3 sectors in Singapore you should pay close attention to in the second half of 2018

As volatility creeps into the stock markets in the first half of 2018, investors need to pay close attention to their investment portfolios for the rest of the year.

Typically, the main reason for the  larger price fluctuations is primarily due to uncertainty, either in the economy, financial markets or the companies themselves.

This is why you need to ensure your investments continue to sustain their underlying fundamentals and retain their qualities that attracted you to invest in the first place. Another reason to stay vigilant in the stock markets is that favourable investment opportunities may arise during such volatile times.

What causes stock prices to fluctuate?

Market sentiments can drive demand for a company's shares up or down. In the share market, there are two "queues" for investors in any listed company. One of the queues is for people who want to buy shares in the company and the other queue is for people who want to sell its shares.

Buyers will always want to pay the lowest price possible and sellers will always want the highest price. This forms the demand and supply curve of a company's shares.

Logically, if there are more sellers than buyers, prices may drift downwards due to an over-supply or low demand. If many people want to buy a company's share but no one wants to sell it, prices may drift upwards due to an under-supply or high demand.

Both macroeconomic and microeconomic factors can shape market sentiments, which in turn may impact share prices. Macroeconomic events such as the geopolitical climate, changing government policies and increasing interest rates, as well as microeconomic shifts including changes to a company's management team, a shutdown in its production plants, and its financial performance can impact market sentiment.

Which sectors are going to be in high demand in Singapore in the second half of 2018?

While you monitor your investments on the stock markets more closely, you should heed new opportunities. There are many ways to go about doing this, and every investor has his or her own unique evaluation criteria to invest in a company's shares.

One way to do this is to think about which sectors around you are performing strongly and look likely to continue  to outperform.

1. Property

The property scene in Singapore has been heating up since the beginning of 2017. In 2017, there were close to 27 en bloc transactions worth an estimated $8.1 billion. In the first quarter of 2018 alone, there has been 17 en bloc sales valued at $5.8 billion dollars.

The effect this has had on property prices has generally been positive. In the Urban Redevelopment Authority's (URA) 1st quarter 2018 real estate statistics, private residential property prices have increased by close to 3.9%. This marks its third consecutive rise since declining close to 12% between mid-2013 to mid-2017.

There are several other factors favouring the property sector. For a start, homeowners who have sold their properties in the en bloc deals will support demand, as they would need new properties to live and/or invest in. Further buttressing the property market, foreign interest in local properties is beginning to return.

The Singapore property developers, CapitaLand Limited and UOL Group Limited, have also posted higher profitability in FY2017, improving 30.3% and 210.4% respectively.

However, savvy investors need to understand both the opportunities as well as the threats. National Development Minister Lawrence Wong and the Monetary Authority of Singapore (MAS) have both flagged "excessive exuberance" in the local property market even as it continues to rise.

2. Banks

With the US Federal Reserve committed to increasing interest rates through to 2019, banks could see a sustainable increase in their  interest income levels.

The local banks' share prices have risen by an average of 37% in 2017 and close to 6% in 2018 already. Notwithstanding this, DBS, OCBC and UOB have all posted an increase in profitability of 3%, 19% and 9% to $4.4 billion, $4.1 billion and $3.4 billion respectively.

Coupled with improving global business sentiments, particularly for the oil & gas and property markets, which were in a down cycle previously, income and profitability could continue to strengthen.

Further, the Fintech wave represents an opportunity for local banks to improve operations in the near-term and further entrench its services in the lives of Singaporeans.

3. Healthcare

Healthcare is another relevant sector to look at in a rapidly ageing Singapore.

At the tail-end of 2017, Finance Minister Heng Swee Keat noted that government expenditure on healthcare is expected to "rise quite sharply" by 2020. In 2010, the government's healthcare bill was close to $4 billion. This year, $10 billion has been allocated to it, and it is expected to rise to $13 billion by 2020.

The increase in public healthcare expenditure should create a spill over effect to private healthcare expenditure. Indeed, one of the key reasons for the increase in costs is medical innovation and health science technology adoption and usage in Singapore.

Looking at the 10 largest listed healthcare stocks in Singapore, they have averaged price gains of 12.1% over the past 52-weeks and close to 2.3% in the year-to-date 2018 , outperforming the benchmark Straits Times Index (STI).

Investing in 2018

While investing in a volatile market presents many opportunities, you also need to continue monitoring your investments to ensure its fundamentals do not deviate from when you first invested in it.

Aviva Navigator has a Fund Finder option for you to search and select funds that you’re interested in investing in based on  industry sector, geography and asset class. Furthermore, you can also view an individual fund’s charts, historical price, factsheet, prospectus and annual report to determine if the fund is a suitable investment for you.

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