Daiwa Claims Low-Risk Stocks Offer High Returns
In what seems to be direct contradiction of the very core of finance whereby riskier assets produce higher returns, Daiwa has uncovered evidence that suggests otherwise. From its simulations for the Pan Asian region, analysts at Daiwa found out that stocks with low price volatility over the past one year outperform stocks with high price volatility and beat the market indices as well over the long term. After screening for the low-volatility anomaly and excluding stocks with market caps below US$500 million and average trading values of less than US$1 million, it came up with a list of 50 regional stocks. Its Singapore picks include SMRT, Singapore Press Holdings, Singapore Post, StarHub, Ascendas REIT, ComfortDelGro, SingTel, ST Engineering, OCBC and SGX.
Significance: At the end of the report, Daiwa mentions that this anomaly appears to be widely pervasive in regional markets. Together with the widespread use of benchmark investing, it expects the anomaly to persist and continue to create opportunities for long-term investors.
Olam Shares Negate Gains After CFO Resigns
After rallying since the announcement of a share buyback plan on 8 June 2012, the share slipped on news that its chief financial officer had resigned. Krishnan Ravi Kumar resigned to pursue a new career outside the agri-commodity sector, after working in corporate finance and treasury for almost 20 years. Analysts opined that the share price drop was to be expected given Ravi’s seniority and depth of experience. Mervin Song, analyst at DBS Vickers said that although Olam still had its core management team in place, investors has held Ravi in high regard. Song has a “neutral” call on the company. However UOB KayHian’s analyst, Eugene Ng feels that both the outgoing CFO and new CFO have interests aligned to the company and there are no issues moving forward. Ng points to Ravi’s replacement, Shekhar Anantharaman, who also has 20 years of experience with Olam and has been an executive director since 1998.
Significance: Olam has been making several announcements in the last two months, notably, investments in its sugar business in Brazil, a dairy and juice beverage acquisition in Nigeria. Olam is still favoured by most analysts, with data showing 18 “buy”, four “hold” and three “sell” calls on the stock.
Reliance To Set Higher Yield For IPO
Reliance Communications’ undersea cable unit may be forced to offer a dividend yield of over 10 percent for its US$1 billion listing. The Indian firm has been in the process of educating investors about the deal after the Singapore exchange approved its plan to list its unit as a business trust. Sources from Reuters said that the feedback from investors was for a yield of around 10 percent while the International Finance Review (IFR) reported that Reliance was likely to offer a yield of around 10.7 percent for the business trust. At 10 percent, the yield on the business trust will also be higher than the nearly 7 percent offered by Hutchison port Trust, which owns port assets in China and Hong Kong. A successful offering will be a major relief for Reliance Communications, which has endured several unsuccessful deal attempts and saw its share price hit an all-time low this week. Reliance plans to sell 75 percent of the wholly owned unit in the offer.
Significance: Although the business trust route will enable Reliance to float a large chunk of the unit’s shares without changes in management, the launch of the IPO could prove to be tricky due to weak markets. Already motor sport racing company Formula One has delayed its planned Singapore IPO.