Challenging climate in equity market to continue next year


  • Business
  • Monday, 10 Dec 2012

PETALING JAYA: The challenging climate in equity investing will likely to continue come 2013 hence cyclical-dividend investment, although increasingly pricey, would still be favoured.

Even though dividend-yielding stocks have become more expensive as more invest in Asia, Hwang Investment Management chief investment officer David Ng said “dividend investing is not yet out of vogue”, given the economic uncertainties.

“But, we would also complement dividend stock holdings with some cyclical-dividend names on the back of the expectations that North Asia, such as China and Taiwan, will be back in the game,” he said in a report, adding that if the expectation panned out, the cyclical-dividend investment strategy would pay.

“The easier' investment ideas of investing in yield and defensive (stocks) are getting narrower and the jury is still out on whether economic growth momentum would recover sufficiently to catalyse the cyclical sectors,” he added.

Ng advised to look at stock exchanges in Asia-Pacific, good quality banks in China via H-Shares, technology companies, consumer names that paid reasonable dividends and were positively exposed to an economic up-cycle.

“These are the stocks trading at a low price-to-earnings, which makes them attractive to buy now, while holding on to the high quality dividend stocks can act as a guard against excessive risks should the market turn awry.”

Global funds which have been flowing into Asia due to the United States' quantity easing 3 (QE3) and low policy rates have pushed up the prices of dividend-yielding stocks, especially in the Asean market and compressed yield significantly.

On the outlook on the global economy, Ng said that contrary to popular belief, it was better now than it had been a year ago with China, the United States and eurozone risks reduced.

“Markets are more comfortable with China's current growth rates after adjusting to the idea that the double digit rates were unsustainable and that the current 7.5% or even 7% GDP would be a more sustainable pace,” he said.

China's Purchasing Manager's Index (PMI) has also staged a comeback, breaking the psychological 50 mark at 50.2 showing expansion in production, which explains the growth in electricity consumption and uptick in consumer confidence.

“Many are of the opinion that this could be a sign that the Chinese market is bottoming out.”

On the United States, Ng pointed out the Federal Reserve's commitment to keep the US economy buoyant with QE3 while consumer and business confidence as well as the housing market had improved.

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