Equities '09 rebound shortlived: Macquarie - Dec 22, 2008 (BT)

BackDec 22, 2008

The Straits Times / The Business Times News On SPH

Equities '09 rebound shortlived: Macquarie

SPH picked for growth.

Dec 22, 2008
The Business Times

EQUITY markets in Asia are expected to start recovering from Q2 next year but the bounce is likely to be shortlived, according to Macquarie Research chief strategist Tim Rocks.

In his outlook report for 2009, Mr Rocks said the expected rebound, driven by export growth and fiscal stimulus, should peter out by the end of the year.

'Fiscal stimulus does not turn out to be enough to spark a sustainable recovery, and growth falls again once the money works through the system,' he said. 'More fiscal stimulus is needed to provide another boost to the economy, and this eventually does lead to a real recovery during the course of 2010.'

'Taiwan, Korea and Thailand tend to be the best-performing markets when equity markets bounce, and we would expect this to be repeated from 2Q09. Before this time, we would be positioned in China, Hong Kong and Singapore,' Mr Rocks said.

For Singapore, Macquarie analyst Soong Tuck Yin in the same report said he was overweight on the country as it is trading at 9.6 times forward FY09 earnings. Companies that will emerge stronger from the downturn were DBS Group, CapitaLand and Wilmar, he said, while telcos and media will be the most resilient.

'DBS Group will benefit from its access to cheaper funding sources, compared with its peers, as we see intensifying competition for deposits, particularly fixed deposits,' Mr Soong said. And as foreign banks start cutting back lending after problems at their head office, 'we believe DBS has the best opportunity to take market share, given their excess funding position in the S$.'

DBS also has the smallest exposure to SMEs of the three local banks and this is likely to help reduce non-performing loans, he noted.

Wilmar, too, is seen growing strongly, given its strength in palm processing and merchandising, Mr Soong said, while lower commodity prices will reduce working capital requirements and gearing levels, he said.

For CapitaLand, Mr Soong said its asset divestment strategy - which has seen the property giant sell $9 billion of assets and invested less than half of it in the past two years - has worked well.

'The group has a high cash position of $4.2 billion and we believe CapitaLand is in a very healthy position to consider tactical acquisitions and investments,' he said.

Other top picks were Singapore Press Holdings, which owns this newspaper, and SingTel.

On a macro level, 'the focus will be the 2009 budget,' said Mr Soong. 'We expect it to be expansionary, with likely cash handouts to help low income families and business cost savings measures such as lower property taxes and waivers of stamp duties.

'The most draconian measure may be lowering the employer's CPF contribution from the current 14.5 per cent to, say, 10 per cent. This was done twice - in 1999 and 2001 - when the economic situation was weak,' he said.