Date: November 6, 2024
First published in Straits Times on 4 November 2024
The Singapore Exchange (SGX) has come under much scrutiny lately, with a high-level committee formed in August to study ways to stimulate interest in a market that is often criticised as boring, lacking in liquidity and therefore unable to attract exciting new listings.
These are the reasons usually cited for why younger investors are shunning local stocks in favour of other markets like the United States, or more volatile assets like cryptocurrencies.
But is it really the case that the local market has no redeeming features, and everyone should be looking elsewhere for decent investing opportunities?
There is no denying the blows to investor confidence from the collapse of Singapore-listed China stocks, or S-chips, due to accounting issues and poor governance from 2003 to 2008, and the penny stock crash of 2013.
This has led to the drying up of liquidity and a lack of good quality initial public offerings on the local bourse.
Yet, concluding that the local stock market is wholly unattractive with nothing going for it is wrong because it is focusing on only one side of the coin.
Since the Securities Investors Association (Singapore), or Sias, was formed in 1999, the market has evolved from one governed by a merit-based framework to one based on disclosure and caveat emptor, or buyer beware, where the onus is on buyers to tread carefully before buying.
Throughout this evolution, there is one overriding feature of the Singapore market which has stood out and could stand it in good stead in the months and years ahead: It is a relatively safe haven in times of high volatility.
This reputation as a safe haven was born decades ago because of the high dividends paid by companies that include then-listed Singapore Press Holdings, the three banks and various other blue-chip stocks, most notably those linked to Temasek Holdings.
It was reinforced when real estate investment trusts (Reits) began trading, starting with CapitaMall Trust, which listed with a yield of 7.06 per cent in 2002.
Today, the Reit market here is the second largest in Asia outside of Japan and as of June this year, the average dividend yield of the 40 Singapore-listed Reits stood at a respectable 8.1 per cent.
Notably, with seven Reits now included in the Straits Times Index (STI) and given that lower interest rates are expected in the months ahead, there is a strong likelihood that the STI will continue to be supported by the Reits, which benefit from lower rates.
Between January and mid-October, the STI gained just over 11 per cent. The index’s 2024 dividend yield is estimated to be 5.3 per cent, which is better than the long-term average of 4.3 per cent.
Meanwhile, the latest estimate for the STI’s price-to-earnings ratio, which gauges how much more investors are paying for the index over its earnings, is 12.4 times compared with 28 times for the S&P 500 and 42 times for the Nasdaq Composite Index.
Critics of the local market might argue that the STI in recent years has been driven mainly by the banks. While this is largely correct, again it is only one side of the picture.
In an Oct 24 report, SGX Research pointed out that while the STI achieved a 42 per cent total return over the past five years largely thanks to returns posted by the three banks, another index measuring the performance of Singapore-listed manufacturing stocks has achieved a similar five-year total return of 39 per cent.
“The iEdge SG Advanced Manufacturing Index achieved an 11.3 per cent net total return between July and October, driven by a global pivot in interest rates and a strong recovery in Singapore’s July and August Industrial Production,” noted SGX Research.
Top gainers include Dyna-Mac, Seatrium, Jiutian Chemical Group, and Sats.
On Oct 29, SGX announced that it is extending its Singapore Depository Receipts (SDRs) coverage beyond Thai companies to five Hong Kong-listed companies. These include one of China’s largest electric vehicle makers and firms involved in artificial intelligence.
SDRs are financial instruments that represent ownership in a foreign stock or security, but which are listed on the SGX.
To make trading in these instruments affordable, each Hong Kong share is broken down into SDR units to bring high-priced stocks within the reach of retail investors.
So even though a China or Thai company will be much more likely to list domestically than Singapore because of greater investor familiarity and research coverage, through the SDR framework, local investors can easily gain exposure to these stocks.
Meanwhile, the Singapore economy is expected to improve, which bodes well for its stock market.
The Ministry of Trade and Industry (MTI) noted on Oct 14 that the economy grew 4.1 per cent year on year in the third quarter of 2024, extending the 2.9 per cent growth in the previous quarter. On a quarter-on-quarter seasonally adjusted basis, the economy expanded by 2.1 per cent, faster than the 0.4 per cent growth in the second quarter.
The MTI had already narrowed its estimate for 2024 GDP growth in August to a range of 2 to 3 per cent, the upper end of its earlier projection of 1 to 3-per cent.
In order to combat imported inflation, the Monetary Authority of Singapore has pledged to keep its monetary policy unchanged, announcing on Oct 14 that it will maintain the prevailing rate of appreciation in the value of the Singdollar versus a basket of currencies of its major trading partners.
Still, the conflict in the Middle East and war in Ukraine have the potential to spread beyond their borders and destabilise markets everywhere.
Investors should bear in mind that one reason for heightened inflation is supply chain disruptions caused by the Russia-Ukraine war, while added pressure is expected from rising oil prices because of the problems in the Middle East.
If Middle East tensions or the conflict in Ukraine deteriorate further, global investors will seek safe havens to park their money, and the Singapore market could well benefit.
Then, there is the US presidential election, the result of which will be known in early November.
Analysts are divided over the impact on markets whoever wins, but most are worried over whether the resultant policies introduced by the eventual victor will be inflationary or not.
These factors could stand the local market in good stead in the months ahead.
Already, the STI has climbed to a 17-year high of close to 3,600 and now stands only about 8 per cent below its all-time high of 3,906.
In fact, Sias has plans to visit the local heartlands to guide and encourage first-time investors not to keep all their money in cash or savings accounts, but to give the local market a second look.
Clearly, not everyone believes the negative hype surrounding the local market.
- The writer is Mr David Gerald, Founder, President and CEO of the Securities Investors Association (Singapore)
