In 2024, the STI returned 24.3% including dividends. Year to date, it has gained another 10% excluding dividends, which may add 2%. In contrast, gains managed by the S&P are offset mainly by the declining US dollar.
Since Chew on This started in September 2021, this column has been accused of being overly biased for our local market. Our logic, based on STI’s low volatility, the strong Singapore dollar (SGD), strong dividends to compensate for opportunity cost, and relative undervaluation over the last three years, has paid off for the faithful.
Some brokers are now struggling to raise what they thought were their already bullish forecasts made at the start of the year, as they are now catching up with how investors are actually valuing the market. Maybank Securities, for example, is suggesting a bull case of 4,600.
Climbing up the market leader
So, what is driving this newfound optimism and this year’s momentum? It may be family office money being deployed here following moves by the market review group, or even our own institutional funds gradually withdrawing or rebalancing from the US to seek safe-haven SGD assets.
See also: Riding the S-curve, parsing the S-trades
It took the general public only after the release of Temasek’s annual report card to realise that it was DBS Group Holdings, which has crossed above US$100 billion in market value, and Singapore Telecommunications (Singtel), which added $30 billion in market cap, which drove Temasek’s record performance.
Singtel was one of our STI star picks at $2.30 last year when no one was looking. It has almost doubled to $4.20. In the world of smaller gardens and higher fences, it appears there is merit for us to allocate some of the $6 trillion capital parked here to support ourselves after all.
The announcement of Amundi’s STI unit trust fund looks set to catalyse retail unit trust flows into the index. Could they also be trying to get an allocation of the $5 billion from the Equity Market Development Programme with this national service? Already, market participants are reading into the cornerstones list and speculating which of these anchors that have helped kick off IPOs in Singapore this month, are also building their credentials to get part of the EQDP allocation, following the initial $1.1 billion handed to Avanda Investment Management, Fullerton Fund Management and JP Morgan Asset Management. There is an expectation and hope that more players active in the local ecosystem will also receive some allocation, given their knowledge, history, and long-term commitment.
See also: US stocks dip before Trump-Zelenskiy meeting, retail earnings
Thus far, the IPO buffet spread includes Mainboard’s Info-Tech Systems, NTT DC REIT, and China Medical System’s billion-dollar secondary listing, as well as Lum Chang Creations on Catalist.
That the secondary performance thus far has been mixed, including a very tough start to NTT DC REIT, is not surprising. The ecosystem needs the secondary market fire to be lit, especially since we still do not have a regular natural allocation of public and private pension money into our stock market, as the announced measures from the market review group appear one-off for now.
Still, while the animal spirits have carried STI to record highs, there are healthy signs that a host of mid- and small-cap stocks continue to spring to life. That there is value yet to be found outside of the STI is an understatement.
A recap of our small-cap “Seven Summits” stocks highlighted two weeks ago. Between July 10 and July 23, Valuetronics is up around 6.6%, Pan United Corp 8.4%, Beng Kuang Marine 8.7%, China Sunsine Chemical Holdings up 11.5%, Samudera Shipping 13.5%, Delfi up 17.1% and Nam Cheong 32.7%. Some of these are already extending double-digit runs before July. Even so, a few remain in the mid to high single-digit trailing P/E ranges, suggesting that value may still be discovered.
Although, as with all small-cap rallies, should the flash flood of liquidity evaporate, one could become a “long-term investor” unwittingly. So, fundamentals, including dividends, are key. Privatisations, when they happen, don’t always result in “fair” offers.
Rates and real assets
With rates trending lower, the search for inflation-beating yield has seen funds previously parked with T-bills flowing back into the market. Our thesis on real estate stocks with discounted net asset values and REITs with higher yields has started to reflate.
