As stagflation concerns mar the outlook for the world’s biggest developed markets, shares in a small Asian city state have held up surprisingly well this year.
Singapore’s Straits Times Index has eked out gains of about 1% in 2022, the only developed-market gauge in positive territory in dollar terms. In contrast, a world gauge is down 22% in what could be its worst year since the 2008 global financial crisis.
A rising interest-rate environment, a shift towards cheaper valuations and economic tailwinds generated by Singapore’s Covid-19 pandemic recovery have helped underpin the benchmark, where banks account for about half of the weighting.
“Singapore’s performance correlates with the outperformance of value over growth, which is expected to continue as long as the US Federal Reserve (Fed) remains committed to bringing down inflation to the long-term target rate,” said Alan Richardson, a portfolio manager at Samsung Asset Management (HK) Ltd.
The benchmark’s lack of exposure to tech shares has helped as well, contrasting its performance with the US and Europe, economies that are struggling with issues ranging from inflation and energy shortages to supply-chain disruptions.
“Until the Fed slows or pivots, developed markets probably won’t catch up with Singapore", said Daniel Dubrovsky, a strategist at DailyFX.
The market is focused on the Fed, even after Australia’s smaller-than-expected rate hike this week, and “there is still room for the labour market to absorb a near-term slowdown” in the US, he added.
Forward earnings estimates for Singapore stocks are up about 16% year-to-date, about four times the increase seen for members in the global gauge.
Still, Singapore’s trade-dependent economy isn’t without risk — factory activity contracted in September for the first time since June 2020, while retail sales have showed signs of slowing.
Auto distributor Jardine Cycle & Carriage Ltd is the top performer on the Straits Times Index this year, up 72%, followed by utilities firm Sembcorp Industries Ltd’s 53% advance.
Shares in DBS Group Holdings Ltd, the biggest stock on the gauge, are up 2.3%.