucky not to be too greedy as I was a net seller of stocks, although I have switched to MIIF, MM Prime & Allco REITS using my proceeds from those sales.

As I had learnt from my past experience, do NOT be too greedy on penny stocks as they are mostly speculative and only move with the 'smart' money. I have sold most of my China stocks e.g. Asia Dekor (52 lots ave 16.93 cts), Sunray (30 lots ave 39.22 cts), Zhongguo Powerplus (16 lots ave 30.75 cts) , Hongguo (36 lots ave 31.34 cts - although Hongguo subsequently jumped to above 60 cts) and also took profit on half of my holding in HTL, in view of greater downside risks than upside, in view of the possible punitive actions on sofa imports from China as well as over-capacity situation in China for furniture industry.

I have also come to know about Shareowl.com, a website started by a retired professor, Sebastian Chong. His advocations about investing globally and in highly globalised companies have opened up a new dimension in my investment focus. Even our largest bank in Singapore pales in comparision to global banks like Standard Chartered, HSBC & Citicorp. These are the type of investments I should be looking into in the future to diversity.

He also reinforced my conviction about investing in large cap companies if my horizon is for long
term. Large cap companies have stronger capabilities to withstand economic swings and competitions. I should be looking to invest part of my portfolio in blue chips when the market correct further. As for penny stocks, I shall only buy when there is significant discount to its intrinsic value and when there is potential for growth, rather than solely for dividend yield. Dividend yield should be counted upon REITS, and defensive stocks like SMRT & Singpost as they are much larger.

I have bought some REITs on their way down as I believe average-down should work for this type of investment since their yield would be increasing in such situation. Their prices should recover when the dividend is declared. This is also observed from SP Ausnet price movement, which rebounded from a low of $1.41 (nil entitlement) and now at about $1.47 despite that it is already ex-div. But the most important question is what should be the entry price. My rule is still a minimum of 6% yield.

I'm observing PST now, hoping that it would touch 38 US cts or below, as this is my calculated risk-free instrinsic value over 10 ten years (i.e. free investment after 10 years!).

Summary of my thoughts:
1. Do not be too greedy, sell on the uptrend is always easier than the reverse (as quoted from Ooi Hong Leong)

2. Learn about global companies, esp the banks

3. Gradually to have more exposure to large cap stocks in my retirement nest, esp those which i go for dividend yield

4. Can average-down work for REITS?

5. Always maintain some cash to take advantage of bargain hunting in market downturn

Some Postings from Shareowl.com

Prof on Large Cap investing
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provocateur
Site Admin

Joined: 20 Jul 2005
Posts: 631

Posted: Tue Jun 13, 2006 1:35 pm Post subject:
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Too many Singaporeans prefer small cap than large and mid cap stocks. Never put more than 20% of portfolio in stocks with mkt cap of below $500m. Put at least 50% in stocks with above $3b market cap (and preferably half of that in giants with mkt cap of over $50b). Balance can be put in stocks with mkt cap between 500m and $5b.

That's why half of my money is in stocks like HSBC, Stanchart, Citigroup, Toyota. The other half are mostly in stocks like SIA Engg, Jardine C&C. Less than 10% are in small caps. Less than 2% are in covered warrants. But that's because I'm 58 years old. But even younger investors should not put over 30% in stocks with market cap under $500m.
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Prof on Dividend Investing
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Joined: 20 Jul 2005
Posts: 631

Posted: Sun May 21, 2006 9:39 pm Post subject:
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Well, Vicom is too boring for me. I like Seow's analogy of a big fish in a small pond. (In a way, SPH is also a big fish in a small pond but it is trying very hard to look for opportunities outside Singapore but so far no big deals yet.)

The fact that the dividend yield is over 8% the PE is 9.6 is because the earnings growth rate is around 10% a year. It is as safe as SMRT and SingPost. If I'm safety conscious, I'd rather go for these 2 stocks because they are big cap and they also have the muscles and the brandname to regionalise.

