Guess which is consumer sector's surprise saving grace

Seasonal revenue beats forecast by 10.3%.

According to OCBC Investment Research, companies included in the FTSE Straits Times Consumer Services Index (FSTCS Index) showed continued improvement in the 4QCY12 corporate earnings season with both top and bottom-line figures exceeding consensus estimates.

OCBC adds, the seasonal bump in revenue was stronger than expected (+10.3% over forecasts) while a combination of cost-control initiatives and favourable it put prices during the period saw average earnings per share beat consensus projections by 16.6%.

Here's more:

Growth came from abroad. With domestic retail sales figures remaining uninspiring for the last quarter of the year – retail sales value (excluding the heavily weighted motor vehicle component) fell 0.8% YoY in Dec after staying flat in Nov – most of corporate improvement came from the more lucrative overseas ventures.

Since the lows brought about by the European debt crisis back in late 2011, valuation of the consumer sector has improved dramatically in less than two years.

Coupled with the implementation of policies to stimulate domestic consumption, the rush for exposure to Emerging Market consumer demand has seen a re-rating of the once unattractive sector. The sector is now trading at levels higher than before the onset of the GFC.

While growth prospects for the overseas markets remain attractive in CY2013, most consumer companies face cost management challenges on the domestic front.

As most of these companies have base operations in Singapore – and with regulatory policies pushing up labour costs – we are likely to see an inevitable uptick in operating expenses in the coming year. Favour defensives and counters with greater EM-Asia allocations

Given the swath of attention on consumer counters, it is not surprising to see the FSTCS Index outperforming the Straits Times Index YTD (historically, the FSTCS Index has mostly trailed the STI).

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