Could local investors have beaten the S&P 500?
At least 28 local stocks outpaced the tech-laden S&P 500's 10-year total return; and 61 beat the FTSE All-World index
READERS of The Business Times had a lot to say this past week about the chronically weak performance of the Singapore stock market, following our recent reports and commentaries on the issue.
For many, being told that the Straits Times Index (STI) delivered a total return of only 60.3 per cent during the 10-year period to Aug 20 - while the S&P 500 index and FTSE All-World Index returned 383.8 per cent and 220.2 per cent, respectively - was not a surprise but a numerical expression of the frustration they have endured for years.
For some, however, the STI's relatively low total return of 60.3 per cent was an acceptable trade-off for the bulk of that return being delivered in the form of dividends.
Excluding dividends, the STI would have returned only 13.5 per cent during the 10-year period to Aug 20 - just over 22 per cent of its total return of 60.3 per cent. In effect, dividends accounted for nearly 78 per cent of the STI's total return over the past decade.
During the same period, dividends accounted for only 23 per cent of the S&P 500's total return and 32 per cent of the FTSE All-World's total return.
Some other readers thought it unfair to compare the STI to the likes of the S&P 500 and FTSE All-World as their largest components include big technology-oriented stocks such as Microsoft, Amazon and Apple, which have chalked up enormous returns in recent years.
Then, there was the question of whether corporate governance and regulatory standards in Singapore have anything to do with the poor long-term performance of the market. Many readers seem to think this is indeed the case. But we were chided by some quarters for "conflating" these issues.
Before going any further, let me just reiterate my own view that the long-term underperformance of the Singapore market is a multidimensional issue and there is unlikely to be an easy fix to the problem.
It is also worth recognising that there are a number of locally listed stocks that have not only outperformed the STI over the past decade but the FTSE All-Share and S&P 500 too.
During the 10-year period to Aug 20, there were at least 28 locally listed stocks that delivered a total return exceeding the S&P 500's total return of 383.8 per cent. And, there were at least 61 that managed to beat the FTSE All-World's total return of 220.2 per cent.
Beating global indices
Technology manufacturing stocks were prominently represented among these outperformers. In particular, AEM Holdings delivered a total return of 8,111 per cent over the last 10 years - nearly five times that of the next best performer.
Other stocks with four-digit percentage returns were UMS Holdings (1,662 per cent), Micro-Mechanics Holdings (1,255 per cent) and Frencken Group (1,047 per cent).
Among the other technology manufacturers that beat the S&P 500 were Fu Yu Corp (669 per cent), Spindex Industries (547 per cent), Value-tronics Holdings (446 per cent), and ISDN Holdings (430 per cent).
Yet, it wasn't just technology manufacturing stocks that beat the S&P 500 over the past decade. Some Covid-19 beneficiaries experienced such enormous gains in profitability last year that they made the cut too.
Glove maker Riverstone Holdings chalked up a total return of nearly 1,662 per cent. Personal protective equipment supplier Medtecs International returned almost 662 per cent.
Supermarket chain operator Sheng Siong Group, which had been a steady performer for years, also received a boost from the pandemic. Over the past 10 years, it has returned 549 per cent.
Interestingly the local luxury watch retailers also delivered S&P 500-beating returns over the past decade, helped by recent indications that they have come through the pandemic in good shape.
Cortina Holdings, which said in March that it had completed the acquisition of Sincere Watch for S$84.7 million, delivered a total return of 763 per cent over the past decade.
The Hour Glass, which trebled its dividend for FY2021 ended March 31, and has been actively buying back its shares, returned 465 per cent over the last 10 years.
There were also a good number of mainstream stocks in the local market that outpaced the FTSE All-World's over the past decade.
They include six current components of the STI: Venture Corp (357 per cent), Mapletree Industrial Trust (373 per cent), Mapletree Logistics Trust (358 per cent), Mapletree Commercial Trust (339 per cent), Thai Beverage (237 per cent) and DBS (230 per cent).
They also include a hodgepodge of stocks that many investors might think are dull and unexciting, such as Tai Sin Electric (295 per cent), Vicom (269 per cent), Old Chang Kee (263 per cent) and Haw Par Corp (245 per cent).
Investor protection
So, what does all this mean for investors and the local market ecosystem?
Clearly, one takeaway is that the Singapore market is not devoid of global index-beating stocks.
Wealth management experts often try to steer investors away from their "home bias" instincts, but astute and hardworking investors may have an innate homeground advantage when it comes to smaller, non-index stocks.
On the other hand, we should not miss the forest for the trees. The fact is that the STI has performed abysmally over the last 10 years compared to the S&P 500 and FTSE All-World indices. Investors will naturally gravitate towards markets where the odds of making money seem highest.
Explaining away the problem by simply attributing the weak performance of the STI to the absence of big tech stocks is akin to burying our heads in the sand. As some of the examples above demonstrate, index-beating returns can come from all sorts of stocks.
It might be more helpful to look closely at whether Singapore's corporate boards and regulators have done enough to protect the interests of minority investors against the backdrop of waning corporate profitability over the past decade.
Did companies deploy their cash flows appropriately in the face of secular trends such as technological disruption? Was enough done to ensure controlling shareholders did not expropriate minority investors in capital raising exercises and takeover deals? Were initial public offerings properly vetted? How can all of these things be put right?
To foster a vibrant market, we need promising companies that are run for the benefit of all their shareholders as well as an enthusiastic local investor base. Those two things are not unconnected.
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