Posted on 09 Dec 2020
I'm sure there are many people who will beg to differ that STI is good and that's another conversation on its own. But do you think that being just a local investor is myopic?
Dora Seow, Country Head, Singapore at Franklin Templeton
Posted on 09 Dec 2020
Not at all. Everyone is entitled to have their own investment view and yours might very well be the right one. What matters more is to have a good understanding of what one is about to invest in and if one has studied and believes the STI has good potential, by all means invest in it but don't put all your eggs in one basket for any types of investment.
11 Dec 2020
Thank You! This is so helpful 👍
Personally, I don't invest in the STI for a few reasons, let me list them out and see if you agree or disagree with me. There are no right or wrong answers, just perhaps a sharing from another perspective:
STI is strongly lacking in tech options
Tech is a rapidly growing sector, especially with developments in so many subsectors of tech. From cloud computing to artificial intelligence to semiconductors to blockchain, tech is a fast growing space and in my honest opinion, we’re just getting started. With the STI not consisting of any tech options, this will reduce the ability for the STI to capitalise on the growth of tech space in the decade to come.
STI is overweight on Financials
In the STI, we can see that the bulk of the companies fall into the Financials sector. This includes the banks as well as REITs that comprise the STI. The performance of financials are heavily affected by macroeconomic factors such as interest rates, monetary policy and tax policies. This concentration causes the STI to be much more susceptible to sector based shocks.
STI is not fully representative of Singapore's economy
A lot of Singaporeans invest in the STI because they believe that Singpaore will do well in the years to come. However, the STI is not representative of the Singapore economy because of this concentration. The STI’s combined market capitalisation is $288 billion while the entire Singapore Stock Exchange (i.e. all the listed companies on the SGX) are valued at $733 billion. This means that the STI only covers about 39.29% of the market capitalisation of all the companies on the SGX. Compared to the S&P 500, which represents around 87.18% of the entire US stock market’s market capitalisation. As such, investing into the STI poses a concentration risk even within the Singapore market.
STI is focused on Dividends
While this itself is not a bad thing, the focus on dividends further shows a lack in growth opportunities for the companies in the STI. Dividends are usually paid out to shareholders because the management cannot find a better place to use the money that the company has on hand. Hence, the high dividend yields of the STI is indicative of lacking growth opportunities for the STI's big players.
All of that said and done, I think it is ok to still invest in the STI (at the right time), but it might not be a good choice to not even consider diversifying into other economies through say, global index ETFs such as IWDA or S&P 500 ETFs such as CSPX.
Not at all. We just have to fight the home country bias. If everything you know is about STI compani...
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