Singapore stocks tumbled by the most among developed markets last month as investors pulled cash from Southeast Asia on concern about the future of global stimulus.
Singapore’s Straits Times Index, the benchmark gauge for the region’s biggest market, dropped 7.5 percent in the 10 days through Aug. 28, its longest losing streak since 2002. The gauge slumped 6 percent in August, the worst performance among the world’s developed equity markets. Jardine Cycle & Carriage Ltd., the largest shareholder of Indonesia’s PT Astra International, and commodities trader Olam International Ltd. led declines.
Stocks in Southeast Asia sank faster than global equities on signs regional economic growth is slowing and as Federal Reserve policy makers prepare to reduce U.S. bond buying that had prompted investors to buy riskier assets. Investors pulled $2.2 billion from Thailand, Indonesia and the Philippines in August, after plowing $6.8 billion into the markets in 2012, data compiled by Bloomberg show.
“Singapore is a barometer for Southeast Asia,” Wellian Wiranto, Singapore-based Asian investment strategist at Barclays Plc’s wealth-management unit, said in an interview on Aug. 28. “Choppiness elsewhere brings ripples here. Investors are probably concerned about the risk of contagion amid capital outflows from neighboring markets like Indonesia and the Philippines.”
The Straits Times Index has slumped 12 percent since Fed Chairman Ben S. Bernanke said May 22 the central bank may start tapering $85 billion in monthly U.S. bond purchases if the world’s biggest economy improves. The gauge rose as much as 0.8 percent today.
The city’s stock market benefited from loose monetary policy in the past few years as shares offered investors attractive dividend yields, said Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management Ltd., which manages about $57 billion.
Policy makers were “broadly comfortable” with Bernanke’s plan, minutes of their last meeting showed. The Fed will probably begin paring bond purchases when it next meets Sept. 17-18, according to 65 percent of economists surveyed by Bloomberg last month.
Singapore is the only developed market among countries in the Association of Southeast Asian Nations, which also includes Laos, Brunei, Cambodia, Indonesia, Malaysia, Myanmar and Vietnam.
Shares listed in Singapore are worth $558.4 billion, compared with $455.4 billion for Malaysia, the second-biggest equities market in the region, according to data compiled by Bloomberg.
“Singapore has been affected by redemptions from Asean since it’s the biggest market,” Baring’s Do said in a telephone interview on Aug. 26. “It’s being lumped together with Indonesia, Thailand and the Philippines where capital outflows have accelerated.”
While Singapore’s assets are more attractive than those in neighboring Indonesia, investors may be choosing to sell their holdings in Singapore because the city-state’s currency is more stable, he said.
The Singapore dollar fell 0.3 percent against the U.S. dollar last month, compared with a 5.9 percent decline for the Indonesian rupiah, a 2.8 percent drop for the Thai baht, a 2.5 percent slide for the Philippine peso and a 1.2 percent loss for the Malaysian ringgit, according to data compiled by Bloomberg.
Regional currencies slumped as capital markets began to price in reduced inflows when the Fed starts tapering stimulus, Kelvin Tay, Singapore-based chief investment officer for southern Asia-Pacific at UBS AG’s wealth management unit, wrote in a note on Aug. 23. UBS said Singapore was its preferred market in Southeast Asia, upgrading its rating from neutral.
“Singapore is likely to outperform,” Tay said. “Singapore’s strong currency, resilient domestic economy, good earnings-growth potential and exposure to developed markets’ recovery make it appealing to foreign investors.”
The nation’s economic growth rate accelerated to 3.8 percent in the second quarter from a year earlier as services industries expanded, offsetting weaker exports. In the same period, economic expansion slowed in Thailand, Indonesia and the Philippines.
Singapore’s Straits Times Index traded at 14 times estimated earnings as of Aug. 30, compared with 16.1 for the FTSE Bursa Malaysia KLCI Index, 17.4 for the Philippine Stock Exchange Index and 10.4 for Hong Kong’s Hang Seng Index, according to data compiled by Bloomberg.
Shares on the Straits Times Index offer an average dividend yield of 3.4 percent compared with 2.7 percent for 10-year Singapore government bonds, the data show. CapitaMall Trust, the retail property trust controlled by Southeast Asia’s biggest developer CapitaLand Ltd., and Hutchison Port Holdings Trust, partly-owned by billionaire Li Ka-shing’s Hutchison Whampoa Ltd., are among the gauge’s 30 members.
“We don’t see a lot of catalyst for the market to recover at this stage,” Daphne Roth, Singapore-based head of Asian equity research at ABN Amro Private Banking, which oversees about $207 billion, said in a telephone interview on Aug. 26. “As investors start to price in rising interest rates, Singapore’s high-yield REITs become less attractive.”
The FTSE Real Estate Investment Trust Index, which tracks prices of the city’s biggest REITs and has an average dividend yield of 5.3 percent, sank 6.7 percent in August. U.S. 10-year bond yields climbed for a fourth month, touching the highest since July 2011.
“Singapore is getting hit from two sides,” Nader Naeimi, Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages more than $130 billion, said in a telephone interview on Aug. 23. “Firstly, it’s being lumped together with other Southeast Asian markets like Indonesia and the Philippines. Secondly, investors are selling high-yield Singapore REITs as bond yields are rising.”