Has The Singapore Market Been Badly Hit By A Market Sell-off?

I normally start my day with a with my daily dose of the Wall Street Journal. One headline in particular caught my attention this morning, “Emerging-markets selloff continues to rattle Asia: Singapore and Malaysia are worst hit”. I was surprised with the headline as I didn’t realise that Singapore was so badly hit by the market sell-off. Most of the news over the weekend were about the crashing Russian Ruble and global oil prices. With that headline in mind, I set out to investigate if the Singapore Market, the Straits Times Index (SGX: ^STI) in particular has been badly hurt by the sell-off.

A Matter Of Perception

After digging a little deeper, I realise that whether the market is crashing or doing great depends on one’s perception. Let me explain more.

Sure, the market has fallen from a peak of 3,350 points to the current 3,206 points in December. That is a 4.7% drop in less than a month. However, the Index has returned 1.5% year-to-date excluding dividends. For the last 12 months, the STI has returned 5.3% excluding dividends, o that hardly seem like anything to complain about given the current low interest-rate environment.

Are The Companies In The STI Really Affected?

capiqSource: Capital IQ

The deeper question we might want to ask is, “Will the current drop in oil price and other foreign currencies affect the 30 companies in the STI?”

From the diagram above, we can see that the index is mainly represented by financial and properties firms. The background colours of each company represents the share price change for the past year; green for positive and red for negative. We can see that companies that are operating in the oil and gas industry such as Keppel Corporation Limited (SGX: BN4) and Sembcorp Marine Ltd (SGX: S51) have a relatively small weighting on the index. For most of the other businesses, it seems a low oil price might actually be advantageous to them as their operating cost might see some reduction.

Foolish Summary

It seems like the market is too caught up with the sudden drop in oil prices and asset prices that some might fail to understand how this affects the different businesses that comprise the index. If that is the case, could it be that the market might have over-reacted to the negative news without considering the true fundamentals of each business? I think it is time for us to look beyond the falling share prices and truly think about what it means for the companies in 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 contributor Stanley Lim owns Keppel Corporation