Vicom's mkt cap is only $82.9m and it has been listed for many years and been around for at least 2 decades. Imagine, DMX is only about 4 years old and its mkt cap is already $431m.

My concept is this. If you go for small and mid cap, they go for high growth. If you are going for good dividend, then go for bigger cap stocks like SingPost and SMRT because they are safer and moreover there is also more potential for growth because they have the "infrastructure" to innovate and add new sources of revenue within Singapore and to search for opportunities to regionalise.

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Prof on Margin of Safety
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Site Admin

Joined: 20 Jul 2005
Posts: 631

Posted: Fri May 12, 2006 2:09 pm Post subject:
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One indication of margin of safety is the the net tangible assets (NTA) per share. If share price is 45 cts and NTA is 40 cts, there is more margin of safety than if the NTA is only 20 cts. Raffles Edu trades at $2.60 but NTA is 7 cts. The margin of safety is extremely low if a crisis develops.

But NTA is always historical even if it is audited at end of last qtr. No one really knew the true NTA of CAO until it blew up publicly because the info was suppressed for many weeks. If CAO has announced to SGX after it lost $50m on oil futures, then investors knew that $50m of shareholders funds and the firm's NTA had been wiped out. But the announcement was made only after $550m of futures trading losses had been made and the shareholders equity became a big negative.

But margin of safety is more than just having an NTA that is not too far below the share price (or better still higher than share price like Hotel Grand Central). The degree of margin of safety is inversely related to the severity of the loss likely to be suffered by the investor in the short term if things go wrong and forecasts go down the drain.

For SMRT, margin of safety is very high but for volatile industries like Creative Tech, MediaRing and PacNet and even Pearl Energy and small bio-research companies that burn cash but have little revenues, margin of safety is not so good. For me, cut-loss is a great tool when investing in such companies. But sometimes, you can't even use the cut-loss tool -- like in the case of CAO. The suspension was immediate and you have no chance to sell.

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BT: Price plunge lays low 113 SGX companies (19 Jun 2006)

Business Times - 19 Jun 2006

Price plunge lays low 113 SGX companies

Number of companies trading at 52-week lows touches highest level since June 2005

By TEH HOOI LING

(SINGAPORE) With the sharp slide in the stock market last week, the number of Singapore companies whose share prices have hit their one-year lows has risen to the highest level since June 2005.

On June 13, there were 113 companies which sank to their 52-week lows. Based on numbers taken on the first of every month, the previous high was on June 1, 2005 when the share prices of 118 companies slumped to their lowest levels in the past year.

The rebound on Friday, however, lifted nearly half of the stocks off their lows. Still, as of Friday, the average price of all Singapore-listed stocks is 64 per cent below their one-year highs.

Again, prior to this, the previous lowest level was on June 1 a year ago when the average price was 66 per cent below their one-year highs.

And it seems size does matter when it comes to weathering a storm in a down market. Companies with market capitalisation of $1 billion and above were trading at 60 per cent below the top of their one-year trading range on Tuesday, June 13, when markets around the world took a heavy beating.

The number got progressively bigger as the company size got smaller. For stocks with a market cap of $50 million or less, prices were trading at 71 per cent below their one-year highs.

In a weakening economic environment, it is the smaller companies which will suffer the most drastic squeeze on profit margins.

Meanwhile, the recovery in the last three trading sessions benefited companies with market caps of between $100 million and $200 million the most. On average, the prices of 100 companies jumped 4.5 per cent. Those with market caps of $200 million to $1 billion rebounded 4.1 per cent and big caps - above $1 billion - managed to recover 3.5 per cent.

Again the numbers showed that the market is not much interested in companies with market caps of $50 million or less. As a group, they eked out a gain of a mere 1.4 per cent despite the Straits Times Index chalking up its biggest one-day gain in the past three years on Friday.

As of Friday, big caps are near the half-way point of the previous 52 weeks' trading range, while smaller companies are about 60 per cent down from the top.

