Main market themes for 2010

Main market themes for 2010
Jan 4, 2010 - PropertyGuru.com.sg

It is interesting to ponder what the main market themes for 2010 may be, as the second-liners and window-dressing of blue chips had been completed for 2009.

Property brokers have been busy over the past month with their market outlook reports, which all leans towards the positive. However, what is shocking is that most brokers only have modest upside targets, suggesting caution has gradually crept into the market.

UBS Investment Research was one of the first with a Dec 2, 2009 report that said domestic sectors’ earnings revisions must support an upbeat market in 2010, mainly in the first half. However, volatility could increase later due to potential US interest rate hikes.

Below is the list of market outlooks that are stated in the report:

The job market could strongly bounce back in the first half of 2010. Ongoing hiring intentions have increased sharply, particularly in banking and finance.

The upward domestic demand, followed by a structural revival in tourism, must portend well for domestic services stocks.

The government is expected to stay vigilant on a possible asset bubble forming in residential property, without let-up in negative policy risk.

Volatility in the market typically increases sharply at various points in Fed funds policy.

The end-2010 target of UBS for the Straits Times Index is 3,200, which translates to a 16.5 forward price-earnings ratio, -17.5 percent earnings per share growth in 2009, and +27 percent in 2010.

The end-2010 STI target of Credit Suisse is not far away from that of UBS at 3,180. Based on the Dec 1, 2009 report, there are three themes to consider: the launching of the two casinos, which are expected to boost tourism; consensus earnings upgrades; and cash-rich firms returning money to shareholders through special dividends.

“Rolling forward to a projected 2011 return on equity of 12 per cent and maintaining a five-year average price/book of 1.88x, we arrive at our new 2010 MSCI Index target of 388 for Singapore,” Credit Suisse said, adding that this works out to an STI of 3,180. It said it is underweight on capital goods and telecoms, but overweight on banks, transport and property.

Based on the economics-markets strategy of DBS for 2010, the local economy will grow at a more restrained pace. It said that there are cooling signs, as the economy shifts to a flatter growth trajectory, now expecting the taking over of the services sector as major growth pillar. DBS also stressed its preference for the Singapore market.

In the Dec 16, 2009 global equity strategy, Morgan Stanley said that it still likes equities, but expects increasing risks. “We think 2010 will start strong but that markets will have overshot fair value,” it said. “We expect only single-digit returns for global equities for the full year but the risks are slanted to a worse outcome.”