CFAS' portfolio updates

Domestic equities


There is potential for better bus profitability given that the Singapore bus reform is progressing smoothly. An additional positive is capital unlocking from bus sales. The threat from Uber and Grab has perhaps been overstated.


We favour OCBC over its peers as it has the lowest non-performing loan (NPL) ratio among its peers and the highest cumulative provisions coverage to unsecured NPLs.


Raffles Medical's acquisition of International SOS (MC Holdings) last August added 10 clinics to its portfolio. Resulting from this, estimated sales this year should rise by 3 per cent to 7 per cent. Meanwhile, medical tourism remains weak owing to weak macroeconomic conditions in the region.


Twin negatives of economic uncertainty and poor consumer confidence across Asia mean continued challenges. But potential catalysts include Sats' recent accretive acquisitions of Brahim's Airline Catering which can potentially increase Sats' earnings per share.


While economic uncertainty might weigh on the sector, net cash amounts are in excess of 20 per cent of SIA's market capitalisation. This provides a measure of share price support.


Core operations were generally stable with growth in mobile data services, stronger infocomm technology and managed services revenue in Australia, and higher digital services revenue. Positive trends for Australian mobile service revenues and the good performance of associates are pluses despite the losses in digital business and margin pressures in enterprise business.


Cash volumes are expected to be range-bound while derivatives volumes might experience a step down. But a nice mix of major contracts (for example, Nikkei and Nifty) should lend some support to turnover.

Steady dividends of 28 cents continue to look attractive and the lack of balance-sheet risk is likely to drive the stock's performance.


There is potential for property policy easing in the latter part of this year. This represents a key catalyst for the sector. Declining home prices and rising incomes have improved housing affordability. This may in turn give the government some leeway in tweaking policy.



Positives include its exposure to higher-value industrial sub-segments through its acquisitions of Aperia, Hyflux Innovation Centre and The Kendall. Portfolio occupancy is close to 90 per cent.


Last year, CMT refreshed its portfolio by adding Bedok Mall and selling Rivervale Mall. It also announced the redevelopment of Funan DigitaLife Mall. Revenue contributions from Bedok Mall should help offset the temporary closure of Funan. Footfall and tenant sales remain strong with occupancy close to 98 per cent.

Global ETFs

During the period from Jan 18 to end of February, the Singdollar has strengthened against global currencies like the US dollar, euro and sterling. As a result, the ETF portfolio reflects a loss of almost 2.5 per cent on account of currency alone. While that hurts the portfolio during this short period, in the long run, however, diversification improves the risk-adjusted return of the investments.


The slowdown of China's GDP has been the source of global volatility. China's relevance is not only as a major manufacturing hub for the world, but also as the world's second-largest economy.

Its transition from a state-led investment model to a consumption- driven economy has faltered as global demand has fallen. Still, with the bulk of the decline in Chinese stocks in the first two weeks of the year, the index has remained flat during the period under review.

The panel believes some risks remain over Chinese stocks but being totally out of the Chinese market would not be prudent either.


Fears of declining global growth weighed heavily on European equities even though on a historical basis, the European stocks seem to offer good value. The risk aversion is exemplified by negative interest rates in almost all European nations.

The refugee crisis and fears of Britain exiting the European Union have also played a role and consequently the index was down around 3.7 per cent for the period. Still, the CFAS panel thinks Europe will rebound when a degree of normalcy returns.


US equities are actually up 0.5 per cent during this period on account of positive economic news and a return of confidence after a turbulent January.

During phases of extreme anxiety, stock prices often get disassociated from their fundamental valuation. The widespread fears over the global banking system contributed to some of this nervousness in US stocks. The earnings declared by many large US companies have demonstrated declining costs and improving margins.

It is important to remain invested in US equities since the segment is also a proxy play for global growth.


In view of the global volatility, the CFAS panel had been cautious to allocate to this asset class given the socio-political and economic troubles of Russia, Brazil and other oil producing nations.

However, this asset class performed relatively better than developed markets. Thus in terms of attribution, the portfolio lost out by not being allocated to emerging market equities.


Given the panel's view that "oil is lower for longer", it wanted a little exposure in commodities without taking on the risk of further declines in energy. This played out well, since the index was up 1.6 per cent during this period.


Gold has been the classic safe haven when the world oscillates between fear and greed. This asset class had been excessively beaten down last year and the panel found value in holding it in the portfolio. It is up 12.6 per cent during the period under review and, as concerns remain over global growth, gold will find meaningful support.


Returns from bonds are derived from interest rates, credit and currency. The intention was to have a number of bond instruments that should deliver positive returns and accrue interest over time.

However, during the six weeks that the allocations were invested in the securities, markets were subject to a great deal of volatility, resulting in a widening of credit spreads.

Yields on some of these bonds rose by 5-10 basis points and prices fell. Furthermore, the JP Morgan Asia Credit Bond ETF, whose base currency was US dollar, was affected by a weaker US dollar against the Singdollar.

As a result, the bond portion was down. However, the panel expects bonds to do better as interest on the bonds accrue.

A version of this article appeared in the print edition of The Sunday Times on March 06, 2016, with the headline 'CFAS' portfolio updates'. Subscribe