What makes S'pore one of the most resilient markets in region

August 9, 2008
What makes S'pore one of the most resilient markets in region
By R SIVANITHY

ALMOST exactly 10 years ago in September/October 1998, the Singapore
stock market suffered its worst-ever beating in the wake of a region-
wide sell-off that subsequently entered the history books as the
notorious Asian financial crisis.

That crash, which took the Straits Times Index down to an all-time
low of 800, capped several months of selling that had started with
the devaluation of the Thai baht in July 1997. It also coincided with
the collapse of Clob International, after the Malaysian government
declared Clob an illegal market for Malaysian shares.

During that darkest of periods in local market history, the Straits
Times Index lost about 58 per cent between July 1997 and October
1998, a loss many observers at the time felt was unfair given
Singapore's 'defensive' reputation, which held that Singapore
companies were financially stronger and better governed than others
in the region.

But of course, when investors are determined to sell there is no
stopping them. So Singapore stocks took a beating in tandem with all
others in the region. A decade later, however,
Singapore's 'defensive' reputation looks finally to have come good.
From its all-time high of 3,831 reached last October to its
intervening low of 2,792 in March, the STI has only lost 27 per cent -
less than half the fall 10 years ago. In comparison, Hong Kong's
Hang Seng Index has lost the equivalent of 38 per cent.

Also, as at Aug 4, the STI's year-to-date drop was 18 per cent, less
than most markets in the region - China, for example, is down more
than 50 per cent despite all the hype surrounding the Olympics - and
leaving Singapore among the more resilient markets this year.

Brokers have been quick to latch on to this theme of relative
outperformance. In a Singapore Strategy Outlook report at the end of
June, for instance, Citi Investment Research described the local
market as a 'Beacon in a Sea of Troubles', saying that 'as many of
Asia's economies come unglued due to the current oil shock, Singapore
looks surprisingly resilient'.

It added: 'Singapore's relative resilience comes from low oil
intensity, large fiscal and current account surpluses and a lack of
fuel subsidies.'

DBS Bank's Q3 Regional Equity Strategy said that although investors
are expected to focus on rising inflation and interest rates,
Singapore will emerge more defensive than other regional markets,
backed by strong reserves and lower policy risks in managing these
challenges.

'While high inflation could slow domestic spending, Singapore's
strong reserves and fiscal balance will provide the safety net to
pump prime the economy,' said DBS.

Apart from a strong economy, one factor behind the market's
resilience has been increased dividend payouts. According to
Bloomberg's financial analysis, the STI at 2,850 offers a dividend
yield of 4.2 per cent, a figure that compares very favourably with
Hong Kong's 3.2 per cent and is by itself a decent enough figure in a
world where low yields prevail.

Contrast this to the practice 10 years ago, when companies preferred
to plough back profits to expand their businesses instead of pay
dividends, a practice that probably led to Singapore being classified
as an 'emerging market' with all others in the region.

Another big factor has been the relative strength of the banks,
thanks to their solid capital bases and diversified income streams.
Recent preference share issues by DBS and OCBC, for example, have
brought their tier-1 capital adequacy ratios to an estimated 10 and
14 per cent respectively, providing strong buffers against future
headwinds. As a result, OCBC has actually risen marginally for the
year to date, while DBS and UOB's losses are only 10 and 2 per cent
respectively.

Last but not least, the efforts of the government and regulatory
authorities to install a governance framework that emphasises the
caveat emptor maxim yet provides sufficient safeguards to instil
investor confidence.

The Singapore Exchange is now viewed as a preferred listing
destination for many foreign firms from India to Korea, and its
reputation as one of the best-run and best-governed exchanges in the
region has helped immeasurably in ensuring the Singapore market's
resilience during these testing times.