Companies which have stayed resilient and maintained their prices within the top 10 per cent of their one-year trading range include Golden Agri, UIC, Hotel Negara, Pertama Holdings, Keppel Telecoms & Transportation, Asia Food & Properties and Raffles Medical.

Meanwhile, analysts are expecting continued volatility and weakness in South-east Asian markets in the next few months. 'Companies' second-quarter earnings may show a little weakness,' Reuters quoted Edwin Goh, head of Asian research at ABN Amro Asia Securities, as saying.

The past few weeks' turmoil in global financial markets stemmed from the uncertainty over how far the US Federal Reserve would go in raising interest rates. The fear was that too much tightening would induce a recession.

Kim Eng Securities said that for East Asia, export-driven economic growth was potentially at risk. 'However, given the balance the Fed is bound to strike between economic growth and stable prices, and the results of the latest Beige Book (the Fed's economic survey), we believe one more rate increase will do the job.'

It added that the lagged impact of tighter monetary policy on moderating growth will become increasingly more evident in future data releases, and that a nascent rise in inflationary expectations will be restrained with a June rate increase. 'For East Asia, one more 25-basis-point increase cannot change its essentially robust economic fundamentals. Except for Hong Kong, which pegs its currency to the US dollar, monetary policies in the other countries we cover are much less dependent on US policy.

'Furthermore the prospect of higher US interest rates finally seems to have had its cooling impact on commodity prices as well in recent days, potentially weakening the major source of inflation worldwide,' Kim Eng said.

Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.

BT: Behind the great sell-off (15 Jun 2006)

Business Times - 15 Jun 2006

Behind the great sell-off

ONE of the biggest business stories during the last month has been the frantic sell-off in regional stock markets as well as emerging markets generally. The Tokyo market is down about 20 per cent from its early April peak; India's Sensex is down close to 30 per cent since hitting a record on May 10; the Jakarta Composite has lost 20 per cent since May 11, Korea's Kospi is down 16 per cent, also since May 11. And here at home, the STI is about 13 per cent off its May 3 high. Markets in Latin America and Eastern Europe have taken a drubbing as well and in the last four weeks, emerging markets as an asset class have lost close to 20 per cent of their value in US dollar terms. By comparison, US and Western European markets are down by single digits over the same period.

While the selldown in markets that had sharp run-ups and were beginning to resemble bubbles - as in India - is healthy, the indiscriminate nature of the sell-off underlines just how strong contagion has become in emerging markets. It is partly a result of the fact that increasingly, it is international, rather than local, investors, that are the biggest market movers. But on this occasion, something more than routine profit-taking is at work; there is a clear trend of a flight to quality. But why?

Part of the answer has to do with the signals emanating from the US Federal Reserve. Having suggested in April that further interest rate hikes might be suspended, Fed chairman Ben Bernanke appears to have made an about-turn, saying on June 5 that near-term evidence of inflation is 'unwelcome'. Around the same time, Fed alternate governor William Poole said the Fed needs to keep an 'upward bias' on interest rates. And then on June 12, Fed governor Sandra Pianalto, said that the inflation picture, if sustained, exceeded her 'comfort level'.

All of which suggests a high probability that the Fed will hike interest rates for the 17th successive time to 5.25 per cent come June 29, which would make this the longest tightening cycle since 1979. This expectation - which is also positive for the US dollar - might help explain part of the emerging market sell-off. It might also explain the flight away from gold and other precious metals, as well as commodities, which, too, have taken a battering in the markets during the past month.

However, it might be argued that the upcoming rate hike was already discounted and cannot be the sole cause of the sell-off. It may be then, that the second-round effects - particularly of a US economic slowdown - have begun to loom large on investors' horizons. While the danger of recession is small, that of slower growth is not - especially if the US housing market, which has helped prop up consumer spending, also starts to slide in the wake of rate hikes. Investors might thus be looking beyond the hikes, to their effect on the real economy. If that is the case, there are two key implications for emerging markets. One is that some of the more upbeat growth projections - including for Asian economies - might have to be revised down. And the other is that the tide of capital that has just departed emerging markets might not be in a hurry to return.

Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.

BT: Slowdown in spending may hurt US growth (15 Jun 2006)

Caution required when investing in companies depending on US market & electronic exporters.

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Business Times - 15 Jun 2006

Slowdown in spending may hurt US growth

High oil prices, flat real estate market, mounting debt dampen consumers

(WASHINGTON) Another sharp decline in US stock markets on Tuesday fanned fears that consumers, already nervous about a cooling housing market, may abruptly curb their spending and dampen economic growth.

'Any slowdown in consumer spending would cause a significant deceleration in gross domestic product (GDP),' said Drew Matus, senior US financial markets economist at Lehman Brothers in New York. 'People are very much on edge.'

Consumer spending accounts for some 70 per cent of US GDP.

In recent years, soaring home prices and rising stock markets made consumers feel wealthier - a behaviour known as the 'wealth effect'.

'In 2005, an increase in housing wealth added about US$130 billion to consumer spending power,' said Michelle Girard, senior economist at RBS Greenwich Capital in Greenwich, Connecticut.

That housing wealth, coupled with healthy gains in stock markets, encouraged historically low, and recently negative, US savings rates.

But the tables have turned in 2006 as consumers confront high petrol prices, a flat real estate market and mounting debt.

'The consumer is facing a lot of headwinds,' said Mr Matus.

As at Tuesday, the Dow Jones industrial average is down 8.0 per cent from its 2006 peak. The Nasdaq composite index notched an eighth consecutive lower close and has fallen 12.6 per cent over the past eight weeks.

Many global stock indexes, where US investors have been active participants, have suffered even bigger losses recently.

'We are seeing a bit of a wealth loss coupled with a shift in momentum,' said senior economist David Hensley of JP Morgan Chase Securities in New York. 'That could affect confidence and spending.'

Sustained stock market losses, coupled with flat real estate prices, could create a reverse-wealth effect, in which consumers, feeling less wealthy, switch into a defensive mode and save more money to compensate for asset losses. Rising interest rates give consumers more incentive to save.

Mortgage payments are cause for concern among homeowners who took out adjustable rate mortgages (ARMs) back when interest rates were historically low.

The Federal Reserve has steadily raised rates since June 2004, and some homeowners face jumps in their monthly payments when their mortgage rates are reset.

'The consumer is going to get squeezed,' Merrill Lynch chief investment strategist Richard Bernstein said at this week's Reuters Investment Outlook Summit in New York. 'Peoples' standard of living has been falling and they've been desperately trying to keep up,' he said.

Those efforts are reflected in consumers' deteriorating credit conditions, as reported in the Federal Reserve's monthly consumer credit report. The most recent data, for April, showed a 4.5 per cent increase in borrowing on credit cards and revolving debt, the fastest pace in 10 months.

'More and more people are putting debt on their credit cards,' said Bill Hardekopf, CEO of LowCards.com in Birmingham, Alabama. 'The interest rates are just killing people that carry a balance.'

Car-dependent Americans are also getting hammered by petrol prices. According to the government's Energy Information Administration, motorists this week are paying 78 US cents a gallon more for regular unleaded gasoline than they did a year ago.

Economists suspect that consumer spending has waned in the second quarter, although many hope that buying rebounds by year-end. - Reuters

Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.

Reuters: Goldman's Cohen says S&P underpriced (14 Jun 2006)

What a quick change of view...

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Goldman's Cohen says S&P underpriced

Wed Jun 14, 2006 2:11 PM ET

By Emily Chasan

NEW YORK (Reuters) - A lot of the correction in U.S. stocks has already been completed, and the Standard & Poor's 500 index <.SPX> is currently underpriced, Goldman Sachs' Chief U.S. Investment Strategist Abby Joseph Cohen said on Wednesday.

"We think a good deal of the correction has already occurred," Cohen said at the Reuters Investment Outlook summit in New York.

