The Truth about Singapore’s Volatile Share Market

We’re just past the halfway mark for 2014 and the Straits Times Index (SGX: ^STI) has so far shown a yawn-inducing gain of just 4% from 3,167 points at the end of 2013 to 3,293 points as of 12 June 2014.

But, what’s interesting is how calm our stock market has been in the year to date. If this trend holds up in the second part of 2014, the Straits Times Index would end up with the least volatile year in its history since 1993.

To have a better idea of what I mean, check out the chart below which plots the number of days in each calendar year in which the Straits Times Index has experienced a daily gain or loss of more than 1%.

Source: S&P Capital IQ; author’s calculations

Between 1993 and 2013, the Straits Times Index has had 77 “1%” days on average per year. So far in 2014, it has only had nine such days.

Although such data might make for interesting small talk amongst stock market aficionados (hey, stock market geeks like me have a social life too), what can it tell us about market returns going forward? Honestly, it can tell us very little.

Let’s take 1998 and 2005 as an example. The former year was especially volatile with more than 151 “1%” days; the Straits Times Index subsequently jumped by 78% in 1999. In 2005, the markets were calm with only 22 “1%” days. Yet, the market was also strong as it increased by 48% from the start of 2006 till the end of 2007.

What happened in 2000 would prove my point again. After seeing a volatile year in 2000 with 115 “1%” days, the Straits Times Index went on to lose 16% in value.

Putting all this together, it’s fair to say that how calm or wild the share market is tells us very little about its future movements. Keep that in mind the next time you’re overly worried about how eerily calm or chaotic the market is.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.