What Has Gone Wrong With The Singapore Market?

The Motley FoolHave you ever had the feeling that, maybe, you have been left out of something important? Have you ever felt that everyone is having a great time apart from you?

Personally, I quite like the idea of solitude. I am sometimes at my happiest when I am listening to Pink Floyd’s Dark Side of The Moon in a darkened room all by myself. As far as I am concerned, solitude is greatly underrated.

But not everyone is comfortable with isolation. And right now, our poor old Straits Times Index (SGX: ^STI) – if it was a person – is likely to feel a little left out in the cold.

The ultimate rave

It would appear that while many stock markets around the world are dancing at the ultimate rave party, our benchmark index is feeling about as loved as a Russian diplomat at a Ukrainian dinner party.

In case you haven’t already noticed, our benchmark index has not exactly been on fire. While many stock markets around the world have been flirting with all-time highs, our benchmark index has, in a word, not.

For instance, the US Dow Jones Industrial Average and the S&P 500 are currently hovering at gravity-defying levels. But that has not stopped the two indices from reaching ever higher levels.

So, what you may well ask has gone wrong with our benchmark index? Why has it been left on the sidelines?

Additionally, what are the chances that our Straits Times Index could ever see its all-time high of 3,865 points again? This was last reached on 9 October 2007, which now seems an eternity ago.

A little disappointed

Currently, the Straits Times Index, which stands at around 3,300 points, is roughly 15% below its all-time high. In other words, even by reinvesting dividends, an investor is still likely to feel a little disappointed.

But the performance of an entire index does not always tell the whole story. Since October 2007, companies such as Thai Beverage (SGX: Y92) and Genting Singapore (SGX: G13)  have soundly beaten the index. They have risen 129% and 90% respectively.

Unfortunately, though, companies such as Genting Singapore and Thai Beverage don’t pack much of a punch in terms of index points.

By virtue of their low market values, they have very little influence on a market-weighted index such as the STI. Together, the two companies account for less than a tenth of the total market capitalisation of the Straits Times Index.

Heavyweight laggards

By comparison, index heavyweights DBS Group (SGX: D05), SingTel (SGX: Z74) , Keppel Corporation (SGX: BN4) and CapitaLand  (SGX: C31)  carry considerably more sway. Unfortunately, their performance has been underwhelming.

DBS Group has lost nearly a quarter of its value and SingTel shares have fallen by 6%. Meanwhile, Keppel Corporation is down by nearly a fifth, while CapitaLand has shed almost 60% of its value since October 2007.

There are a few ways that we can look at the data. Firstly, the index has performed reasonably well despite the underperformance of the market heavyweights. Secondly, the index could yet make a comeback should the laggards recover.

But perhaps more importantly, it shows that it is possible to beat the market.

Over the last seven years, no fewer than 15 Straits Times Index constituents have beaten the market. In other words, one out of two STI companies has done better than the index.

Looking for grubs

As stock market investors we have a choice. We can, if we wish, invest in an index tracker that mimics the market. That should deliver returns which closely reflect the returns from the market.

Alternatively, we could invest in individual shares. It requires a bit more work to identify the right shares to buy. But the rewards could be worth the extra work.

That is something that we do at the Motley Fool. We spend our time looking for market-beating shares.

Peter Lynch once said: “Searching for companies is like looking for grubs under rocks: if you turn over 10 rocks you’ll likely find one grub; if you turn over 20 rocks you’ll find two.

In other words, the person who turns over the most rocks wins the game. Guess what? We love looking under rocks at the Motley because we want to help you invest better.

This article first appeared in Take Stock Singapore.

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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 Director David Kuo doesn’t own shares in any companies mentioned.