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Bear Market Alert: The Straits Times Index Falls Below The 3,000 Level

At the time of writing, Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), has fallen below 3,000 points.

The last time the index fell below this mark was in late 2015. But declines are better expressed in terms of percentages, rather than points. At its current level, the STI is down almost 18% from its highest point over the past year. If the index continues falling and breaches the 20% mark, we will have a bear market in our hands.

Putting It Into Context

A bear market sounds scary, but it shouldn’t be – that is, if we focus on the right things.

First of all, bear markets are quite common and are expected to happen from time to time. Between 1993 and 2016, a period of 24 years, the STI had fallen 20% or more (from peak-to-trough) in two years out of every five years, and recorded a decline of 30% or more in one out of every five years. The last 20% decline, as mentioned earlier, was in 2015.

The STI’s history with declines is summarised in the graph below:


Source: S&P Global Market Intelligence

Declines do hurt. If you are invested in the stock market, it’s not fun to see your portfolio in the red.

But it is exactly in times like these that we need to remind ourselves to focus on what matters the most: The business behind the tickers. A falling stock price does not mean that the underlying business is in trouble or doing badly.

For some companies, it’s quite the opposite. For instance, CapitaLand Mall Trust (SGX: C38U) reported this morning that its distribution per unit (DPU) for 2018’s third quarter had increased by 5% compared to a year ago. Likewise, Singapore Exchange Limited (SGX: S68) and Top Glove (SGX: BVA) have both posted healthy results over the past week.

A growing business with a falling stock price is a great recipe for tasty future returns if we are patient enough to buy and hold. For more tips on making the most of a stock market downturn, head here.

The Foolish Takeaway

In the days ahead, the news cycle will be searching for reasons on what happened to the stock market.

Rising interest rates from the US Federal Reserve might be blamed. US President Donald Trump’s trade war with China is likely to be brought up. Some might even try to link falling stock prices to the mid-term elections in the US. In my book, however, there are no real reasons for the stock market decline. We are better off spending less time on worrying, and more time reading up on the business behind the ticker.

A quote from Napoleon is particularly apt at this moment of time:

Likewise, if we can do the average and remain rational while the stock market suffers a bout of falling prices, we will be able to make better investing decisions. And if we can invest well, our future self will be thankful.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore has recommended shares of CapitaLand Mall Trust, Singapore Exchange Limited and Top Glove. Motley Fool Singapore writer Chin Hui Leong owns Singapore Exchange Limited and CapitaLand Mall Trust.