Singapore is small but mighty. Can the same be said about its stock market?
Singapore only became an independent nation in 1965. By any measure, it’s a young country. But it has established itself as a prominent global financial centre.
More than ever, it’s become a place that attracts both capital (a lot of it from China in recent years) and talent.
But do those capital flows translate to stock market gains for investors? It’s been a relatively staid performer over the past decade versus US stocks.
In 10 years, the Straits Times Index (the key benchmark that includes 30 of Singapore’s biggest stocks) has delivered a price return of around 5%. So the index is pretty much where it was in 2013.
That shouldn’t stop those of us living in Singapore (or abroad) from buying stocks listed here.
Here’s a quick breakdown of the Singapore stock market and what investors need to know.
Overview of Singapore stocks and the Straits Times Index
The Singapore stock market is normally associated with the large benchmark index – Straits Times Index (STI).
The STI has a history dating back to 1966, just after independence. In 1988, though, the STI was reborn into an index of the 30 largest Singapore-listed companies (by market capitalisation).
It’s a relatively small stock market in terms of the total market capitalisation of all the stocks listed on the Singapore Exchange (SGX).
What’s market cap you say? It’s basically the value of all the shares added up together.
So, if we take all the market caps of all the companies listed on Singapore’s main stock exchange, it adds up to around S$640 billion (US$481 billion).
Compare that to Hong Kong’s stock market of HK$36.8 trillion (US$4.7 trillion) and the US stock exchanges – which total US$40 trillion – and you can see Singapore’s market is relatively small.
Singapore as Dividend Stock Haven
But Singapore stocks have one huge thing going for it; dividends. It’s like free money.
The Singapore stock market has a 0% dividend withholding tax. Yep, so you get 100% of dividends declared from Singapore’s listed companies.
As for Singapore real estate investment trusts (REITs), if you’re a resident in Singapore there’s no dividend withholding tax on their dividends.
However, if you’re a foreign resident, you’ll be taxed 10% on the dividends from Singapore REITs. Not ideal, I know.
But it’s a small price to pay for access to their global property portfolios as well as consistent dividends.
It’s no surprise, then, that Singapore’s stock market has become a place to “invest for yield”, which of course means buying dividend stocks.
In today’s investing environment, mature and cash-generating businesses are back in vogue. Making a profit is suddenly fashionable again.
So, Singapore stocks, therefore, offer investors a pretty reliable route for passive income generation from those lovely dividends we like to see.
For many professional fund managers who invest in the region, Singapore’s market is viewed as a broadly “safe” spot to park money in dividend-paying stocks when there’s a lot of volatility out there.
Growth stocks tend to be rarer in Singapore given the small size of the overall stock market.
Your typical high-growth (that make no money or like to burn cash) and tech stocks are normally found in the US or Hong Kong stock markets.
Singapore market sectors
In Singapore, it’s no surprise that the companies that are big have an outsized influence and dominate the benchmark STI.
Much of the stock market today in Singapore is made up of banks, REITs, telcos, and industrial firms.
Given these are the biggest companies in Singapore, they are all mature and slower growing (yawn). But sometimes boring is good.
On the flip side, they do provide reliable income from their dividends. For example, REITs are one of the most popular areas of the stock market for investors in Singapore.
By buying REITS, you’ll receive a regular payout from them in the form of “distributions” – which is basically REIT lingo for a dividend.
As with all other stock market indices, the Straits Times Index carries out a regular review of when to include a new company in the index, as well as which current company it will replace.
If you’re a stock, you want to be included in the index because you get those lovely “passive” flows of money from the likes of exchange-traded funds (ETFs) that are forced to buy your stock since they track an index.
What are the biggest Singapore stocks?
As just discussed, the biggest companies are Singapore banks. They tend to be highly cash-generative and sturdy businesses that also pay out reliable dividends.
After banks, you then have the largest telecommunications provider in Singapore, Singtel.
Again, the company has been a reliable dividend payer over the years but more recently has had to cut its dividend as earnings have faltered.
Generally, REITs have been preferred investments over the past decade or so versus property developers such as City Developments Limited (SGX: C09), also known as CDL.
That’s because property developers don’t have dividends that are attractive and their revenues and income are less predictable given they are mainly tied to the residential property market.
And, as many of us know, Singapore’s government likes to slap duties/taxes on private residential housing from time to time.
How to view Singapore stocks
Overall, investors should think about Singapore stocks exactly as you might view the country itself; reliable and stable.
Many of the largest stocks listed on the SGX pay out reliable dividends to shareholders. Some of these are on a quarterly basis (so every three months) but most are on a semi-annual basis (so twice a year).
If you like dividend stocks and stability then Singapore’s banks and REITs can form a key part of your passive income portfolio – no matter what your age.