Markets Insight

Take cover to ride out market volatility

The recent news that Deutsche Bank was hit with a whopping US$14 billion (S$19 billion) regulatory fine by the US authorities has deepened the worry that the bank - already struggling to stay in the black - may tank without a German government bailou
The recent news that Deutsche Bank was hit with a whopping US$14 billion (S$19 billion) regulatory fine by the US authorities has deepened the worry that the bank - already struggling to stay in the black - may tank without a German government bailout.PHOTO: BLOOMBERG

Resilient healthcare sector is a safe bet amid choppy waters for investors with a limited risk appetite

More uncertainty hangs over global markets this week as Deutsche Bank's woes continue to spook investors, who will also keep a cautious eye on crucial United States jobs data due at the end of the week.

Recent news that Deutsche Bank was hit with a whopping US$14 billion (S$19 billion) regulatory fine by the US authorities has deepened the worry that the bank - already struggling to stay in the black - may tank without a German government bailout.

"Yet there is rumour that, after the immigration policy backlash, (German Chancellor Angela) Merkel is facing a strong political pressure not to do so," KGI Fraser Securities trading strategist Nicholas Teo said. "The Singapore banks and financial system will be relatively safe from any potential fallout, but this whole Deutsche Bank thing may freak global markets out. Some have already likened it to the second Lehman Brothers crisis in the making."

Meanwhile, US jobs data for September will be out on Friday. Some 171,000 new jobs were created last month, according to market estimate, up from 151,000 in August.

A drop in August consumer spending suggested that an imminent Federal Reserve rate hike is hardly a foregone conclusion, just as investors brace themselves for the US presidential election next month - and the possibility of a highly unpredictable Trump presidency.

IMPACT OF DEUTSCHE BANK'S WOES

The Singapore banks and financial system will be relatively safe from any potential fallout, but this whole Deutsche Bank thing may freak global markets out. Some have already likened it to the second Lehman Brothers crisis in the making.

MR NICHOLAS TEO, KGI Fraser Securities trading strategist.

Amid the uncertainty, the Straits Times Index (STI) still managed to eke out a 0.4 per cent gain last week. But as 2016 enters its last stretch, the volatility that has afflicted the market all year will likely remain the norm.

For those with a limited risk appetite, experts suggest it may be worth considering taking position in safer sectors to ride out the choppy waters ahead. On this front, the evergreen industry of healthcare again presents several enticing options.

Thanks to favourable demographic factors and a strong bio-medical research and development culture here, the healthcare sector has been quietly growing outside the STI, expanding 10 times in terms of combined market value over the past decade to around $32 billion now.

The SGX All Healthcare Index, which tracks 29 stocks in the sector, has put on some 13 per cent since February, when the whole market languished in a 12-month low after the January crash.

But the sector's resilience is better shown over the past five years, when the SGX All Healthcare Index has generated between 60 per cent and 70 per cent of total returns, data compiled by the SGX indicated.

Within the sectors, several stocks have recorded strong price growth since the start of the year. For instance, hospital and clinic operator Raffles Medical Group has added around 12 per cent in the period to $1.53 at last close, while First Real Estate Investment Trust - which has a portfolio of medical facilities in Indonesia, Singapore and Korea - has surged some 19 per cent to $1.355.

But the top three performers have been specialist clinic operator Singapore Medical Group, women's healthcare provider Singapore O&G and Health Management International, which runs private hospitals in Malaysia. Singapore Medical Group has added 92 per cent so far this year to 31.5 cents at last close. Singapore O&G has increased 62 per cent to $1.175, and Health Management International has gained 58 per cent to 54.5 cents. The trio enjoyed a substantial boost to their share prices in August when they all reported improved earnings.

Investors can also expect a new entrant into the sector soon, with corporate medical service provider Fullerton Health lodging its preliminary prospectus last week to prepare for a mainboard listing here.

A version of this article appeared in the print edition of The Straits Times on October 03, 2016, with the headline 'Take cover to ride out market volatility'. Print Edition | Subscribe