by SGX Singapore Update December 30, 2014

SINGAPORE: With interest rates set to normalise in 2015, market watchers have said it may be time for investors to rebalance their portfolios.

Amid a low interest rate environment, investors have been drawn to high dividend counters. Among the 30 stocks which constitute the benchmark Straits Times Index (STI), Hutchison Port Holdings Trust paid the highest dividends this year, at 7.9 per cent.

With ongoing economic restructuring in Singapore and slowing GDP growth, analysts said small-to-medium cap stocks could provide more value for investors in 2015.

Said Voyage Research CEO Mr Roger Tan: Look at the Singapore stock market we are going through some structural issues with lower volume and lower momentum. So I think if you are looking at blue-chip stocks, maybe you want to look at the small-to-mid caps where you will be able to find more value, and more upside potential in the mid to long term.

Sector-wise, investment bank UBS said the telecoms sector may provide safe returns in the near term, but banks earnings may come under pressure in the second half of 2015.

In terms of earnings resilience, the telcos will probably still benefit from the fact that there is 4G migration and greater data usage. The banks may benefit in the very near term because of the rise in short-term interest rates, said UBS managing director Ms Tan Min Lan. But bear in mind that the U-curve is also flattening, and the loans growths are rolling over, so that is a drag on the banks beyond the next six months.

Still, corporate earnings in Singapore are not just dependent on the domestic economy. With a growing international exposure, external factors play a key role.

Singapore Exchanges director of market strategy, Mr Geoff Howie, said: Much of the internationality that we have here in Singapore does transcend very much into the stock market. So our big blue-chip players are not necessarily 100 per cent Singapore players.

Hence, the returns and the factors that are driving the performance of these stocks cannot just be dependent on Singapore, but very much what is happening in the region. In fact, if you look at the 30 STI stocks, half of the revenues that come from the STI stocks are regenerated from overseas.

With heightened uncertainty in the global outlook, some experts said investors should strike a balance between dividend payouts and growth potential of companies.

2015 is a murky year, said Mr Tan. If you are going after momentum and the quick buck, be prepared for the volatility. But volatility is in your favour if you are looking for value and have some companies in mind. The potential of buying them cheap is very high.

The five STI constituent stocks with the highest dividend yields this year are Hutchison Port Holdings Trust, Ascendas REIT, SIA Engineering, CapitaMall Trust and Sembcorp Industries.