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Is Singapore’s Stock Market Really a Lousy Place for Investors?

Credit: Ethan Lofton

“Why are a lot of great companies in Singapore facing falling share prices despite having great financials, solid earnings growth, and positive corporate news?”

The question above, while not a direct quote, aptly sums up the feelings of some members of an Internet stock market forum which I visit occasionally.

Posts like that seem to imply an underlying dissatisfaction with the state of Singapore’s stock market – that there are no stocks worth holding for the long-term; that even the investing principle that growing businesses should have matching share price returns don’t work here.

I have no idea how long these grumblings have been going on for. But I have a strong feeling that such laments are wrong.

When I come across any possible misconceptions about Singapore’s stock market, I’m spurred on to investigate and correct them (if necessary) because misconceptions about investing can be harmful to an individual’s finances.

So, I sought to find the following: What’s the number of shares that have at least doubled in price since 10 October 2007? Of those that doubled, how many actually saw their earnings grow? Further, I wanted to see the number of shares which had at least doubled their earnings since 10 October 2007 but had seen their share prices fall.

Here’re some reasons for some of the figures and dates I’m using:

  1. The 10 October 2007 date is meaningful because that’s the day Singapore’s market barometer, the Straits Times Index (SGX: ^STI), hit an all-time high of 3,906 points. It’s been more than seven years since, but the index is still 12% lower today.
  2. Shares that have at least doubled since 10 October 2007 would thus be great market-beaters. A 100% gain since then would also equate to a compounded annualised growth rate of 10%; that’s a comfortable margin over the 8.44% in annualised total returns that the Straits Times Index tracker, the SPDR STI ETF (SGX: ES3), has delivered since its inception in April 2002.

I had used S&P Capital IQ for my study but before I reveal the findings, here’re some caveats about my data set:

  1. I had looked only at companies which have Singapore’s stock market as their primary listing.
  2. I only have data for companies which are still listed as of today, meaning to say I have nothing on firms which have already been delisted for one reason or another.

With these caveats, I can’t claim my data-set to be the most robust one you’d find (there might even be some minor inaccuracies here and there), but they’re good enough for a directional read for what I’m aiming to discover.

Coming back to the results, as of today, there are 503 companies in Singapore’s stock market that had been listed since 10 October 2007. Of those, 28 have enjoyed share price gains of at least 100%. The group of 28, in turn, had only three shares which had seen their earnings decline.

The table below lists all the 28 shares which include firms like Raffles Medical Group Ltd (SGX: R01), and Vicom Limited (SGX: V01).

Table for market-beaters

Source: S&P Capital IQ

Stock market data is necessarily noisy such that there’d always be exceptions to the rule. But you can still discern a strong correlation between a share’s earnings growth since 10 October 2007 and its subsequent share price return over the same duration (there is of course a kink to this relationship; more on that later).

You might also be interested to note that both Raffles Medical and Vicom have had a track record of solid business fundamentals stretching back to at least 2003 (you can check out Vicom’s record here and Raffles Medical’s here), suggesting that companies with great businesses do get rewarded by the market with a higher share price over time.

Now let’s move on to the shares that have at least doubled their earnings since 10 October 2007 but yet had seen their share prices fall. There are 54 of them in this group and they include the blue chips like Olam International Ltd (SGX: O32) and Wilmar International Limited (SGX: F34).

Again, I have to emphasise that stock market data is necessarily messy, but the experience of Olam and Wilmar can still be instructive examples on why growing businesses can still have lousy share price returns.

Table for market-losers

Source: S&P Capital IQ

With the two companies having carried very high price-to-earnings (PE) ratios of 50 and 48 respectively back in 10 October 2007, even massive jumps in their earnings couldn’t save their share prices. This is the “kink” I mentioned earlier – investors can’t overpay for a company’s business growth!

So, the experience of the 54 shares with growing earnings but falling prices may not be an indictment of the lousy state of Singapore’s stock market – it may be a sign that investors had overpaid for those companies in the first place.

A Fool’s take

With 28 shares having more than doubled in price since late 2007 mostly as a result of having growing businesses, I think that there are still companies worth holding on for the long-term.

Also, I think the principle that growing businesses will eventually result in a rising share price is still healthy and alive in Singapore. That’s provided of course, that these businesses are not overpriced to begin with.

For more investing analyses and important updates about the stock market, sign up to The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth in the years ahead.

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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 owns shares in Raffles Medical Group, Vicom, Sarine Technologies, Super Group, and Kingsmen Creatives.