Singapore market – up and up in H2?

Valuations and positive trade momentum are just some of the factors that could support further increases in price.

H1 recap

For clients trading the new Singapore Index and the Singapore Blue Chip CFDs, which provides exposure to the Straits Times Index and the MSCI Singapore Free Index, year-to-date returns of approximately 11.7% (excluding dividend) would have been registered for both indices into the end of Q2. Sectoral breakdown offers a more interesting insight into local blue chips as gains can be seen spread across most stocks on the indices. The anomaly being consumer staples with more than 4.0% losses clocked between the two companies -  Golden Agri-Resources Ltd and Wilmar International Ltd - in the sector. A slide in palm oil prices had weighed upon share prices since the start of the year for both the agribusinesses.

However, looking at the broad picture, the most heavily weighted sectors on the Singapore Index and Singapore Blue Chip have also coincidentally led gains. Banks have found concerns surrounding the oil and gas sector fading, robust trade supports the local industrial sector and property stocks chalked record gains on the ease of housing curbs, pushing up share prices.

The past month’s performance had however been meek at best, with near-neutral price changes seen for the local bourse. After a breakthrough above the 3200 level for the Singapore Index, gains had been limited with prices entering a consolidation trend between 3200 to 3270. With related markets exhibiting similar movements, it certainly calls to question whether one should still buy into the country’s index in the second half of the year or otherwise.

Fundamental supports further upsides

Valuations, a positive trade trend and upsides expected in related market are just some of the reasons supporting a ‘yes’ answer to the above mentioned question.

From a fundamental perspective, the local STI sits at TTM price-to-equity (P/E) and price-to-book (P/B) values of approximately 13.0 and 1.2 respectively, which certainly makes it the cheaper of the lot among Asian equity markets. Comparatively, many of the domestic oriented bourses such as the Philippines Composite and India’s Nifty 50 find their P/E ratios in the 20s. For the ratio conscious investor, both figures for the STI are also not overly elevated when compared historically. This certainly boosts the attractiveness of the index as interests continue pouring into Asian markets as seen from sustained foreign equity inflows into the region.      

Separately, for the trade oriented local market, external market improvements continue to inject confidence for the local market. Admittedly, headline production and export figures have seen a few misses. However, the strong recovery story particularly in the key electronics sector, which has yet to see the end of the cycle, keeps the bias on the upside for the local market. Additionally, related markets such as the Japanese and Hong Kong markets are expected to remain favoured. The latest inclusion of 222 A shares in the MSCI emerging market index may mean that neighbouring Hong Kong, which also hosts the stock connects with Chinese markets, stand to gain in the longer term.

Risks to strategy

While the abovementioned factors certainly bodes well for the Singapore market, the positive effect is predicated on absence of a sudden slowdown in global growth. Softness in the domestic market leaves external factors to do the heavy lifting and any downturn in the latter would leave the Singapore market vulnerable.

Technical view 

Singapore Index