Much has been said in recent months of the local bourse’s lethargic performance. The latest article comments that short-termism among many market participants is an under-explored underlying reason for the market’s lethargy (Singapore market ripe for a mid-cap boost?, Feb 12).
In response, I wish to make a number of observations.
First, the Straits Times Index (STI) has continued to trade below its pre-2008 financial crisis levels. In comparison, the three major American indexes – the Dow Jones index, the S&P 500 and the Nasdaq 100 – have all traded past their pre-crisis levels.
Second, for at least the past 10 years, the top ranks of the STI have seen few changes to their composition when compared with America’s Nasdaq or S&P 500. This is a symptom of poorer economic dynamism.
Third, Reits or real estate investment trusts have populated the ranks of the STI in recent years. Businesses create wealth; real estate is an expression of wealth.
Fourth, the willingness and ability of Singaporean capital to work the stock market is, on the aggregate, low. Big money (and big business) here are, broadly, either government-influenced or family-influenced. Further, the upper-middle class generally prefers real estate.
Fifth, the local ecosystem of analysts is nowhere as sophisticated as that in America and its coverage nowhere as comprehensive.
Price-to-book and price-to-earnings are applied blatantly, often neglecting a business’ capital needs, profit margins and growth potential, or other metrics more appropriate for the industry.
Sixth, Singaporean capital is generally more cautious and conservative.
Seventh, the Singapore economy is heavily oriented towards trade and its offshoots, and growth in new sectors is typically driven by multinational corporations. These businesses typically find no need to raise capital from the local bourse.
Eighth, merger and acquisition activity – an important driver in equity valuations – in Singapore is much less dynamic than in America.
Lastly, the valuation differential is so absurd as compared with the United States that attractive companies see no point listing here.
STI lethargy due to more than just short-termism
Much has been said in recent months of the local bourse’s lethargic performance. The latest article comments that short-termism among many market participants is an under-explored underlying reason for the market’s lethargy (Singapore market ripe for a mid-cap boost?, Feb 12).
In response, I wish to make a number of observations.
First, the Straits Times Index (STI) has continued to trade below its pre-2008 financial crisis levels. In comparison, the three major American indexes – the Dow Jones index, the S&P 500 and the Nasdaq 100 – have all traded past their pre-crisis levels.
Second, for at least the past 10 years, the top ranks of the STI have seen few changes to their composition when compared with America’s Nasdaq or S&P 500. This is a symptom of poorer economic dynamism.
Third, Reits or real estate investment trusts have populated the ranks of the STI in recent years. Businesses create wealth; real estate is an expression of wealth.
Fourth, the willingness and ability of Singaporean capital to work the stock market is, on the aggregate, low. Big money (and big business) here are, broadly, either government-influenced or family-influenced. Further, the upper-middle class generally prefers real estate.
Fifth, the local ecosystem of analysts is nowhere as sophisticated as that in America and its coverage nowhere as comprehensive.
Price-to-book and price-to-earnings are applied blatantly, often neglecting a business’ capital needs, profit margins and growth potential, or other metrics more appropriate for the industry.
Sixth, Singaporean capital is generally more cautious and conservative.
Seventh, the Singapore economy is heavily oriented towards trade and its offshoots, and growth in new sectors is typically driven by multinational corporations. These businesses typically find no need to raise capital from the local bourse.
Eighth, merger and acquisition activity – an important driver in equity valuations – in Singapore is much less dynamic than in America.
Lastly, the valuation differential is so absurd as compared with the United States that attractive companies see no point listing here.
Fong Cheng Hung
https://www.straitstimes.com/opinion/forum/forum-sti-lethargy-due-to-more-than-just-short-termism