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<!-- headline one : start --><TR>'Safer' stocks not immune to meltdown
</TR><!-- headline one : end --><TR>Defensive shares like SingPost, StarHub and ST Engg suffer double-digit losses in 'irrational selling' </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Gabriel Chen
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SingPost stock may be delivering good yields of more than 8 per cent but not on capital returns recently. Despite being considered a fine defensive counter, it has in fact dropped slightly more in value than the bourse's benchmark STI in the last six weeks. -- ST FILE PHOTO
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->DEFENSIVE stocks usually hold up well in turbulent financial times.
However, even 'safer' names like Singapore Post (SingPost), Singapore Technologies (ST) Engineering, Singapore Press Holdings and StarHub have seen their shares dive amid indiscriminate selling.
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HERD INSTINCT
'It's irrational selling. Foreign funds are taking profits on these shares to cover losses or to anticipate redemptions back home, and unfortunately, retail investors panic and follow suit.'
IBS investment manager Lionel Lee, on the heavy sell-off in many blue chips
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ON THE DEFENSIVE
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</TD></TR></TBODY></TABLE>StarHub, with a dividend yield of just under 9 per cent, has seen its shares tumble by 25.6 per cent to $2.03 in the last six weeks.
And SingPost stock, which yields over 8 per cent, has sunk by almost 30 per cent over the same duration.
Contrast this with the broader-based Straits Times Index (STI), which has fallen by 28.1 per cent in the same period.
'It's irrational selling,' said Mr Lionel Lee, investment manager at private equity firm IBS. 'Foreign funds are taking profits on these shares to cover losses or to anticipate redemptions back home, and unfortunately, retail investors panic and follow suit.'
As the name suggests, defensive stocks typically refer to firms whose business performance and sales are not highly correlated with the larger economic cycle. When the economy turns awful, these firms are seen as good investments.
On the other hand, higher-end property firms, for example, are not seen as defensive. After all, when the going gets tough, even the wealthy might postpone their mega purchases.
City Developments illustrates the point. While it has a big cash hoard, the developer has not been unscathed by the negative sentiment gripping the local property sector and its shares have plunged by 31 per cent since the beginning of last month to $6.98.
'If you're in for the long term, defensive stocks should be fine,' said DMG & Partners' head of research, Mr Terence Wong.
Those looking to play defence for a while could consider telecommunications firms. Even if there is a slowdown in the economy, Singaporeans are unlikely to drastically cut back on their usage of mobile phones, analysts say.
M1 and StarHub come to mind, due to their ability to generate strong cash flows and good dividend yields, whereas analysts are more doubtful about SingTel in the months ahead. For one thing, there is a niggling concern that the latter's associates - Bharti in India and Telkomsel in Indonesia - will not grow as fast.
SingPost is another defensive bet that analysts like to recommend during such periods of deteriorating economic outlook.
They say the firm might even have a special dividend, as there is the potential unlocking of hidden value in SingPost Centre, possibly via a sale of the building.
'The group will continue to explore opportunities in unlocking the value of Singapore Post Centre,' SingPost said during the release of its first-quarter results in July.
Singapore real estate investment trusts (Reits), hit by tightening credit markets and a steepening yield curve that are leading to higher costs of borrowings, are also favoured.
In some quarters, Reits are viewed as 'defensive' due to their ability to provide stable, visible and recurrent income.
According to Merrill Lynch's survey of fund managers for this month, investors are waiting for the 'right conditions' to return to equity markets amid the pessimistic outlook.
Growing risk aversion, it said, has led to a record 49 per cent of respondents who are overweight in cash.
'It's a prudent thing to do in such volatile times,' said DBS Asset Management chief executive Deborah Ho.
'Long-term investors have to remember that volatility is a feature of the markets and they should be focused on their long-term goals.'
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