"Looking at the fundamentals ... on that basis I would say the S&P 500 looks underpriced right now," she added, noting that based on her fair value estimate for the S&P of 1,400 by the end of the year, the S&P is underpriced by about 12 percent.

Cohen said she expects U.S. economic growth and corporate profits to slow, but that they will continue to expand at a more sustainable rate.

FED NEARLY DONE

Partially driving Cohen's view is her expectation that the Federal Reserve is nearly done raising interest rates, she said.

"The Fed is probably going to be finished before the end of the year," Cohen said. "This is a Federal Reserve that has already done most of what it is going to do. The fact that people are quibbling over whether they are going to do one more or two more, in some ways is very important on a day-to-day basis. But in terms of the intermediate to longer-term outlook, it doesn't really matter."

She added that she does not expect the Federal Reserve to dramatically overshoot its cycle of interest rate increases.

"We think the Fed is finished with another one or two increases likely," Cohen said.

MOMENTUM REVERSED

Investors' fundamental attitudes have also been changing, Cohen said.

"There was a very significant interest on the part of investors to chase momentum," she said. "From the market perspective, over the last five weeks there has been an incredible reversal of momentum ... the momentum that drove small-cap and high-beta stocks I see reversing."

U.S. stocks have fallen off May peaks in recent weeks, amid a global rout on concerns about rising interest rates and inflation in the face of slower economic growth. The Dow Jones industrial average <.DJI>, Nasdaq Composite Index <.NDX> and S&P 500 index have all erased their gains for the year.

Cohen said she does not expect commodities to repeat the rally they have seen over the last three years, and that she liked investments in U.S. technology and industrial stocks, as well as the Japanese market.

"Within the equity market I think some of the best value opportunities are among those companies that would benefit from a long-lasting economic expansion," Cohen said.

© Reuters 2006. All Rights Reserved

BT: Share prices not getting boost from buybacks (14 Jun 2006)

Business Times - 14 Jun 2006

Share prices not getting boost from buybacks

By SIOW LI SEN

(SINGAPORE) Singapore stocks seem not to respond positively to share buybacks, going by the decline in the prices of companies which have bought back their own shares, including Datacraft, Singapore Press Holdings (SPH), OCBC Bank and United Overseas Bank (UOB).

Despite spending hundreds of millions of dollars on their own shares, the share price of some of these companies has fallen faster than the benchmark Straits Times Index which at yesterday's close of 2,293.35 is down 2.3 per cent this year.

UOB, which began its second buyback programme last month, has had a gentler slide in its share price and is in positive territory for the year despite the mauling of the wider stock market, but this could be due to expectations of what the bank might do with the proceeds of its proposed divestments.

Share buybacks have become increasingly popular here, as in the US and Europe, as one way to boost companies' financial ratios and also as part of performance shares to reward employees.

The theory is that the fewer shares there are, the more each one must be worth.

Datacraft began its first share buyback in March following its announcement that it would set aside US$15 million for that purpose.

Yesterday, despite the company buying back 400,000 shares at between 88 US cents and 90 US cents, Datacraft stock closed one US cent lower at 90.5 US cents. It is now down 11.4 per cent so far this year.

To date, Datacraft has bought back 9.39 million shares or 2.01 per cent of its issued share capital. The company has a shareholders' mandate to buy back as much as 10 per cent of the issued share capital.

At last month's second quarter earnings results, the company said that it had used US$4.3 million for share buybacks.

Chief executive Bill Padfield also said that Datacraft has a cash reserve of US$137.2 million and that it is on track to pay a dividend at the end of the financial year this September. It will also be looking for more share buybacks.

SPH on May 22 bought back 1.79 million shares, paying between $4.06 and $4.10 per share. It paid a total of $7.3 million for the 1.79 million shares, amounting to 1.14 per cent of issued share capital.

According to filings with the Singapore Exchange, this was the only instance of a share buyback by SPH this year. SPH shares yesterday closed unchanged at $4, and are now down 7 per cent this year.

