WITH share prices plummeting almost daily and legendary investors such as Warren Buffett urging Americans to buy US equities, is it finally time to get back into the stock market?
Not yet, but you can start looking at selected stocks, say analysts here. 'I'm quite bearish on the market. Now is not the time to invest. If you're bottom-fishing, you still have to wait,' says Kevin Scully, who heads independent research firm NetResearch Asia.
'Q1 next year is the time I'm looking to enter the market. You need to see the fourth-quarter results first, plus guidance for 2009, which will be given when companies release their 2008 results. I think the Q4 results will be very poor.' On various measures favoured by bargain hunters, such as the stock price relative to a company's past earnings or book value per share, some blue-chip stocks, especially the banks, certainly look cheap.
But analysts warn that such measures can be misleading. The historical price-earnings ratio, for instance, is useful only when past earnings are a reliable indicator of future earnings - hardly the case now with enormous volatility in financial markets and the bleak global economic outlook. Phillip Securities analyst Brandon Ng says some bank stocks are beginning to look like bargains, but warns that investors would need a strong stomach to dive in. 'Usually we buy when there's more earnings visibility - that's my advice, hold your horses first.'
The forward price-earnings ratio, which measures how a stock price compares with the company's expected earnings, is only as reliable as the underlying estimates of future profits - which are all but impossible to predict right now.
'I think we haven't really seen the worst of it yet,' says Daiwa Institute of Research analyst David Lum. 'We've only entered the recession this quarter and it really depends on how bad things can get. There's no visibility next year, so I wouldn't say it's time to get in now, because there's still a lot of uncertainty.'
Even the price-to-book ratio, which measures the market value of a company relative to the book value of its net assets, is not a foolproof tool for spotting a cheap stock. And just because a stock is trading for less than its book value doesn't mean it can't fall further. 'On price-to-book valuations, Singapore banks are already trading below 2001 and 2003 levels,' says Kenneth Ng, an analyst at CIMB.
But during the Asian financial crisis of 1997-98, 'all three banks traded at about 0.5-0.6 times price-to-book', he adds. 'In normal times, one times price-to-book should be viewed as the floor level, but we have gone past that before, so I wouldn't say never again. Singapore banks are very safe, but markets tend to overshoot on the downside.'
His advice: Some stocks may be worth buying 'but probably not the banks'.
Some stocks in the offshore and marine and telecommunications sectors 'still look good' as they are relatively shielded from demand destruction, he adds. NetResearch's Mr Scully is looking at shares that offer 'defensive earnings, strong balance sheets and a reasonable dividend yield'.
So far, his list of stocks to watch include telco SingTel, transport operators SMRT and ComfortDelGro, rig-builder Sembcorp Marine, conglomerate ST Engineering and palm oil producers Wilmar and Golden Agri-Resources, though he doesn't recommend buying them yet. 'For the economy to recover, I think the government will have to do fiscal pump-priming, so I'm looking at ST Engineering because of the defence contracts,' he explains. 'You can't buy cyclicals like airlines or property yet - they are end-of-cycle recovery stocks.'
Banks and property companies are especially vulnerable to a broad economic slowdown, and analysts say the full impact of that has yet to be felt. 'If we see unemployment in Singapore starting to head up to 2-3 per cent - it hit 5 per cent during the Asian financial crisis - you're going to see more and more property defaults,' says CIMB's Mr Ng. Mr Scully warns that major developers could be hit badly by a surge in defaults on properties that were bought using the deferred-payment scheme at the height of the boom, if buyers can't afford to cough up the rest of the money they owe. 'This is going to be a problem for all the property developers.'
The bottom line? 'At best, I think the bottom will be at the end of next year,' he says.
