The market makes no sense – or does it?

BENJAMIN Graham, Warren Buffett’s mentor and the father of value investing, famously said that in the short run, the market is a voting machine; but in the long run, it is a weighing machine.

A war in the Middle East is still raging; in Ukraine, war remains unresolved. As oil prices spike and inflation rises, there is concern that we may be entering a period of stagflation. Yet global stock markets have just hit another all-time high.

It is tempting to think the market is irrational. But once you understand what is actually driving prices, it makes a great deal of sense. The key is earnings.

Over more than three decades of investing, I have seen many cycles and the same lesson reasserts itself. To rephrase Graham, in the short run, markets respond to headlines; in the long run, they track fundamentals.

The best representation of the fundamentals that truly matter is not gross domestic product growth, but corporate profits.

It’s all about earnings

Twelve-month forward earnings estimates for the S&P 500 have been quietly grinding higher even as oil soared, the Iran conflict rumbled on, and central banks held rates steady.

The “earnings recession” predicted in 2022, the “double dip” in 2024, and the “artificial intelligence bubble pop” in 2025 have not materialised. The largest, most profitable, most globally dominant companies on Earth have continued to compound not just in terms of returns but also in earnings.

This is not a coincidence. The largest companies in major global indices have already passed an unusually demanding test – the ability to grow top line and bottom line, to secure pricing power in inflationary environments, fortress balance sheets that not only absorb higher rates but may even benefit through periods of higher inflation.

They also happen to stand at the centre of the global productivity shift towards AI, where scale, capital, talent and proprietary data compound on themselves.

During World War II, with much of Europe occupied and the outcome of the war genuinely in doubt, the US stock market bottomed in 1942 and went on to begin a 20-year secular bull market.

Markets are not callous to human suffering. They answer a different question: Which companies will still be generating cash flows 10 years from now?

Today’s index leaders give a confident answer. When inflation and interest rates remain elevated, equities are arguably the best place to be – provided you own businesses that can pass costs on, defend margins and reinvest at high rates of return. That is what indices do, by overweighting the winners.

Concentration is not the risk to watch

Here is the catch. The same mechanism that has rewarded passive investors so handsomely has also produced the most concentrated US equity market in modern history.

The Magnificent Seven account for around a third of the S&P 500 and a meaningful share of any global index. This, however, isn’t unusual.

DBS alone is roughly a quarter of the STI; the three local banks together comprise more than half the index. Samsung Electronics and Hynix now represent 40 per cent of the Kospi.

Concentration is not a reason to panic. It is a reason to think more clearly.

The lesson of institutional and endowment-style investing is not to avoid the winners; it is to make sure your portfolio is not silently betting on only one outcome for one country, one sector and one technological wave. Diversification is insurance against the version of the future you did not predict.

Asia’s place in the value-up momentum

Asia is in the middle of a structural “value-up” moment and Singapore is now part of it. Markets such as South Korea, Japan and Singapore have significantly lagged the US in the past decade.

That gap is not an accident of geography; the governance discount has been real and measurable. The reform agendas in Japan and South Korea target precisely this – and they are working.

Japan started in 2014 with the Stewardship Code. In 2023, the Tokyo Stock Exchange directed companies trading below book value to disclose capital efficiency plans.

South Korea launched its Corporate Value-Up Programme in 2024, with Commercial Code amendments in 2025 and a reduction of dividend tax from 45 per cent to a 14 to 30 per cent range, dismantling one of the core incentives for suppressed payout ratios. South Korea was the best-performing market of 2025 and is repeating that feat this year.

Earlier this year, Singapore joined the club. The Monetary Authority of Singapore’s Equity Market Development Programme is deploying S$6.5 billion across multiple asset managers. Their mandates focus on the underexplored corner of our market: Singapore-listed small and mid-cap stocks.

The crucial distinction is this: Japan and Korea pursued mostly supply-side reform. Singapore is intervening directly on the demand side, too.

The Straits Times Index crossed 5,000 for the first time in February 2026 and returned 26.1 per cent annualised over 2024 to 2025, outpacing the S&P 500 (21.4 per cent). The gap widens, however, when return is calculated in Singapore dollar terms.

The point is that the global opportunity set is broader than the US tech complex. The same evidence-based discipline that tells us to stay invested in the AI winners also tells us to maintain meaningful exposure to a broader Asia, where governance reform, valuation discounts and a clear policy tailwind are starting to compound.

Companies staying private longer

There is one more piece. Some of the most consequential companies of this decade are choosing to remain private for longer.

SpaceX is reportedly seeking a valuation near US$2 trillion. OpenAI was last valued at US$852 billion. Anthropic is being discussed in the US$900 billion range. That is close to US$4 trillion of value inaccessible to those who own only the public market.

The answer is not to chase any single private name; it is to think in asset classes.

Through evergreen private equity vehicles from globally leading managers and hybrid public-private “crossover” funds, which intentionally invest across the life cycle of innovation, individual investors can now access the same opportunity set that endowment funds at Yale University and Harvard University have used to compound at superior risk-adjusted returns for decades.

Reading market highs through the science of wealth

Markets are not detached from reality; earnings are reality and they are still rising. The best companies are scrutinised daily; when they rise to the top, they deserve to dominate the index. But no investor should let any one country, sector or set of seven stocks quietly become their entire thesis.

The history of markets tells us that when markets reach a new high, they go on to mark another new high.

Japan, South Korea, and now Singapore also remind the world that value is not extinct. It can and is being unlocked – deliberately by policy. The market also tells us that some of the future’s biggest winners may never appear in your index fund unless you decide, on purpose, to go and meet them. Don’t fight the market.

The investors who do best from here will not be the ones who correctly predict whether AI takes over or geopolitics derails it. They will be the ones who own a thoughtfully diversified slice of the world’s most profitable businesses – public and private, American and Asian – in proportions that match the goals they actually have.

The writer is co-founder and group chief investment officer at Endowus, Asia’s leading digital wealth platform with over S$15 billion in client assets across public, private markets and pension (Central Provident Fund and Supplementary Retirement Scheme)