In recent years, many Singapore retail investors have moved away from our local stock market to overseas markets, especially the U.S stock market.This is a natural development given the wide disparity in the returns between the two markets since the 2008 financial crisis. The easier and cheaper access to overseas markets, thanks to brokers like Interactive Brokers, Tiger Brokers, Moomoo, accelerated this trend.
It is not only investors who have migrated. Even our entrepreneurs have migrated. Promising local companies are choosing not to list on the Singapore stock exchange. Some notable examples are Sea Holdings, Razer, Grab.
Delistings have grown, although it is a global phenomenon.
It is natural to feel pessimistic about the future of our Singapore stock market.
However, I feel confident about the Singapore stock market going forward. Why?
Mean reversion.
A Singaporean who retires at the beginning of 1997 and mainly dependent on local stocks for financial support will be living through a heart-rending time in the next 6 years.
Year STI Percent Gain
1997 -30.99%
1998 -8.96%
1999 78.04%
2000 -22.29%
2001 -15.74%
2002 -17.40%
During this period, STI fell 40% and 5 out of 6 years were down years. Many people will be swearing off stocks.
What happened in the subsequent 5 years?
| Year | STI Percent Gain |
|---|---|
| 2003 | 31.58% |
| 2004 | 17.09% |
| 2005 | 13.61% |
| 2006 | 27.20% |
| 2007 | 16.63% |
From beginning of 2003 to end of 2007, STI rose 159.7%. Mean reversion at work. I confess I am guilty of some cherry-picking in the time period to bring across the point about mean reversion. In 2008, STI crashed 49%. This is why I personally do not practise buy-and-hold even for stock indices but that discussion is for another day.
The valuation of Singapore stocks, in general, is undemanding compared to U.S. and China stocks. When a secular bull market begins, there is plenty of room to run up from a low valuation base.
Present bearish sentiments about the Singapore stock market are a good sign of an impending bull market. When investors finally give up and capitulate on a market, this usually marks the bottom. Last year, there are many online discussions with topics like "Why I am avoiding Singapore stocks?" This year, STI is one of the better performing Asian stock indices. Despite the better performance, we still have bearish news articles about once bitten, twice shy retail investors moving away from the local bourse. See how bearish sentiment is despite good performance.
There are some aspects of the Singapore market which attract me as an investor at the moment. Zero taxes on dividends, generally lower valuation and higher dividend yield, and no expensive stamp fee like Hong Kong's 0.13% tax. The main complaint about our market is the low liquidity which makes it difficult for investors with relatively large fund sizes to put their money to work in a diversified portfolio. I am not comfortable concentrating most of the portfolio in Singapore banks and REITs. Liquidity should return when a strong secular bull market makes a comeback.
Singapore is a well-governed country. Singapore is one of the leading financial hubs in Asia. Our Singapore dollar is strong and I feel personally safe to have a substantial portion of my net worth in SGD. Mean reversion has to happen eventually for the Singapore stock market. I do not know when. The best clue will come from the price action of the market itself.
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ReplyDeleteP.S - This is not a sponsored post although it is a biased one. As a Singaporean, I want to see our local bourse and local companies succeed. When local companies make money, I hope our local investors participate in the wealth creation process. I also prefer to pay the much lower GST tax from Singapore stock trades than the much higher 0.13% stamp fee from Hong Kong stock trades.