Frustrated with your Singapore stock performance – tweek it!

Singapore stocks have lost money for investors so far this year. The Straits Times has by no means been the worst performer in Asia – the much bigger markets of China and Japan have fallen a lot more, plunging 20% and 22% respectively year-to-date. But clearly the ongoing concerns about the slowdown in China, together with the accompanying downdraft of weaker commodities, as well as a moribund property market, all seem to be taking their toll. While the Brexit vote will be considerably more detrimental to the UK than to Singapore, the fact that the city state depends on trade to a greater degree than virtually any other country except Hong Kong, means that it is very vulnerable to any brake on global growth.

What may have also negatively impacted the Singapore equity benchmark this year is the heavy weighting in the index of financial and real estate stocks. Combined, these 2 sectors account for more than half of the index, and they are both facing headwinds. Some of the banks look like they may be seeing a pick up in bad loans, and at best, returns over the next year or two are unlikely to recover strongly. Although valuations do not look at all high, only the most dedicated bargain-hunters are being tempted. And the Singapore government is definitely not looking to over-stimulate property prices.

The recent money-laundering banking scandal in the city state has not helped either. The MAS’s Managing Director, Ravi Menon, has vowed to get tougher on financial institutions that breach its regulations following a probe into transactions linked to the Malaysian state fund 1Malaysia Development Berhad (1MDB). But it is mildly disappointing that the MAS will simply ‘name and shame’, rather than hand out hefty fines. The verbal slap-on-the wrist will not give a lot of comfort to global institutional investors (in other words large US financial institutions), who prefer rather harsher financial penalties for perceived wrong-doers in the industry. The US has had its own litany of money-laundering scandals, so it is always handy to point the finger the other way. Nevertheless, it does feel a possible opportunity may have been lost to quickly re-establish Singapore’s previous relatively clean reputation.

For Singapore domestic investors, obviously a portion of their equity portfolio should be in Sinapore stocks. Even for those of a more adventurous bent, the advantages of keeping some capital close to home, are very evident. These include local knowledge and currency, and ease of access. Therefore, although your Singapore ETF or diversified index fund may not have hitherto lived up to your expectations, let alone hope, it would be fairly foolish to dump your local portfolio entirely, and move into overseas stocks. You will inevitably be doing this at completely the wrong time!

Everyone in the financial industry will tell you that stocks are for long term investment. At the same time, the majority of active players currently participating in global markets are high frequency traders who often buy and sell shares over a nanosecond of time. With the exception of the US stock market, most global stock markets are not especially liquid or ‘deep’. Thus while there is controversy surrounding these day traders, there are currently strong financial incentives for both exchanges and brokers to continue to support them. Accordingly, Mr Market is in an even more extreme manic-depressive state than he was in the 1940s when Benjamin Graham wrote his wonderful book, “The Intelligent Investor”.

Assuming you are an ordinary individual Singapore investor, and not a ‘manic’ day trader, it is perfectly understandable you might be feeling somewhat frustrated with present market conditions, and wanting to take action. What might be an elegant, even if somewhat prosaic, solution, is to simply tweek the portfolio to reduce the local market exposure. Most professional financial advisors (FA) suggest about a 50% exposure to the local market for a typical portfolio. Perhaps that could be cut to one third, with the remaining 20% going into increasing the international exposure. If you or your FA need time to decide exactly what to do with the 20%, park the money in the interim in a cash deposit, or some kind of capital-guaranteed cash-equivalent or fixed term savings product. And it is good to remember that the last quarter of the calendar year is statistically the best performing period for virtually all stock markets, with a year-end rally a more typical occurrence than not.

(By Celia Kawakami)

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