How Did Singapore Investors Protect Themselves From Brexit Uncertainties?

The International Monetary Fund (IMF) had warned in May 2016 that the United Kingdom’s exit from the European Union (Brexit) would cause a housing and stock market meltdown in the country. Christine Lagarde, the IMF’s managing director, even had the following to say:

“We have looked at all the scenarios. We have done our homework and we haven’t found anything positive to say about a Brexit vote,”

Such statements by financial policy makers highlight the possibility that stock market investors around the world were grappling with uncertainty in the lead-up to the UK’s vote on 23 June to leave or remain in the EU. (Of course, we now know that the people of UK had decided to leave the EU.)

Three most active ETFs

So how did investors in Singapore cope with Brexit-related uncertainty in May? An interesting market update prepared by Singapore’s bourse operator in late May on the 10 most actively-traded ETFs (exchange-traded funds) contained some clues.

The report mentioned that the three ETFs with the highest month-to-date turnover in Singapore were:

  1. SPDR Gold Shares ETF (SGX: O87) with turnover of S$43 million
  2. SPDR STI ETF (SGX: ES3) with S$26 million
  3. ABF Singapore Bond Index ETF (SGX: A35) with S$17 million

I have a few observations from the stats above.

First, the gold ETF coming in at first place could be a sign that investors were finding safe places for their capital in May. A recent article from the Wall Street Journal mentioned that “[i]nvestors often view gold as a haven during times of turmoil.” The SPDR Gold Shares ETF is an ETF that aims to reflect the price of gold.

Second, the SPDR STI ETF’s popularity is perhaps a sign that investors in Singapore had taken comfort amongst the blue chips. The term blue chip in Singapore is often used to refer to the 30 companies that make up Singapore’s stock market barometer, the Straits Times Index (SGX: ^STI); the SPDR STI ETF tracks the fundamentals of the Straits Times Index.

Third, investors may have been really worried about Brexit. The ABF Singapore Bond Index ETF invests mainly in bonds issued by the Singapore government and other institutions that are linked to it, such as the Housing Development Board and the Land Transport Authority.

I say that investors may have been really worried because of the following chart:

ABF Singapore Bond Index Fund chart
Source: Nikko Asset Management

The chart shows the ABF Singapore Bond Index Fund’s historical performance from August 2005 to July 2015. It also plots the returns of global stock markets, as represented by the MSCI AC World Index.

As you can see, the ABF Singapore Bond Index Fund has historically delivered much steadier returns as compared to stocks. Investors were perhaps expecting the fund to deliver the same sort of steady performance even if the financial markets would be rocked by Brexit.

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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 Ong Kai Kiat owns units in the SPDR STI ETF.