Why don’t Singapore stocks ever go up?!

The Straits Times Index (STI) has delivered a 3.3% annual total return for the 10 year period ending 31 May 2023. This is 38.4% over 10 years.

Now, get this. The STI historically yields about 3% in dividends, meaning the total return was largely driven by dividends. Which brings us to the hard truth: STI’s capital gains have been insignificant and close to zero.

So, why don’t Singapore stocks seem to go up at all? And should you even invest in them? Let’s explore:

Small share of investment fund flow

Singapore forms a small part of global institutional fund flows. Many companies listed on STI are well known only to local investors. As such, many overseas investors looking to diversify globally would only put a small part of their funds into Singapore.

Singapore once seemed on the verge of becoming the public-market investor’s gateway to Asia’s emerging economies. But in recent years, it has been increasingly cast aside as Southeast Asian companies opt to list on their own exchanges.

If you think about the center of gravity in Asia, the focus is on China, India and to a lesser extent, Japan, simply to the sheer size of their economies.

Limited sector diversification options

Banks, REITS and property developers dominate the STI and the Singapore stock market. There are some large stocks outside of these three industries, however they tend to be either in traditional or cyclical industries.

When it comes to technology companies, there’s only one in the STI: Venture Corp (SGX: V03), which is a provider of electronics manufacturing services.

Many other smaller companies that are classified into the technology sector tend to be OEM or component manufacturers or in the less glamorous lower margin part of the supply chain.

There are also no world beaters, let alone mega sized companies listed in Singapore that are in the vein of companies such as the FAANG stocks.

Greener pastures

Consequently, for the few Singapore home grown companies who have scaled, matured and succeeded in going public, they have mostly chosen to do it outside of Singapore. Stocks such as Grab and Sea are two well known technology companies that have sought overseas listing and do not even have a secondary listing in Singapore.

Many other companies such as Razer and Snack Empire have also chosen to list in greener pastures such as in Hong Kong due to the higher trading volume which may lead to higher demand for shares and possibly a higher valuation.

It seems counterintuitive as many of these companies have their headquarters based in Singapore and sell their products and services locally. Hence, it would make much more sense to tap on an investing ecosystem that is more aware of their presence.

Some stocks do go up!

When we talk about stocks listed in Singapore, are part of the STI and have done recorded strong capital gains, two sectors come to mind – namely Banks & REITs. Two names that come to mind are DBS and Mapletree Industrial Trust.

Besides these two sectors, there are a handful of other smaller stocks that have multi bagged for astute investors such as iFAST, Samudera Shipping, AEM Holdings, Hour Glass and Azeus systems.

Otherwise, we believe it is fair to make a general statement: performance is lacklustre for most of the other STI constituents and the broader market.

p.s. if you’re looking for investment ideas in Singapore, check out the Singapore blue chip stocks with Moats that we’ve found recently!

Singapore has not focused on its own stock market

The government has invested billions in nurturing industries such as health care and biomedical sciences, and in creating an attractive environment for technology startups. It’s also pursuing a variety of investment plans for the future such as a Smart Nation that runs its roads and industries and everything in between on cutting-edge technology. Some of those bets have already paid off. For example, since the early 2000s, Singapore has doubled the number of jobs in the biopharmaceutical industry.

None of these plans are particularly dependent on the health of the stock market.

A smaller pool of companies limits the choices investors have even as the fund management industry continues to grow. The stock market isn’t as important as it used to be. A vibrant capital market is an added advantage or added benefit to the economy but It’s not essential.

A wealth management hub does not translate into a thriving stock market

Singapore is the location of choice for asset and wealth management in Asia Pacific. Asset under Management is estimated to have grown from US$1 Trillion in year 2010 to US$4 Trillion in year 2021.

Singapore is a country that is viewed as a stable and safe place to park money, with access to good advice money managers. However, a thriving stock market is a nice-to-have rather than a need-to-have.

Closing statements

With the global outlook remaining cloudy for this and next year, some analysts believe that Singapore’s core blue chips should form part of a diversified portfolio as Singapore stocks are trading at undemanding valuations and with stable earnings streams and dividend income.

Hence it begs the question on whether the Singapore stock market deserves a fair valuation or even a safe haven premium as opposed to an undervaluation.

This is especially because total returns is more important than capital gains. Capital gains require better precision in timing of the market.

Singapore is one market that stands apart from the peers, due to its high dividend yield, healthy corporate earnings growth, and attractive valuations. A combination of stable recurring dividends and healthy growth at a reasonable pace with lower volatility looks like the perfect mix for a stable portfolio.

In this case, perhaps one should cherish the cheap opportunity and focus on decent stable total returns rather than wonder why Singapore stocks don’t go up.