The January Effect

There is neither scientific explanation nor logical reasoning for this apparent prophecy that surfaces in January. But statistics have shown that January stock performance is an herald of market trend for the rest of the year. It is observed that if the market return is positive in January, the average gain is 14.8% for the rest of the year. Conversely, if the market return is negative, the average returns dwindle to just 2.9% for the remaining months. So do keep a tab on your portfolio over the next few weeks.

Why blue chips that pay dividends are a good catch

According to Wall Street historical data, the total stock market returns averaged nearly 11% per annum from 1926 to 2006. Of this figure, a sizeable 41% is derived from dividends. In general, a good dividend yield is reflective of the company's financial well-being and healthy cash flows. In addition, the dividend payouts reduce the company's cash on hand, which inevitably forces it to be prudent in future undertakings and investment projects.

Blue chips entail a relatively lower investment risk due to the reliable and robust nature of the often reputable company. Hence, by acquiring blue chips that are accompanied by dividends, the investor can enjoy potential capital gains and recurring dividend payouts, while at the same time, have the assurance that the capital amount is reasonably well preserved.      

There are a considerable number of Singapore blue chips that reward investors with decent dividends. These include Singtel (4.8%), Keppel Corp (4.3%), ST Engineering (4.3%), CapitalMall Trust (4.5%), SIA Engineering (4.4%) & SMRT (4.2%). There are also hearsays that NOL is considering reinstating dividend payout in the light of profitable business, after a 2 year barren streak for shareholders. This Channel News Asia website provides a quick summary of companies that are currently in the cd or xd stage. http://www.channelnewsasia.com/finance/stock/dividend.htm

Upon the payout, it is typical for share prices to fall vis-a-vis the amount of payout. Theoretically, the magnitude of these 2 values ought to tally, albeit with opposite mathematical signs. In reality, it is hard to predict the actual outcome. For instance, Noble’s share prices plunged 37% the day after dividend payout of 5 cents per share. In comparison, Singtel only lose 4 cents upon xd, after paying 6.8 cents. There have also been interesting cases, such as that of SGX, where the prices defied the odds and climbed a few cents after a dividend payout of 3.75 cents per share.

Nevertheless, for long term investors, the aforementioned observations are unimportant and inconsequential, because strong fundamentals are likely to drive share prices up in the foreseeable future.

What beholds for 2011 - An overview of Singapore market for the year ahead

Everything seems like a piece of cake in retrospect. From guessing winning lottery numbers, to the spot-on soccer bet prediction, to the realization that surging property prices bring about a windfall; everything appears unbelievably easy on hindsight. And hindsight is always synonymous with "I wanted to buy the winning number actually" or "I was thinking of getting this lot of share last week". Alas, the time machine has not been invented yet. Hence, the next best alternative we ought to do is, perhaps, to reflect upon the lessons learnt from the past year and make the best out of 2011.

First, let us examine the performance of STI stocks in 2010. The juxtaposition of January prices and December prices clearly shows that many blue chips rose significantly over the year. Specifically, 24 out of 30 counters enjoyed market gains. Refer to Year to Date Returns column.

Company Name	Last Price	Analyst Forecast	Potential Capital Gain	Expected Div Yield	Year to Date Returns	Potential (Capital Gain + Div Yield)
Capitamalls Asia	1.86	2.32	24.9%	0.6%	-26.5%	25.5%
Singapore Airline	15.04	18.65	24.0%	4.0%	2.7%	28.0%
Noble Group Ltd	2.04	2.52	23.7%	1.4%	-1.3%	25.1%
Capitaland Ltd	3.65	4.38	19.9%	1.7%	-10.7%	21.5%
Wilmar Internati	5.89	7.06	19.8%	1.2%	-7.2%	21.1%
Jardine Strat	26.2	31.33	19.6%	0.9%	50.3%	20.5%
United Overseas	17.9	21.04	17.5%	3.9%	-6.2%	21.5%
Comfortdelgro Co	1.54	1.81	17.5%	3.0%	-2.8%	20.5%
Singapore Ex	8.37	9.76	16.6%	3.8%	3.6%	20.4%
Jardine Matheson	43.48	50.16	15.4%	2.5%	48.0%	17.8%
Fraser And Neave	6.12	6.93	13.2%	2.9%	51.0%	16.2%
Singap Tech Engineering	3.25	3.66	12.6%	4.1%	4.2%	16.7%
Sembcorp Indus	5.02	5.64	12.3%	3.0%	40.3%	15.3%
Capitamall Trust	1.88	2.10	11.5%	4.4%	9.7%	15.9%
Genting Singapore	2.11	2.340	10.9%	0.0%	62.3%	10.9%
Keppel Corp Ltd	10.8	11.93	10.5%	3.3%	40.3%	13.8%
Singap Press Hgs	3.95	4.35	10.2%	5.7%	15.0%	15.9%
Olam Internation	3.07	3.38	10.0%	1.3%	17.3%	11.3%
Singtel	3.08	3.36	9.2%	4.6%	1.6%	13.8%
OCBC	9.8	10.68	9.0%	3.2%	11.3%	12.2%
Jardine C&C	36.84	40.00	8.6%	3.2%	40.3%	11.8%
Hongkong Land	7.03	7.61	8.2%	2.2%	46.5%	10.4%
SIA Engineering	4.37	4.72	8.0%	4.5%	36.8%	12.5%
DBS	14.4	15.49	7.6%	3.8%	-3.7%	11.4%
Sembcorp Marine	5.01	5.35	6.7%	3.0%	40.4%	9.7%
Golden Agri-Resources	0.76	0.80	5.9%	1.5%	50.3%	7.4%
Starhub Ltd	2.57	2.71	5.3%	7.1%	30.0%	12.3%
NOL	2.15	2.26	4.9%	1.7%	30.3%	6.6%
SMRT Corp Ltd	2.01	1.97	-2.0%	4.1%	9.4%	2.1%
City Develops	12.96	12.59	-2.9%	0.7%	13.0%	-2.2%

Source: Bloomberg (17 Dec 10)

As such, can we expect the bull run to continue its charge in the forthcoming year? In the light of the positive economic climate where the GDP forecast for 2011 is 4 to 5%,  and coupled with increased liquidity and low interest rate, there is little doubt that history will repeat itself. This brings us to the million dollar question of which stocks to look out for in 2011. Here are some recommendations from renown research firms.

OCBC Research - CapitaLand ($4.54), DBS ($16), Genting Singapore ($2.53), Keppel Corp ( $12.50),  Mapletree Logistics Trust ($1), Noble Group ($2.59), Olam ($3.53), Sembcorp Marine ($5.70), Starhub ($3.02), UOB ($19.70).

The Business Times - SIA, Wilmar, Golden Agri-Resources 

DBS Vickers Research - SembCorp Marine ($5.48), Keppel Corp ($12.20), Cosco Corp ($2.35), Genting Singapore ($2.70), SIA ($18.50)

UBS Investment Research - Keppel Land ($5.08), Keppel Corp ($11.10), SembCorp Industries ($5.68), OCBC ($11.30), Noble ($2.70), DBS ($16.60).