Published March 2, 2009

S-chips woes hit lowest forward PE portfolio

By TEH HOOI LING
SENIOR CORRESPONDENT

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OK, the unfolding of the financial crisis of our generation has shown us that the time to be gung-ho has not quite arrived yet. We established new portfolios in mid-October based on six criteria which in the past have proved to be good metrics to pick stocks. And indeed for a short while, namely in December and January, a couple of our portfolios did well. For example, in the first week of January, stocks with the biggest upgrades in analysts sentiment and those with the lowest forward price-earnings ratio were up by about 7 per cent.

But alas, there was no abating the onslaught of bad news. So whatever positive sentiment was left in the market progressively got chipped away. The latest bad news was, surprise, surprise, corporate governance issues with China stocks listed on Singapore Exchange - the so-called S-chips.

These stocks have, for sometime now, been trading at very low earnings multiples. Hence, the lowest forward price-earnings portfolio consists of a number of S-chips. Fibrechem's announcement last week which raised doubts about its cash and accounts receivables started another round of dumping of S-chips.

It is little wonder that the lowest forward PE portfolio is the biggest loser this week, shedding 9 per cent. This brought the portfolio down by 20 per cent, compared with the dummy capital of $150,000. The average and median decline of the six portfolios were 4.6 per cent and 5.3 per cent respectively.

And on average, the portfolios were down 20 per cent from the dummy capital. The most resilient portfolio is one with stocks with the highest upgrades in analysts' sentiment. It is down by about 8 per cent. The worst is the one-year top losers portfolio, down by some 31 per cent.

'There's a bleak outlook for the next few months . . . the question is whether we are at the worst point now or if the worst is still to come. To be honest, nobody knows.' - A local trader 'Wall Street - deep in the red for the first two months of 2009 - enters March with frayed nerves in anticipation of more weak data as investors look for any signs of an end to the horrific economic slump.'

There are no signs of bottom as yet. According to an AFP report, Wall Street - deep in the red for the first two months of 2009 - enters March with frayed nerves in anticipation of more weak data as investors look for any signs of an end to the horrific economic slump.

With some indexes at 12-year lows, the market remains cautious about the economic outlook, despite reassuring comments in the past week from Federal Reserve chairman Ben Bernanke suggesting the worst crisis in decades could ease this year.

The Dow Jones Industrial Average of 20 blue chips slid 4.1 per cent to end at 7,062.93 on Friday, its lowest level since 1997. The broad-market Standard & Poor's 500 sank to its lowest close since December 1996, losing 4.5 per cent to 735.09. The technology-heavy Nasdaq composite fell 4.4 per cent over the week to 1,377.84, near its lows from last November.

With a bear market in full force, the Dow has dropped 19.52 per cent so far this year after a slide of over 11 per cent for February. The S&P is off 18.62 per cent in the year and the Nasdaq down 12.63 per cent.

In Singapore, shares are likely to remain weak as the economic outlook continues to be negative, AFP quoted analysts as saying on Friday.

'There's a bleak outlook for the next few months . . . the question is whether we are at the worst point now or if the worst is still to come. To be honest, nobody knows,' said a trader at a local brokerage.

The main Straits Times Index (STI) was virtually unchanged from a week ago, closing Friday at 1,594.87, down 0.07 points from the previous week.

Average volume was 993 million shares worth $853.2 million, compared with 752 million shares worth $737 million the week before.

Data released last Thursday showed the economy shrank 4.2 per cent in the fourth quarter ended December, worse than the initial estimate of a 3.7 per cent decline, while growth in 2008 came to 1.1 per cent, below the earlier projection of 1.2 per cent.

As for our portfolios, the purpose is to provide real-time tracking of the various trading strategies - namely, buying the stocks which are the most recommended by analysts, those which have seen the highest upgrades by analysts, the one-year top losers, the highest dividend yielding stocks, stocks with the lowest forward price-earnings ratio and those with the lowest price-to-book ratio.

The process is mechanical and no qualitative judgement is exercised. So stocks that appear in the portfolios are not necessarily good buys.