What is so fundamentally different from the STI compared to the S&P 500, such that it couldn't recover like how the US stock market did? Is it because of the composition of stocks in the STI?
Comparing STI and S&P 500, the stark difference in the recent price movements could be attributed to the composition of stocks within the indexes. E.g. STI top few stocks are financials that isn't doing very well while the S&P has their FAANG + Microsoft which had a great year so far.
Or is it because we are experiencing a heavy capital outflow into the US markets which affects STI opportunity to have a similar run-up? Since more people are realising the opportunities across our borders.
A large reason that contributed to the sharp rebound of the S&P500 is because of the stimulus pumped in by the Fed which drove a large impetus on the US market. The COVID19 pandemic has highlighted the need for technology innovation as well, which explained the index that is heavily weighted on the technology side. The lack of tech heavyweights in the STI also contributed to the sluggishness in recovery as compared to the S&P500 which is heavily weighted on the technology aspect.
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The top holdings between the STI and S&P are fundamentally different companies. STI's top of holdings are banks, whereas S&P top holdings are all tech based.
There is a lot of near-term credit risks for banks, and with the absence of a huge investment banking segment for our local banks. Growth is certainly harder to come by if you compare with the S&P.
The money is currently flowing into the best growth assets, which has been US equities this period. STI has never been known for growth, as we have almost no innovative companies listing in the SGX. It's not so much about capital outflow from Singapore, it's which market has the best access to the best companies, which can in turn drive growth in this climate.
Hope I was able to shed some insight!
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