This Article was first published on 29th Dec 2017 on our Asia-In-Focus Newsletter. To get the latest newsletters, click here.
Dec 2017 Edition
Review For 2017, Outlook Of 2018
Cheers to the end of 2017. What a year it has been. It seems to be a year where nothing seems to be able to go wrong. The stock markets are up. The property markets around Asia seems to be recovering. Random speculative assets like cryptocurrencies are up!
Just focusing on the stock markets around the world. The S&P 500 Index is up 19% this year. Dow Jones Industrial Average and Nasdaq outshine that by shooting up 25% and 28% respectively.
In Asia, things are looking bright as well. The Singapore market is up about 20% this year. The Malaysia market is up about 12% while the Hong Kong marketshot up about 36% this year, making it one of the best performing market globally.
Our own Watch List Stocks, which are released back in April this year, saw a wonderful return as well for the past 9 months. To recap, here are the results:
- Want Want China Holdings (HKG:0151): 15.36%
- Tencent Holdings (HKG:0700): 62.90%
- HSBC Holdings (HKG:0005): 15.63%
- CapitaLand Mall Trust (SGX:C38U): 10.05%
- CapitaLand Commercial Trust (SGX:C61U): 26.53%
- Frasers Centrepoint Limited (SGX:TQ5): 20.93%
- Carlsberg Brewery Malaysia Bhd (KLSE:CARLSBG): 5.17%
- ViTrox Corporation (KLSE:VITROX): 132.77%
- Tune Protect Group (KLSE:TUNEPRO): -24.46%
- Alibaba Group (NYSE:BABA): 59.71%
Overall, one of the company on our Watch List stock saw a negative return. All ten of them averaged around 32.5% return for the 9-month period.
However, herein lies the problem.
Although many of these companies are indeed seeing growth in their earnings. Many of the returns are coming from the growth of their valuation. Our stocks, including the stock markets in general, have been seeing expansion in their valuation. It means that the average P/E have been raising and dividend yields are falling in 2017.
It is true that the Asian stock markets have been subduing in the past few years and valuation isn’t excessive. Even after the huge rally we have seen this year, the Asian stock markets are still quite reasonably priced compared to the US markets.
However, it is also true that the earnings growth many companies have not keep up with their stock market returns. And if market returns are typically coming from the growth of valuation, the market would just become more and more expensive for investors.
Are Stocks Expensive In 2018?
I do not think that stocks are excessively expensive at the moment. Yet, it is becoming more obvious to us that finding great companies at undervalued prices is getting harder and harder nowadays.
I feel that 2018 would be a more difficult year for investors. The smooth sailing days of 2017 are behind us and it is time to prepare ourselves for a possible storm on the horizon. I might be completely wrong, but in 2018, I am looking to position our portfolio more defensively, with high-quality companies instead of making speculative bets.
China continues to be a market I am quite optimistic about. The country has shown great resilience in transforming its economy and in many sectors, it is already leading the rest of the world and showing us the future.
This is especially true for industries like technology. However, it is also true for many commodity processing and manufacturing sectors. China is growing into a market we just could not ignore. As Asian investors, we would need to get to become more familiar with the market.
The key event for Malaysia seems to be the upcoming election. Personally, I think that would most likely be a non-event but something more interesting is happening in the Malaysia market. Many companies are beefing up their overseas expansion plans. Given the relatively small population of Malaysia, the outside world would always be the more exciting place to explore. Now that more and more companies are looking outwards, the potential for these companies seems huge. It is important to keep watching these companies. There would be many that fail, but for those who can make it in the world, the sky is the limit for them and I would definitively be cheering for them.
The Singapore market has also seen lacklustre interest over the past few years. Many large companies have since privatized or even relisted themselves in the Hong Kong Stock Market. However, the REITs market in Singapore continues to improve. More and more REITs are getting listed on the Exchange and the S-REITs is currently offering some of the best yields with high-quality assets among other Asian REITs.
So overall, 2018 is going to be extremely interesting very everyone.
Stay close, let’s explore the future together!
See you in 2018!