Besides DBS and Singtel, which did well, other STI stocks the likes of Hongkong Land, which this column highlighted two years back, has more than doubled from US$3; long forgotten mid-caps like another STI component UOL Group and its subsidiary Singapore Land Group have started seeing increased volume and price traded — albeit from a relatively low base. Even OUE and Far East Orchard have rallied by over 10% on top of the gains enjoyed by Banyan Tree, which has almost doubled since May, and Hotel Properties, which was flagged in this column only a couple of months ago. Amazingly, a number of these still trade at closer to half of their NAV.
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It is not entirely clear if they are also privatisation plays, as rumour mills suggest. However, the thesis of lowering rates makes private real estate deals more feasible for capital recycling and is gaining traction. For example, City Development’s sale of its stake in South Beach to joint venture partner IOI Properties Group was a catalyst for the stock of CDL to surpass $5 and exceed $6. Similarly, several REITs have recently announced the sale of assets above book value, or sponsors with deep pockets who may want to take advantage of this part of the cycle to privatise, such as Amara Holdings and Frasers Hospitality Trust.
Beware the elevator
The common adage, however, is that markets climb up a wall of worry slowly. When trouble happens, they have a nasty tendency to take the elevator down. April’s Liberation Day jitters saw even the steady-as-it-goes STI corrected 15% rapidly before bouncing back.
For nearly two weeks, from July 24, I will lose connectivity as I trek through Kyrgyzstan. With Trump’s latest tariff deadline of Aug 1 looming in the meantime, the question that arises is how to position a portfolio during a period of digital detox, being out of touch with news and markets.
A couple of days away is always helpful for us to recharge our batteries, and being forced to do nothing was, in hindsight, useful for me in avoiding extreme market volatility and panic in early April. Yes, I missed out on the big rebound trade, but I could sleep peacefully as the markets melted down first.
As promised in the last column, I will share how I am positioned for this upcoming sojourn. I have, through July, moved more and more into defensive positions and cash. There are numerous global geopolitical and economic risks, with a mercurial US President who could flip and flop in his deal-making approach.
Ironically, being (at times the only) Singapore market bull for close to four years through this column, and still long term positive for the market especially with all the market review initiatives rolling out, I recall what my colleague at the prop desk of a local broker taught me over 20 years ago: all good horses (stocks) must rest. Yes, I not only reduced my Western market exposure in May, as the STI reached new highs, I also sold off all my STI exchange-traded funds and found a sanctuary for my CPF funds at an interest rate higher than that of fixed deposits.
Being unaccustomed to holding cash and not invested in our local market, I naturally continue to be positioned in some select areas. I have kept the faith and added to the REIT portfolio, given lower rates. My other defensive positions offer a decent average dividend yield of 6%–7%, with potential gains of 10%–15% if we revisit last November’s rally of the S-REITs index, when markets were running ahead of the US Federal Reserve. I prefer to wait for the discount to narrow and leave others to risk the next 10% of the STI and some of its components, which have rallied by up to 70%.
I have parked some in special situations. For instance, the 94 cents per share offer for Grand Venture Technology was somewhat underwhelming for the market, which had previously traded the stock at $1. Since the announcement with the stock supported at 92 cents, it almost appears as a funded call option, provided the deal is completed. Assuming it takes six months, it could yield nearly 4% annualised. Little known, however, in the announced offer, is a clause that gives the key shareholders who have already given their undertakings the right to walk away if a competing offer above $1.035 is made. Of course, any possible higher offer is speculative, but one could earn a higher interest rate than a fixed deposit and possibly receive a bonus.
Ultimately, my hunt for smaller-cap names has led me to an interesting sector: construction. With major projects, including the airport’s Terminal 5, Marina Bay Sands’ new tower, and building and renewal in full swing following the pandemic, plus possible fiscal spending to support any tariff-induced economic wobble to come, it was interesting to see some already privatised, including Lian Beng, in August 2023. To my surprise, even with new contracts announced, several remaining listed contractors, including Huationg Global, Soilbuild Construction Group and Wee Hur, are trading in mid-to-high single-digit P/Es. They may not have factored future earnings, as analysts do not presently cover them. Their time may come after I return from my timeout.
Chew Sutat retired from the Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange. He was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore
