LAST year was, to put it mildly, a roller coaster for global markets. The Russia-Ukraine war, inflation and interest rate hikes were just some of the incidents that contributed to the volatility.

Several major global indices experienced more than double-digit losses in their closing prices. The US S&P 500, the China CSI 300 and the Hong Kong Hang Seng Index fell 19.5 per cent, 21.7 per cent and 15.5 per cent, respectively. The S&P 500 even experienced high-frequency intraday volatility, with swings of over 1 per cent for 87 per cent of trading days in 2022. A similar situation was also observed in the Hang Seng China Enterprises Index, which fell by 3.1 per cent in December 2022.

Bucking the trend was Singapore’s Straits Times Index (STI), which outperformed most of the global indices and had a positive gain of 4.1 per cent. The Singapore market has proven to be a haven in these volatile times.

The value of value-based stocks

The STI is built on value stocks. For the uninitiated, this means it takes time for their prices to go up. Consequently, many deem them boring. The spotlight often lands on growth stocks. With their high price-to-earnings ratios and low (or no) dividend payments, these naturally appear more interesting to those seeking rapid price appreciations.

But the environment in the past year has not been right for growth stocks, especially since they tend to be highly leveraged. As we have seen, higher interest rates have a negative impact on these stocks – and thus the indices that track them. The S&P 500, for instance, is notoriously tech-heavy, with the tech sector accounting for more than a quarter of the index. The sector – and by proxy the S&P 500 – suffered a bruising year. Recession fears are not making 2023 any brighter for the sector now.

The STI, on the other hand, comprises largely banks, which account for 44 per cent of the index. The rest of the index is made up of telcos, industrials and real estate investment trusts (Reits). Reits make up 22 per cent of the index, and industrials 10.1 per cent. The index houses 30 of Singapore’s largest companies. These stocks are defensive in nature, offering consistent dividends and stable earnings. They might be dull, but they can potentially offer greater levels of defence – and there is value in that, especially during volatile times.

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Singapore is the largest Reit market in Asia ex-Japan, with a total market capitalisation of S$110 billion. Reits are classified as value stocks, with a requisite to distribute at least 90 per cent of their net earnings to unitholders.

Reits, like tech stocks, are a highly leveraged asset class and have not been spared the pain of interest rate hikes. The iEdge S-Reit Index, which tracks the performances of Singapore Reits, suffered an unusually huge loss of 24.3 per cent from April to October 2022. There are, however, signs that the US Federal Reserve may slow the pace of interest rate hikes in the coming year. This may be a positive sign for Reits – and, by extension, the STI, since Reits make up a huge proportion of the index. Prior to 2022, Reits performed relatively well. They generated 6 per cent in total returns in 2021, which may make them appealing to investors seeking steady returns.

The Singapore factor

The wider stability of Singapore has also helped the market post growth in volatile times.

Stock market trends are influenced by geopolitical tensions. Strained relations between the US and China in August 2022 led to the S&P 500 dropping 0.67 per cent, while the Nasdaq shed 0.16 per cent.

Singapore, being politically neutral and located strategically for business flows, will continue to offer investment opportunities and access to a wealthy clientele based in neighbouring countries.

Its strong regulatory system affords such clients the assurance that they can grow their wealth in a safe jurisdiction. In fact, Singapore’s advanced business infrastructure has attracted many to establish family offices here or expand their client base in the region. Singapore’s assets under management (AUM) grew 17 per cent in 2020, outpacing global AUM growth of 11 per cent. There were 700 family offices in Singapore at the end of 2021, up from 400 at the end of 2020, based on the Monetary Authority of Singapore’s estimates.

A looming recession and ongoing geopolitical tensions are some of the issues investors will have to grapple with this year. Amid these uncertainties, the Singapore market shines through and is not to be dismissed. With sound policies, strategic decision-making and a rigorous regulatory system, Singapore is well-equipped to weather the storms that come its way.

Singapore has the makings of a boring market. If boring offers peace of mind and potential growth, however, then why not consider it?

The writer is a trading strategist at OCBC Securities.