Property, oil stocks worth a look this year, says OCBC

The Singapore market has solid picks on offer that can deliver good dividend yield amid the volatility this year, especially those in the property sector, said head of OCBC Investment Research Carmen Lee.

"At the start of this year, we decided to look more at the undervalued stocks, and property is one of the key sectors to watch," she said at the bank's annual investment seminar yesterday.

Seven out of her top 10 local stock picks are either real estate investment trusts (Reits) or property developers or owners, including Ascendas Reit, CapitaLand, Frasers Centrepoint Trust and Frasers Logistics & Industrial Trust.

"Singapore Reits were one of the standout sectors last year, despite concerns of interest rate hikes, giving about 6 per cent yield on average," Ms Lee noted.

Local Reits are seen as safe investments, but higher interest rates could affect them because of their usually high debt level.

The upcoming supply of industrial and commercial property has also put pressure on Reits amid concerns that rents will fall.

"This year, the (US Federal Reserve) has hinted at three hikes, but we think there is still value in the market. Singapore Reits still remain one of the most attractive in the world," said Ms Lee, referring to the 4 percentage points differential in yields between Singapore Reits and 10-year government bonds. She added that while rental slowdown is a valid concern, the negatives have been sufficiently priced in and Reits are likely to maintain a dividend yield level of close to 6 per cent.

Supermarket chain Sheng Siong Group and Singtel are also on Ms Lee's top 10 list, again due to their dividend yields this year - 4.1 per cent in Sheng Siong's case, and around 4.8 per cent for Singtel.

Meanwhile, the oil and gas sector may be one of the pleasant surprises this year, Ms Lee said. "Unless oil prices go beyond US$70 a barrel, a lot of local players are still unlikely to see sizeable contracts coming in.

"But a lot of the stocks are trading at less than half... their book (value). This means a lot of opportunities for mergers and acquisitions. Do keep a lookout for them."

Oil shares may not stay depressed for long, as crude oil continues its gradual price recovery.

"There is now more upside than downside," added Ms Lee. "On the risk-reward basis, I think oil stocks are some of the more interesting ideas for this year."

A version of this article appeared in the print edition of The Straits Times on January 06, 2017, with the headline 'Property, oil stocks worth a look this year, says OCBC'. Print Edition | Subscribe