Singapore firms' ROE is one of the lowest in Asia, but all is not yet lost
Low turnover is the biggest issue.
Here's some bad news for Singaporean investors: Local firms posted Asia's second-worst return on equity (ROE) in 2015, on back of deteriorating sales and weak demand.
A report from HSBC showed Singapore firms' ROE stood at 9.6% in 2015, one of the lowest in Asia along wth South Korea's 8.4%.
"Lower asset turnover is the key issue. Although margins have risen, ROE has fallen. Singapore companies could react to this by allowing higher balance sheet leverage," HSBC said.
On the bright side, though, HSBC reckons that Singapore is one of the markets with the most long-term upside, with ROE forecasted to rise to 15%.
“Understanding ROE trends allows us to assess how much we should be willing to pay for Asian equities. we believe the markets with the most upside potential to current PE valuations are Taiwan, Malaysia and Singapore; the ones with the least upside potential to current PE valuations are India and Indonesia,” said HSBC.