Introduction To The Singapore Stock Exchange

The Singapore Stock Exchange is managed by the Singapore Exchange Limited (SGX:S68) (S68 7.42 -0.03 -0.40%), commonly known as the SGX. At the end of February 2017, there are about 750 stocks listed on the Singapore Exchange with a total market capitalization of about S$977 billion.

Although the Singapore stock market is much smaller than its peer in Hong Kong, it is still the largest stock exchange in the Southeast Asia region. Its benchmark index is known as the Straits Times Index (STI). It includes 30 constituent stocks such as:

Why Should You Invest On the SGX?

Singapore is home to many of the largest companies in Southeast Asia. According to the SPDR STI ETF (SGX:ES3) (ES3 2.91 0.00 0.00%), which tracks the performance of the STI Index, the fund has generated a yearly return of about 7.3% from April 2002 to March 2017. That is a respectable return given that Singapore annual fixed deposit rate is currently only around 1%.

If you are looking to invest in the Singapore market, here are some interesting facts you might want to know.

  1. The Singapore market is skewed towards the financial and the property sector.

Currently, the financial sector contributes about 34% in weighting on the STI. The real estate sector, including the REIT segment, weighed in about 19% of the market.

  1. Rise of the Real Estate Investment Trusts

The Singapore stock market has seen a rise in its real estate investment trusts sector in recent years. In the past, the sector is dominated by its large domestic REITs such as CapitaLand Mall Trust and Mapletree Commercial Trust (SGX: N2IU) (N2IU 1.54 -0.01 -0.65%). However, we are seeing more REITs with international assets choosing to list in Singapore as well. The most recent one includes the Frasers Logistic & Industrial Trust (SGX:BUOU) (BUOU 1.01 0.00 0.50%) and the Manulife US Real Estate Investment Trust (SGX: BTOU) (BTOU 0.89 0.00 0.00%). These two REITs have assets only in Australia and the USA respectively.

The sector also provides very attractive yield for income investors, with many of the REITs yielding about 4% to 7%.

Who Do Investors Need To Take Note Of?

Prior to the global finance crisis in 2008, SGX was able to attract a large number of China-based companies to list on its exchange. However, these companies, now commonly known as S-Chips have ended up creating a very bad reputation for the exchange. During the financial crisis, many of them started to show signs of bad corporate governance. Many investors who invested in these S-Chips ended up with huge losses as some of them were discovered to be fraudulent operations.

These S-Chip continues to be a huge part of the stock listed on the SGX as there are still hundreds of them listed on the exchange. Although the Singapore Exchange is trying hard to improve the corporate governance of those that are still listed, the trust with these companies was greatly damaged over the past decade.

On top of that, in 2013, SGX was hit by a huge penny stocks scandal, which wiped off billions of dollars for investors. Companies including Blumont Group (SGX: A33), Asiasons Capital (SGX: 5ET), and LionGold Corp (SGX: A78) saw their market capitalisation rising to the billions of dollars before crashing down more than 90%. (You can read the whole story here).

The incident has also spooked investors and has again left a bad reputation for the exchange. Fortunately, the case was investigated and the alleged mastermind behind the manipulation, John Soh Chee Wen, has been arrested.

The Takeaway

The Singapore stock exchange is a great place for income investors to shop for attractive investments. Its REIT market is growing and provides a wide range of international REITs for investors to choose from.

However, the stock market in Singapore has been associated with fraudulent Chinese-based companies and massive penny stock manipulation cases. Investors would need to be careful when selecting stocks for their portfolio.

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and do not in any way represent those of his employer and other related entities. 

Stanley Lim, CFA

Stanley Lim has spent the last decade in the investment industry. Over the course of his career, he has kick-started a few businesses, worked in the family office industry and most recently in the investment advisory industry. He has been a writer and analyst for The Motley Fool Singapore from 2013 to 2017. He has written close to 2000 articles online, on investment education and market analysis. He is the co-writer for the upcoming investment book: “Value Investing In Asia”, scheduled to be published late 2017. Stanley is currently the chief editor of Value Invest Asia.

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