Navigating the Singapore Equity Market for Long-Term Growth

Singapore's equity market has been a magnet for investors seeking long-term growth, with its unique blend of stability and potential for high returns. The market has a total market capitalization of over $1 trillion, making it one of the largest in Southeast Asia.

The Singapore Exchange (SGX) is the primary stock exchange in Singapore, and it has a wide range of listed companies across various sectors. With over 750 listed companies, investors have a diverse pool of options to choose from.

Singapore's economy is driven by a strong financial sector, a highly developed infrastructure, and a business-friendly environment, making it an attractive destination for foreign investors. The country's strategic location at the crossroads of Asia also makes it an ideal hub for trade and commerce.

The Singapore equity market has shown impressive performance over the years. The predicted return for the next eight years, based on the current TMC / GDP ratio reverting to its 20-year mean, is expected to be around 212.16%.

This prediction is based on a calculation that takes into account the dividend yield, business growth, and other factors. We can see that the predicted return is closely aligned with the actual return of the Singapore stock market over the past eight years.

Investors can expect a significant return on their investments if the market trends continue. The actual return line, which is based on the Straits Times Index, has been closely parallel to the predicted return lines.

The Modified Predicted Return line, which takes into account the TMC / (GDP + Total Assets of Central Bank) ratio, is also a useful indicator of market performance. This line suggests that the predicted return for the next eight years could be around 109.68%.

This lower predicted return may seem less attractive, but it's essential to consider the actual market performance over the past eight years. The actual return has been closely aligned with the predicted return lines, indicating that the market trends are consistent with the calculations.

Investing in the Singapore equity market can be a lucrative option, especially for those looking to diversify their portfolios.

Singapore's strong economy and business-friendly environment make it an attractive destination for investors. The country's GDP growth rate has consistently been above 3% in recent years.

To succeed in the Singapore equity market, it's essential to have a well-diversified portfolio that includes a mix of growth and income stocks. This can help mitigate risks and ensure long-term returns.

The Singapore Exchange (SGX) is home to over 750 listed companies, offering a wide range of investment opportunities. Many of these companies are household names, such as DBS Group and Singapore Airlines.

Investors can also consider investing in Singapore's exchange-traded funds (ETFs), which offer a convenient way to gain exposure to the local market.

A conductive regulatory environment is crucial for Singapore's equity market to attract the most exciting companies and investors from around the globe. This is because the US capital markets' success is also anchored in their ability to attract global companies and investors.

Singapore needs to enhance its regulatory framework to accommodate more innovative company structures and fundraising models. This is evident in the failure of special purpose acquisition companies and dual-class shares to gain traction.

Creating a new board with rules tailored for high-growth tech companies, akin to Nasdaq in the US, could allow for more flexible listing criteria around financial pre-requisites and governance. This could help Singapore's position at the forefront of fintech innovation.

Allowing crypto and blockchain companies to list, with appropriate oversight, could also strengthen Singapore's position in fintech innovation. Regulators should act decisively against investor misconduct such as naked short-selling.

Introducing corporate governance ratings for small- and mid-cap companies could boost investor trust and participation. A more facilitative approach towards bona fide risk-taking is also suggested.

Singapore's equity market can benefit from increased investor participation.

To boost retail investor education and participation, expanding financial literacy programmes and investment awareness campaigns is crucial.

Allowing Central Provident Fund investment in a wider range of locally listed securities and exchange-traded funds can encourage more active participation.

This approach has been successful in other countries, like Japan, where the Nippon Individual Savings Account is a government tax-free stock investment programme for individuals.

A tax rebate for Singaporeans might help channel more household savings into the stock market.

The Singapore equity market has undergone significant changes since the inclusion of foreign listings. Including foreign listings has aided diversification, with the Global Industry Classification Standard (GICS) communication-services and industrials sectors' share in the index expanding.

The addition of foreign listings has also led to a greater contribution from emerging markets ex China, as revenue from the Pacific region fell. This shift in composition has resulted in a more diversified index.

SiMSCI, the MSCI Singapore Index, has exhibited positive active exposures to growth and volatility, as well as negative active exposure to value, since the inclusion of foreign listings. This is in contrast to the simulated Singapore Free ex-foreign-listings index.

Managing Exposure is crucial for investors seeking to diversify their portfolios. Exposure to growth stocks can significantly impact performance, as seen in SiMSCI's underperformance compared to the simulated index with foreign listings starting in 2019.

Institutional investors may use futures linked to SiMSCI to manage their Singapore equity exposure, with notional volumes averaging USD 1 to 1.4 billion per day since the fourth quarter of 2020.

These futures can be used to express an asset-allocation decision, make a tactical adjustment, or equitize cash, providing a flexible tool for investors to manage their exposure.

The inclusion of foreign listings in SImSCI has significantly broadened its sector and economic exposures. This is evident in the increased share of the Global Industry Classification Standard (GICS) communication-services and industrials sectors in the index.

The revenue contribution from the Pacific region has also decreased in favor of a greater contribution from emerging markets ex China. This shift in composition is a direct result of the foreign listings added to the index.

SImSCI now exhibits positive active exposures to growth and volatility, and negative active exposure to value, compared to a simulated Singapore Free ex-foreign-listings index. This indicates a more diversified risk profile for investors.

The inclusion of foreign listings has also led to a higher exposure to the transformative-technologies theme in SImSCI. This is a significant shift, as the index now has a more prominent presence in this sector.

The foreign listings added to the index have also improved its liquidity, with an annualized traded-value ratio (ATVR) of 98 as of September 30, 2023. This is a notable improvement from the simulated index ex foreign listings, which had an ATVR of 63.