You are a security analyst working for a global investment fund, and have recently been assigned to cover the Singapore equity market You have been tasked to recommend securities to a core investment fund, which is looking at stable income producing assets limited to the Finance, Manufacturing and Real Estate sectors. The fund has an annual investment total return objective of 8%. Your fund charges a 3% flat fee on assets under management. You have been reprimanded by your fund manager in the last appraisal discussion for forgetting that the total return objectives demanded is net of fees.

You are now in the Phase 2 circuit breaker environment and working from home. The Covid-19 pandemic was first identified as an infectious outbreak in Wuhan, China in late 2019 and within months, this viral infection quickly crossed borders and impacted countries in an unprecedented manner. Governments found that they had to shut down borders and restrict movements within their country to try to contain this disease as infection rates soared, overwhelming hospitals, resulting in mounting death rates. Singapore was not spared, and you observed the negative sentiments reflected in very erratic stock market movements.

You have been assigned to identify one listed company for investment in Singapore. Your fund manager has asked you to evaluate the continued suitability of Singapore as an investment destination as well as to select one listed company within a target industry to invest USD10M for a period of not less than 12 months. The selected company should be listed on the Main Board of the Singapore Stock Exchange. You are to assume that the yield on Singapore Government Bonds is 2% on a short-term horizon.

Question 1:

Chosen Company: Micro-Mechanics Holdings Ltd.

The fund that you work for described previously is still in its initial year of drawing down on committed capital. You have been allocated up to $50 Million to invest in one stock at the start. You must submit a recommendation paper to your Investment Committee within a month. You started framing your approach which you divided into the following areas:

(b) Use an appropriate empirical approach to compute the required rate of return for investing in Singapore listed equities.