Keep your cool with construction stocks

First and foremost, I must state that I'm no analyst or stock expert, neither do I invest in stocks (reason being that I don't get paid very much and have yet to save up enough to buy my first lot...don't believe in playing penny stocks either as I have no time to monitor them). The following is just my 2 cents worth on construction counters.

The increased activity and headline grabbing resurgence in sections of the property market have resusitated retail investor interest in construction shares. The sector is said to rebound from the doldrums with the two integrated resorts (IRs), upmarket condominium projects at Marina Bay and Orchard Road, and a hive of smaller residential developments.

In the past five trading sessions, penny construction stocks such as BBR Holdings, CSC Holdings and Hiap Hoe all registered gains of more than 60 per cent.

However, optimism in the construction camp has failed to win me over. Call me conservative or sceptical, I never had an affinity towards construction plays. Many are family-runned, don't possess a stellar track record, with some in the red for years, payout low or no dividends and somehow strikes me the way how china stocks are like to some investors.

I guess many in the market share the same sentiments as despite the buying interest, there is little research coverage on such shares, given that most analysts have given up on the sector after the property market turned sour a few years ago.

Investors appear to have made up their minds on which firms they feel will benefit from the pickup, focusing on niche property developers such as Hiap Hoe and Lum Chang Holdings.

With total construction demand estimated to grow about 12-15 billion a year for the next 5 years by some analysts, this will no doubt be a booster for construction shares.

However, investors must also be realistic that though the general market sentiment might be rosy for now, but at the end of the day it's just going to be the lucky few companies or counters for that matter who will emerge victorious from the tenders and stand to benefit. Buying into counters who are unable to jump onto the IR, Grade A office or luxury residential properties bandwagon will bring you nowhere. It has also been said that big international builders are expected to clinch most of the work, with the local boys becoming sub-contractors.

At this present moment, no one knows who the jackpot winners will be, so going with the flow and buying into random construction plays now would be equivalent to gambling. It's risky business.

As United Overseas Bank's head of deposits, investment and insurance strategy, Tay Han Chong would advise, investors should definitely use their heads rather than their hearts, keeping emotions and noise in the market out of the picture.

Besides, the optimism in the construction sector may be shielding an impending storm. Construction stocks have always been laggards. With blue chips looking to reach the end of their line in the bull run and laggards such as technology and construction plays joining the party, is this a sign that it's time to say goodbye to the good times for the STI?

Keeping in mind the last building boom in 1999, where construction counters fell in a heap the following year as the stock market nosedived in the wake of the dot.com bust, it definitely doesn't hurt to have your enthusiasm nailed down at this point in time where the road ahead for the local bourse is less picture perfect than before.