OCBC, probably the most active share buyback stock here, is on its third $500 million programme. Yesterday, it bought back 299,000 shares for a total $1.9 million, accounting for about 8 per cent of its trading volume.

The stock ended 10 cents lower yesterday at $6.30, having fallen some 6 per cent since Jan 1.

OCBC said that it intends to hold its re-purchased shares as treasury shares to fund its employee share incentive schemes, so as to take advantage of the tax deduction allowed.

Under its second programme, OCBC's share buyback has, on average, on the days the buyback was executed, accounted for about 11 per cent of the day's turnover.

UOB, typically more aggressive than other companies in its share buyback exercises, yesterday bought back 700,000 shares, making up a hefty 25 per cent of the day's volume of 2.75 million shares.

On June 1, UOB's share buyback of 1.38 million shares made up 33 per cent of the day's total trade of 4.23 million shares.

UOB, which began its second $600 million share buyback programme on May 25, ended 20 cents down yesterday to $14.80.

But it is still 1.37 per cent up for the year-to-date though it is not clear whether its more gentle share price slide is due to aggressive share buybacks or divestment expectations.

Last month's divestment by UOB and three affiliated companies of a 55 per cent stake in Overseas Union Enterprise has left market watchers wondering what the companies will do with the $1 billion in cash they received from the sale.

In addition, investors' eyes are now on UOB's last remaining property awaiting divestment, Hotel Negara. Under a ruling by the Monetary Authority of Singapore, local banks have until July 17 to reduce their shareholdings in non-core businesses to 10 per cent or less.

Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.

Reuters: Global equity meltdown costs investors $2 trillion (13 Jun 2006)

Reuters
Global equity meltdown costs investors $2 trillion
Tuesday June 13, 5:27 pm ET
By Chris Sanders


NEW YORK (Reuters) - The month-long slide in global stocks has wiped out at least $2 trillion in wealth, leaving investors few alternatives to preserve their holdings aside from bonds and money markets.

Investors have been dumping stocks, commodities and emerging market assets on growing concerns that economic growth will suffer from higher inflation and interest rates.

"It is essentially one consistent story worldwide, starting here in the U.S. There is a fear that the Fed's repeated commitment to limiting inflation demonstrates a willingness to risk economic activity," said Christopher Low, chief economist at FTN Financial in New York.

Stock markets have been punished since the U.S. Federal Reserve raised interest rates for 16th time in a row on May 10 and issued a hawkish statement saying it may need to do so again to fight inflation. Investors had expected some sign of an end to the tightening cycle.

Global markets have suffered since, and strategists show little agreement about how deep and how long the sell-off will go. Bonds have been the most direct beneficiary of the equities route, with benchmark U.S. 10-year Treasuries (US10YT=RR) staging their longest rally of the year since mid-May.

MARKETS FALL INTO THE RED ON THE YEAR

The Dow Jones industrial average (^DJI - News) is off 8.2 percent since mid-May and as of Tuesday's close had erased its gain for the year. The Nasdaq Composite Index (NasdaqSC:^IXIC - News) is off 12.75 percent from its high for the year on April 19 and the Standard & Poor's 500 Index (^SPX - News) has fallen by nearly 8 percent from its May peaks.

On Tuesday, Tokyo's Nikkei average booked its biggest one-day percentage fall in two years, tumbling 4.14 percent, wiping out more than 16.56 trillion yen ($145 billion) in market value from the Tokyo Stock Exchange's first section. It was the biggest one-day point drop since immediately after the September 11, 2001, attacks on New York and Washington.

In Europe, the FTSEurofirst 300 (^FTEU3 - News) index of top European shares has fallen about 11 percent since May 11. The index finished at 1,238.5 points on Tuesday, its lowest closing level since November 30.

Since its year high hit in early May, the MSCI World Index (^MSCIWO - News) of global stocks has lost $1.9 trillion in market capitalization, nearly 12 percent of its value and more than the economic output of the United Kingdom.

The index compiled by MSCI Barra does not account for all global stocks, meaning the total amount of lost wealth is greater still.

