Singapore Exchange Limited (SGX: S68) or SGX for short, is the only stock exchange in Singapore. Over the last two months, the company’s stock price has fallen by about 8% to S$7.16 (at the time of writing). What may have caused this?
Reasons for a decline
There can be many reasons behind a stock’s price decline. But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related.
The former deals with how a stock’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the stock’s profits.
Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic, and so on? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.
The case with Singapore Exchange
In Singapore Exchange’s case, I believe that it was the latter that is in play. Here’s some key highlights from Singapore Exchange’s third quarter earnings update:
Source: Singapore Exchange’s earnings update
Overall, we can see that all metrics came in stronger on a year-on-year basis. In fact, its net profit hit a 10-year record high while its revenue was the highest since its listing in 2000. In all, it was a strong performance.
Yet, the firm’s share price was down by 8% in the past two months. By default, we can argue that investors have turned negative against the company during this period. But what might have contributed towards the negative sentiments? Here, your guess is as good as mine.
I think it might be due to the general negative sentiments in the market as a result of news floating in the media on trade wars. For example, US recently announced its tariff on S$50 billion China-made goods. It is expected that China will likely retaliate with its own tariffs on US goods. Another reason that might have contributed towards the decline in share price is the dispute between Singapore Exchange and India’s National Stock Exchange.
Benjamin Graham, the father of value investing once said:
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
In the short term, stock price can fluctuate with the market sentiments. In the long run, however, it is a company’s profitability that will drive its share price. As such, investors should focus on whether the Singapore Exchange will deliver higher profits over the longer term. The rest is just noise.
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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 Lawrence Nga doesn’t own shares in any companies mentioned. Motley Fool Singapore has a recommendation for Singapore Exchange Limited.