STI Hits 17-Year High, What's Next?

The November market statistics released by SGX show that the Straits Times Index (STI) rose 5.1% month-on-month to 3739.29, achieving a new 17-year high over three consecutive days.

Notably, Asian stock markets have experienced significant volatility since Trump's election victory, with indices like Hong Kong's Hang Seng, South Korea's KOSPI, and the Philippine Stock Exchange all declining since November 5th. In contrast, the STI reached a 17-year peak.

Historically, the STI reached an all time high of 3906.16 in October of 2007. Analysts say November's strong Singapore stock market shows investors seeking stability in SGX-listed stocks amid uncertainty with Trump's policies.

Belle Chang, Senior Manager of the Global Investment Research Team at FTSE Russell, commented:

The STI's performance benefited from the market's high dividend yield and defensive characteristics, as well as the strong performance of banks in a high-interest rate environment. Financials and real estate play significant roles in the STI, comprising 53% and 17% respectively as of September 2024.

Meanwhile, sectors like telecommunications and utilities, although smaller in weight, have also benefited from the artificial intelligence cycle since 2022. As of October 2024, the STI leads with a 4.9% dividend yield, the highest in the Asia-Pacific region.

Additionally, the growth has been driven by the robust performance of banks and other financial institutions, especially during the recent rate hike cycle. Financials, particularly banks, tend to outperform other industries in a high-interest rate environment, maintaining a high net interest margin.

Some analysts believe that the strong performance of the Singapore stock market in November indicates that, against the backdrop of uncertainty in Trump's policies, some investors are shifting their focus to stocks listed on the SGX for more stability. Below is a list of STI-related stocks (sorted by 20-day ranking):

A December 2 report from Macquarie Capital forecasts that the STI will surpass the historical intra-day high of 3906.16 points set during the global financial crisis in October 2007, and could reach 4000 points next year. The report states: "The Singapore stock market demonstrated its value as a volatility hedge during the US elections.

"IG market strategist Ye Junrong notes that despite mixed regional stock market performances, local stocks remain robust, benefiting from reduced expectations of a Fed rate cut and attractive dividend yields, with banking stocks continuing to perform strongly. He anticipates that the STI could soon break the historical high of about 3900 points set in October 2007, indicating a significant shift in the sentiment of the Singapore stock market.

Morgan Stanley analysts, in a report following Trump's election victory, commented: "Policy changes by the new US Republican administration could have far-reaching effects. As the new policies and their potential impacts remain unclear, investors might adjust their stock allocations by 2025, turning to safe havens like Singapore."

FSMOne research analyst Pan Zhechuan suggests that while the STI's recent approach to historical highs might trigger some profit-taking, the market could regain upward momentum by 2025. He believes that Singapore's strong labor market and the manufacturing sector, benefiting from continued growth in the semiconductor industry, will keep the economy robust. Additionally, due to the solid performance and dividend-paying capabilities of banking stocks, they remain attractive.

Source: SGX, Business Times, LIANHE ZAOBAO, moomoo