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SI Research: 3 Sectors To Avoid In 2019
Year 2019 did not kick off with a good start. Spooked by China’s Manufacturing Purchasing Managers’ Index (PMI) falling to 49.4 hinting signs of contraction, the Straits Times Index (STI) closed 1.1 percent in the red on 2 January 2019 at 3,038.89. Superstitious investors believe that the result of the first trading day is a precursor of how the market is going to perform for the rest of the year. If the first day did well, then the full year is likely to end positively as well. Conversely, ending the first trading day with a loss has negative connotations.
Indeed. Looking at data from the past 21 years, 13 out of all those years have full-year returns coincide with their first-day performance. If past data were of any indication, there could be a 61.9 percent probability that this year is not going to turn out to be a fantastic year.
Source: Author’s Compilation
Or these may be simply pure coincidences. Nonetheless for investors who are getting jittery about their investments, here are three sectors with more uncertain outlooks which we think investors may want to stay away for a greater peace of mind.
Properties
According to flash estimate from the Urban Redevelopment Authority, the private residential property price index exhibited a marginal decline of 0.1 percent in 4Q18. This was also the first sequential quarter-on-quarter fall since the second quarter of 2017 dragged down by weaker landed property prices. For non-landed property prices, the Core Central Region slid 1.5 percent while the Rest of Central Region and the Outside Central Region managed to deliver positive return of 1.8 percent and 0.8 percent respectively.
For the near-term outlook, Singapore residential sector could continue to remain sluggish in light of the moderating economic growth and impacts from the property cooling measures.
From the estimates of Ministry of Trade and Industry revealed on 2 January 2019, 4Q18 gross domestic product growth came in at 2.2 percent lower than the 2.3 percent expansion achieved in the previous quarter. This brought economic growth for the whole of 2018 down to 3.3 percent in comparison to the 3.6 percent growth attained a year ago.
FTSE ST Real Estate Holding and Development Index, the benchmark for locally listed developers, sank 17.7 percent last year in 2018. Looking at the three biggest developers namely CapitaLand, City Developments and UOL Group, current prices remained depressed with their price-to-book ratios ranging between 0.5 times to 0.7 times.
Electronics
Manufacturing activities eased for the fourth straight month in December 2018 with the Singapore PMI recording a milder expansion of 51.1, and one of the main causes could no doubt be attributed to the peaking of the electronics cycles.
The electronics sector PMI extended its decline to 49.8, which is the lowest point after experiencing continuous expansion since July 2016 and marked the second consecutive month of contraction. This came on the back of falling factory output amidst slowing global demand for electronics as well as trade war uncertainties.
FTSE ST Industrials Index dipped 5.3 percent last year, but the share price of leading global electronics services provider Venture Corporation had already fallen by almost 32 percent over the same period of time to $13.95 as at 31 December 2018.
Meanwhile on 3 January 2019, Apple slashed its revenue guidance by as much as US$9 billion below previous projections, in an acknowledgement of dropping sales due to longer upgrade cycles and challenges in China. This does not bode well for Apple suppliers the likes of Hi-P International.
Telecommunications
TPG Telecom (TPG) launched its mobile trial in December last year offering one year of free mobile services comprising unlimited data and unlimited mobile-to-mobile calls for the first 20,000 customers who participated in the trial. Competition looks set to intensify further as the fourth operator launch its full commercial service in 2Q19.
We see TPG’s aggressive unlimited data plans to gain market share as disruptive, and existing players would have no choice but to be forced into introducing equivalent pricing or packages to that of TPG’s in order to defend their territories. This would likely hurt the incumbents’ sales and profitability.
FTSE ST Telecommunications Index slid 18.6 percent in 2018. Even Singtel, which was deemed to be the least affected by the entry of the fourth mobile operator because of its globally diversified portfolio, was not spared from the crusade. The share price of the group sank 18.2 percent last year to $2.93 as at 31 December 2018.
