Strength of Singapore Stocks Largely Depends on the US Equity Markets

The ASEAN 4 has been having an outstanding performance relative to the world. So as with ASEAN ‘developed’ economy Singapore.

From Bloomberg,

Singapore stocks have gained 13 percent in 2012 with volatility that is the lowest in Asia, luring the region’s biggest investors to a rally that trails only Denmark among developed nations.

The Singapore Straits Times Index (FSSTI) has risen 15 of the last 19 days while its 30-day implied volatility, a measure of risk derived from options prices, held below levels in Japan, Hong Kong, China, South Korea, India, Taiwan and Australia. Shares in the gauge yield 3.6 percent in dividends, compared with 3.2 percent for the MSCI Asia Pacific Index (MXAP), data compiled by Bloomberg show.

Nikko Asset Management Co. and Schroders Plc are finding bargains even after the Straits Times Index closed at its highest level of the year last week. Companies trade at 9.9 annual earnings, compared with 21 times for Denmark’s OMX Copenhagen 20 Index, the best-performing index among developed countries with a 21 percent gain. The MSCI Asia Pacific Index trades at 14 times profit, data compiled by Bloomberg show.

“Singapore equities are very, very cheap,” said Ng Soo Nam, Singapore-based chief investment officer at Nikko Asset Management, which oversees about $165 billion. “Valuations have been bashed down so much that the dividend yields are getting interesting even for Singapore banks, which are traditionally not dividend yield stocks.”

It has been true that Singapore, like her ASEAN ‘emerging’ contemporaries, has had a low beta relative to the world.

Chart from DBS Vickers.

A beta (based on CAPM) of less than 1 means that the security will be less volatile than the market (Investopedia.com)

But as caveat, past performance must not be read as future outcome as today’s conditions has been highly fluid and volatile which means correlations can shift in a finger’s snap.

As I recently pointed out, like the ASEAN-4, much of the strength of Singapore’s STI has been anchored on the US.

The bottom line is that the seemingly resilient stock markets of ASEAN, including Singapore, largely depends on the directions of the US counterparts.

All prices in the financial markets are relative: pricey issues may still become pricier, also cheap issues may become cheaper.