It seems only natural for Singaporeans to invest in the Singapore market due to familiarity and home-bias, and Singapore stocks are well-known for consistent dividend payouts which may seem attractive. However, your choice to over-concentrate your investments in the Singapore market can be a very costly mistake. Find out more in the infographics!
With Singapore's status as a major financial hub, why does the Singapore market have lower valuation and thin liquidity? This may seem shocking, but the MSCI Singapore Index has clearly underperformed the rest of the world over the last 5 years from 30 Jun 2012 to 30 Jun 2017. The local equity market has even produced an extended period of negative returns from Aug 2015 to Dec 2016! As a developed economy in Asia and an important Little Red Dot on the map, isn't that underperformance strange?
Below, we share our insights on the possible shortcomings of over-concentrating your investments in the Singapore's equity market, as well as the key reasons why investors should definitely consider diversifying globally!
Apart from government-linked companies (GLCs) who have an impetus to list in Singapore, good companies tend to first consider listing on the New York Stock Exchange (NYSE) and NASDAQ in the U.S., or the Stock Exchange of Hong Kong (SEHK) and Shanghai Stock Exchange (SSE) in Asia to achieve higher valuation for the company and for the deeper liquidity within these preferred exchanges.
Companies obtain almost 100% higher valuation in the U.S. vis-a-vis Singapore. However, it is harder for the smaller, less attractive companies to satisfy the stringent listing requirements in the U.S., Hong Kong or Shanghai, hence they move on to list in Singapore. This is with the exceptions of Singapore-affiliated GLCs and companies.
You should definitely look towards investing in markets with more attractive companies as well as deeper liquidity, such as the U.S., Europe, Shanghai and Hong Kong. By gaining exposure in these major markets, you can capitalize on the growth in other geographical regions, which will provide you with better returns as compared to the Singapore market. At the same time, risk and return come hand-in-hand, so stay tuned for our next post on managing your investment risks!
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