As global central banks in Europe and United States have raised interest rates to cool inflation, investors are aggressively slashing their exposure to emerging markets as well.

OUTFLOWS FROM EQUITIES

Investors pulled out about $8.5 billion from emerging equities in the three weeks ending June 8, according to data from EmergingPortfolio.com Funds research. The benchmark MSCI emerging market stock index (^MSCIEF - News) has lost about 24 percent since May 10.

"We've seen a lot of panic selling by people who have gotten into emerging markets and commodities later in the game -- pessimism is high," said Scott Wren, a senior equity strategist with A.G. Edwards & Sons. "People are sitting on a lot of cash and are afraid to get back in the market."

Given the drop-off markets, analysts said investors should now seek quality.

Tom McManus, chief investment strategist with Banc of America Securities said investors should look at "the bonds of the stock market. Steady companies with strong earnings and geographic diversification."

These shares have been out of favor since about 1998, he added, and are the kind of companies Warren Buffett has been known to own -- companies with top-quality balance sheets and diversified earnings streams.

Shares held by Buffett include Coca Cola Co. (NYSE:KO - News), American Express Co. (NYSE:AXP - News), Wal-Mart Stores Inc. (NYSE:WMT - News), Wells Fargo & Co. (NYSE:WFC - News) and Anheuser-Busch (NYSE:BUD - News). Each of these has retained their gains even as the S&P 500 has erased its advance and now stands 2 percent lower on the year.

The global sell-off, however, is not over and may only be just starting, according to JPMorgan Chase & Co.'s global equity strategist Abhijit Chakrabortti.

"This is nothing compared with what we may see late in the summer and early October -- once slower growth finally sinks in and expectations for higher benchmark rates, at 6 percent or even more, come out," Chakrabortti told the Reuters Investment Outlook Summit in New York.

"Sectors most dependent on growth and the companies most dependent on volume and price declines, which also includes tech companies, should be avoided," he said.

"We like the big telecom providers such as Verizon (NYSE:VZ - News) and AT&T (NYSE:T - News), as well as Colgate (NYSE:CL - News)," he added. All three have soundly outperformed the market this year, gaining 4.75 percent, 10.3 percent and 12 percent, respectively.

Among U.S. mutual funds, investors pulled only $1.9 billion out of equity funds in the week that ended June 7, not a huge amount compared with outflows of $7.1 billion during the previous week, research firm TrimTabs reported late last week.

At Boston-based Fidelity Investments, the world's biggest mutual fund company, "we have not noticed unusual activity during the past several days but we had strong money market inflows in May," said Vincent Loporchio, a spokesman.

BT: Equity markets lose 5-26% in a month of chaos - 10 Jun 2006

Business Times - 10 Jun 2006

Equity markets lose 5-26% in a month of chaos

By CONRAD TAN

(SINGAPORE) Stock markets in the region and around the world have lost between 5 and 26 per cent of their value since equities began their downward slide a month ago.

Many regional indices, including the Straits Times Index (STI), have also lost all their gains made in the first quarter, as markets start to feel real pain from higher oil prices and the prospect of further interest rate rises.

But some analysts are holding out for a relatively quick turnaround, sustained by solid corporate earnings. The recent sell-off has been blamed on large investors such as hedge funds and investment banks keen to unwind positions in a falling market.

Yesterday, OCBC Investment Research head Carmen Lee said: 'This round (of selling) is different from previous rounds. A lot of the big-cap stocks really did deliver very good earnings in the first quarter. I'm not sure if this can be sustained in the second quarter, but I don't think momentum is so weak that you need a massive sell-down in the market. Once prices correct a little bit more, valuations should compel value investors to relook at the market.' Recent falls were driven by 'a lot of overseas factors', she said. 'I think US inflation fears have become a little more real.'

India's key Sensex Index is the biggest loser in the past month in percentage terms, having shed almost 26 per cent of its value since May 9, when most markets were at or near their recent peaks. The Jakarta Composite Index has also been battered, and is now 16.8 per cent below its May 9 level of 1,532.62 points.

