Oil prices has lost more than 50% for its value while reaching a low of $27 per barrel on Brent Crude. Obviously this sparked a contagion effect on Oil and gas explorers, refiners, equipment makers and related services. 34 of 52 energy related stocks in SGX are trading below price to book value of 1, which translates to 69% of the entire sector.
Industrial and Raw Materials
As oil prices plunged from its highs of 2014, it caused a drag in other commodity markets and in addition to slow growth in China, industrial and raw materials suffered a lack of demand. Materials such as Iron Ore, Copper and Coal has seen prices reaching lows in mid 2016. 35 of 54 materials related stocks in SGX are trading below price to book of 1, which translates to 64% of the entire sector.
Trading and distribution
Sluggish global trade over the past few years with weak demand from China and other parts of the developed economies, while importers and exporters are seeing a decline in trade volume for various markets such as commodities, consumer goods and industrial materials. 25 of 34 trading and distribution related stocks in SGX are trading below price to book of 1, which translates to 73% of the entire sector.
According to Singstat.gov.sg, Singapore’s annual growth in 2015 for industrial production has reached negative territory (level that was last seen in GFC 2008-2009). Recent update indicates year on year growth for manufacturing output is 0.1% of as August 2016. The sector is obviously a victim of weakening global demand for trade exports and imports. 90% of companies in SGX are trading below book value.
Marine transportation, equipment and services
The recent bankruptcy of Hanjin Shipping dug a deeper hole in the marine sector, already hit by weak global trade, the collapse of South Korea’s largest and one of world’s top 10 container carriers could trigger bankruptcies across trade partners, however, this could also be the best opportunities for value investors to hunt bargains as 52% of these companies in SGX are trading below book value.
Real Estate Development/Construction and Engineering
The slowing economy has led to fewer jobs being created and real estate sales in Singapore seems to be sluggish. Property cooling measures initiated by the government looks to be playing a major influence in lack of demand and the uncertain future of low lending rates are some of the concerns of property buyers in Singapore. With lackluster sales across private housing and commercial properties, developers are cutting back on projects. 43 of 58 companies in SGX are trading below book value, this translates to 74% of the entire sector.
Performance in real estate sector has a heavy influence in construction companies, a slowdown in development usually leads to declining revenue. Although construction projects are not limited to real estate development, others such as infrastructural projects requires specialized knowledge within its individual segments.
Tough times won’t last, tough men do.
Key to investing in deep value stocks is to ensure that these businesses are financially strong with good balance sheets. Ensure that companies have sufficient cash reserves to endure the tough times, estimate the amount of cash needed for the business to survive. Lastly, value these stocks appropriately and apply relevant valuation metrics to ensure that your investments provide sufficient margin of safety.