6 Things You Have To Know About Singapore’s Stock Market

It’s been two-and-a-half years since I’ve started writing about investing for The Motley Fool Singapore. But, I can still vividly remember the horror I felt when I first started the gig and realised that there was (and still is!) a huge vacuum when it comes to useful historical information about Singapore’s stock market.

So, I’ve spent the past two-and-a-half years steadily collecting and dissecting such data about Singapore’s stock market based on my own number crunching as well as research I’ve come across.

After having all these information spread across multiple articles over time, I thought it’d be useful to have all these collated into one piece – the article you’re reading now. It will be a work in progress, something which I’d update whenever I come across new information.

But before we get our hands dirty, here’s something important to note: The past should never be used as a fool-proof guide for what can happen in the future and that’s especially so in investing. Warren Buffett once said that “if past history was all there was to the game, the richest people would be librarians.”

That said, there’re still lots of value in having an understanding of stock market history because it can give us context, context which can help us increase the odds of our success. With that, let’s get going!

1. There’s historically been no connection between the performances of Singapore’s stock market and our economy.

Singapore's annual GDP growth rate and the Straits Times Index's yearly return

Source: World Bank (for GDP figures); S&P Capital IQ (for Straits Times index)

The chart above, which stretches from 1993 to 2013, makes this clear. The changes in Singapore’s gross domestic product (GDP) in each year has no discernable relationship with what the Straits Times Index (SGX: ^STI) does.

2. Important historical valuation figures for the Straits Times Index that you must know.

According to data from research and books written by Teh Hooi Ling, here’re some very important valuation figures to know:

  • The Straits Times Index has an average price-to-earnings (PE) ratio of 16.9 for the 37 year period stretching from 1973 to 2010. Currently, the SPDR STI ETF (SGX: ES3) – an exchange-traded fund tracking the fundamentals of the Straits Times Index – has a PE of 14.
  • The index’s average Graham and Dodd PE ratio for the three-decade period from December 1985 to December 2014 is 20.8; the Graham and Dodd PE is obtained by dividing a stock’s current price by its average earnings per share figure over the past 10 years. The Straits Times Index had a Graham and Dodd PE of just 13.7 when it was around 3,300 points at the end of 2014.

Teh’s currently the head of research at the boutique investment firm Aggregate Asset Management.

3. The longer you stay invested in the Straits Times Index, the lower your odds of making losses.

If we measure the Straits Times Index’s returns at the start of every month from January 1988 to August 2013, here’s what happens for different holding periods:

  • For a one year holding period, an investor in the index would have made a loss 41% of the time.
  • For a ten year holding period, losses would have occurred only 19% of the time.
  • For a twenty year time horizon, there had historically been no losses.

4. The stock market has always been volatile.

Chart of Straits Times Index's volatility

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

The chart immediately above shows the number of days in each calendar year in which the Straits Times Index has gained or lost more than 1%. As you can see, volatility has always been present, though sometimes things do quieten down a little.

5. How volatile the market has been tells us nothing about its future returns.

Sticking with the 1%-day chart, it’s obvious that 1998 and 2000 were especially wild years while 2005 and 2013 were quiet. Here’s what the market did subsequently:

  • 1998 was wild – 1999 saw the Straits Times Index spike by 78%.
  • 2000 was very volatile – the Straits Times Index lost 16% in 2001.
  • 2005 was library-like – 2006 saw the benchmark jump 27%.
  • 2013 was again quiet – 2014 was a relatively “average” year with the Straits Times Index up by 8%.

As you can tell, how volatile stocks were yesterday gives us no information about what it’d do tomorrow.

6. The Straits Times Index has always suffered painful short-term declines on its way to making healthy long-term gains.

Maximum drawdown for Straits Times Index, 1993 - 2014

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

Ever wondered what’s the maximum peak-to-trough loss that the Straits Times Index has suffered in each year since 1993? You’d be able to get an answer from the chart above.

What you should take note of here are two things:

  • The Straits Times Index had gone through double-digit drawdowns most of the time. In other words, large short-term losses are very normal; it’s not an indication that something is broken with the system.
  • But despite having seen such painful declines so often, the Straits Times Index had still grown by 3.8% annually in price from 1993 to 2014; if we include gains from dividends, that return can be reasonably bumped up to around 6.8% per year.

This wraps up the list of important facts about Singapore’s stock market that you have to know. Is there anything else you’d like to find out? Or, is there some intriguing morsel of information you know about the market that isn’t widely discussed? Let me know in the comments section below!

Also, if you like what you’ve seen, there’s actually even more investing analyses and discussions about the stock market that can be found in the Motley Fool's free weekly investing newsletter Take Stock Singapore. This newsletter can teach you how to grow your wealth in the years ahead, so check it out here!

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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 company mentioned.