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Singapore’s Eerily Calm Share Market – We’re Not Alone

Three weeks ago, I wrote an article titled “The Truth about Singapore’s Volatile Share Market.” The article shared how eerily calm Singapore’s share market has been as measured by the number of days which saw the Straits Times Index (SGX: ^STI) rise or fall by more than 1%.

As of 12 June 2014, the index had seen only nine “1%” days since the start of the year. By way of comparison, the Straits Times Index has had 77 such days on average between 1993 and 2013. I’ve updated the numbers and as of yesterday (30 June 2014), there were still only nine “1%” days for 2014. So, Singapore’s share market has certainly not been volatile at all for the year.

Also, as it turns out, Singapore’s not alone in having a calm market. In the USA, market volatility is also really low as seen from this chart prepared by Goldman Sachs that’s shown on a Financial Times Alphaville finance blog. While the chart’s way of calculating volatility is very different from mine, the general thrust of the data is still the same – America’s share market, much like Singapore’s, has been really calm in 2014.

Is there any cause for worry or expectations of larger gains in the future because of the placid share market though? In the USA, past market volatility has not been able to tell investors much about future returns. As my American colleague Morgan Housel wrote: “Market volatility was high in the early 1930s, and it was one of the best times in history to buy. It was also high in the late 1990s, which was one of the worst. Markets were calm in the mid-1960s and subsequent returns were poor. They were also calm in the early 1990s, and subsequent returns were terrific.”

As for Singapore, in my article I referenced in the first paragraph here, I also detailed how past market volatility had almost no predictive uses for future returns. With the share market, it’s still best to focus on the value of a business in relation to its share price and invest accordingly.

Here’s something interesting though – even if a calm market today can’t tell us where the market will be in the future, it might be still useful for one purpose: Volatile markets tend to put market participants in a state of stress; if calm markets allow more people to sleep soundly at night, then it might still be a good thing after all.

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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.