Up north, equity markets in Korea, Japan, Taiwan and Hong Kong also took a blow, especially after Thursday's massive sell-down across all markets, including Singapore, where the STI fell 2.5 per cent.

Since the start of the year, South Korea has suffered the most, the Kospi having lost 10.4 per cent year-to-date. The index has been plummeting almost daily since it peaked at 1,451.09 points on May 10. Yesterday it closed at 1,235.65 points, after rebounding one per cent.

Japan's Nikkei-225 Index is a close second, having lost 8.4 per cent since the start of the year. On Thursday it plunged more than 3 per cent, ending below 15,000 points for the first time since November. This week, the Nikkei fell four days in a row, after Monday's arrest of fund manager Yoshiaki Murakami on charges of insider dealing.

Other indices in negative territory compared with the start of 2006 are Taiwan's Taiex, Singapore's STI and India's Sensex. The Malaysian bourse, however, has proved resilient. The Kuala Lumpur Composite Index is still 1.7 per cent up from the start of the year, although it shed 5.3 per cent in value in the past month.

The Singapore Exchange's own stock has also taken a hit. Its shares, last traded at $3.60, are now 22 per cent cheaper than a month ago. In a note on Thursday, UOB-Kay Hian's Leng Seng Choon said further weakness in volume is expected in the next few weeks, aggravated by the start of football season.

Yesterday, most regional markets recovered slightly, led by a 0.8 per cent rise in the Nikkei. The STI rose 1.8 per cent to 2,337.44 points, while India's Sensex rebounded by 5.5 per cent, its largest gain since May 2004.

A report by Macquarie Research earlier this week said: 'We have a 12-month STI target of 2,700. Given the market weakness and concerns over higher interest rates and peaking global growth, we think the STI will range between 2,300 and 2,600 for the rest of 2006.'

Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.

BT: Go defensive on stocks, urges Citigroup (06 Jun 2006)

Go defensive on stocks, urges Citigroup

It's not time to bottom-fish yet, says the bank

By OH BOON PING

DESPITE the recent selldown in regional equities, Citigroup said it is not time to 'bottom-fish' yet. Instead, it recommended a defensive equity strategy.

In a report dated June 2, the bank noted that while the market has already pulled back 9 per cent from its high in mid-May, sharp stockmarket corrections had in the past preceded economic slowdowns or recessions.

'Sharp market corrections, for instance, were seen preceding the 2H96 slowdown, 1998 Asian financial crisis, 2001-02 tech slump and 2003 Sars recession,' its report said, adding: 'It is also interesting to note that recessions or severe downturns were also often preceded by two or more months of monthly declines of more than 5 per cent in the STI.'

While the correction of some 8.6 per cent in May occurred after about three-and-a-half years of relative stability, in which sharp corrections have been rare and may forecast 'a modest economic slowdown rather than a protracted downturn', Citigroup remains cautious until visibility improves.

Moreover, the bank noted a rise in the downside risks over the global outlook, particularly with clear signs of a US economic slowdown, and that this is aggravated by a possible slowdown in China, higher global interest rates and oil prices.

This will adversely affect Singapore's economy and Citigroup expects a moderation in economic growth to about 5 per cent in 2H06, 'which is a significant deceleration from the 10.6 per cent peak seen in 1Q06'.

Against such a backdrop, the bank recommended a defensive stance and identified a basket of stocks that 'offer defensive characteristics through high yields and have the potential to recover should sentiments improve'.

'Aside from high yields, we looked for companies where its analysts expect total returns of over 15 per cent,' the report said. Such stocks with dividend yield of more than 4 per cent include ST Engineering with a price target of $3.64, MobileOne ($2.40), SATS Services ($3.20) and SembCorp Industries ($3.98). ComfortDelGro ($1.80), Parkway Holdings ($2.82), SembCorp Marine ($3.66), SingTel ($3.10), Starhub ($2.60) and UOB ($17) are also found on that list.

Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.