Emerald Yau
It’s been a tumultuous year, with the equity market downturn seemingly reaching every corner of the globe. Developed markets have been particularly hard hit in 2022, with the FTSE Developed Index plummeting -17.8% year-to-date on a USD total return basis. However, a closer look at developed market country performance reveals that Singapore has risen above this year’s sea of red. With its defensive nature, the Straits Times Index—a highly recognized index for Singapore equities—has weathered the 2022 storm relatively unscathed, notching a 9.3% increase as end of end of 2022 in USD terms (or 8.4% in SGD terms).
Singapore stocks are treated as “safe haven” amidst the uncertain global outlook. Its macro conditions appear relatively robust. The International Monetary Fund issued a country report on Singapore on 20 July 2022, noting Singapore’s effective management of the pandemic, swift vaccination rollout and decisive policy support led to an impressive economic recovery. In 2021, Singapore’s GDP ranked No.1 in the Asia Pacific, with US$72,794 GDP per capita. According to the Ministry of Trade and Industry, Singapore’s 2022 Q2 GDP is estimated to rise 4.8% on a year-on-year basis, extending the 4.0% growth achieved in Q1.
Evolution of the Singapore market
Since its launch in 1966, Straits Times Index (STI) composition has evolved to reflect Singapore’s growing and developing economy. While the STI was initially launched as a solely industrial index, in 1998 the index expanded to include constituents beyond industrial companies.
In the past 50 years, Singapore has established itself as a leading global financial centre with more than 600 companies listed on the Singapore Stock Exchange. Among the 600 listed companies, most of them come from the sector of Financials, Real Estate and Consumer. In addition, Singapore owns the second largest real estate investment trusts (REITs) market in Asia thanks to its established global REITs platform. While Singapore continues to explore and expand in the innovation frontiers such as technology and biomedical sciences, the largest companies in Singapore are currently dominated by banks and REITs.
Playing defense in volatile times
Today, the STI reflects Singapore’s transformation into one of Asia’s top financial hubs. Its largest three constituents are the top three banks in Singapore—and in total they comprise 47% of the index. As such, industry composition for the STI is most heavily weighted in Financials, followed by Real Estate—reflecting the index’s increasing exposure to REITs over time.
ICB Industry Exposure (Dec 2008 to Dec 2022)
Source: FTSE Russell; as of December 30, 2022. Applied annual Industry Classification Benchmark (ICB) data from end Dec 2008 to end Dec 2022.
The prominence of value-oriented industries such as Financials and Real Estate comprising the STI makes for an index that’s defensive in nature. This can be a valuable characteristic during times of volatility.
The additional shield of dividend yield
Rising Financials and REIT exposure in the STI has not only contributed to the index’s defensive nature, but it’s also elevated its dividend profile. Since FTSE Russell started managing the STI in 2008, the index dividend yield has generally hovered around 3-4%. As shown, this level of yield is high relative to both STI’s peer countries and the broader global markets.
STI dividend yield has been mostly between 3-4%
Highest yield across various markets
| Market | Index | Dividend Yield (%) |
|---|---|---|
| Singapore | Straits Time Index | 4.14 |
| Dev APAC | FTSE Developed Asia Pacific | 3.21 |
| Emerging | FTSE Emerging | 3.64 |
| China (HK listed) | FTSE China 50 | 3.21 |
| APAC | FTSE Asia Pacific | 3.05 |
| Hong Kong | FTSE Hong Kong 100 | 2.80 |
| AxJ | FTSE Asia Pacific ex Japan, Australia and NZ | 2.90 |
| China A | FTSE China A50 | 2.80 |
| All-World | FTSE All-World | 2.39 |
Source: FTSE Russell; as of Dec 30, 2022. Past performance is no guarantee of future results. Please see the end for important legal disclosure.
Higher dividends can boost an index’s total return—acting as a cushion that can offer important protection in volatile markets.
Singapore: Rising above the sea of red
Armed with its defensive composition and elevated dividend yield profile, the STI has proven relatively resilient throughout the 2022 market turmoil. As shown, while the FTSE Developed Index has fared the worst year-to-date, FTSE Developed Asia Pacific Index performance has also suffered a double-digit decline. The FTSE ASEAN Index—comprised of stocks from the five original ASEAN leaders with Singapore’s weighting accounts for more than 30%—delivered a positive return of 2.5% in USD terms.
Year-to-date total return performance comparison in USD terms
Source: FTSE Russell; as of December 30, 2022. Past performance is no guarantee of future results. Please see the end for important legal discloure.
The STI has been in positive territory amid the 2022 market turbulence with 9.3% positive return in USD terms—perhaps a testament to its defensive qualities.
An index positioned to withstand turbulence
As one of the oldest indexes in the world, the Straits Times Index has been evolving for over 56 years to maintain an accurate reflection of the Singapore markets. While in 1966 the STI represented an industrial developing economy, today the index reflects the country’s rising prominence in Asia’s financial and REITs sectors. The result of this evolution has been an index generally comprised of defensive, higher dividend-paying constituents—and these qualities can help minimize losses in today’s volatile market environment.
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