The appeal of STI remains low but with good reason

If we did a review of STI from the last day of 2019 to 2020, the 11.8% drop is largely due to the ongoing impacts from the pandemic. However, the global market performance has led us to think that there is a severe lack of appeal for STI. There can be many reasons but a big reason is that funds are flowing out of the index and into other markets and asset classes. As such, will this lack of appeal persist in 2021 or will funds hurry back into STI some time soon? Personally, I feel that the STI has earned its reputation of being stable hence we will continue to see slight adjustments to the index over time but I will not be expecting a huge difference in 2021 for all STI constituents across the board.

Despite Singapore’s performance in trying to keep the virus at bay and reopening the domestic economy, many investors are still wary of the huge drop in revenue caused by the lack of international travel. Besides, there are plenty of investment opportunities outside of the market hence, we are still waiting for the attention to come back to STI.

STI – Updated Daily Chart

STI’s route to 3000 points is still on track and at the moment and many counters are still nowhere near pre covid levels. It is normal to feel that the index will continue to consolidate sideways in the near term but then again, the breakout will come without warning as fund flows are getting way more aggressive in recent years due to the massive QE efforts by world governments.

STI – Updated Monthly Chart

One way to look at STI is that it is sluggish but the alternative view is that it is undervalued. As to why it is taking STI longer to recover, it will be mainly due to our main constituents which are banks, and because our market is just too small for the new generation of investors. My best advice for investors in STI constituents is to take a long-term view of the market and consider higher dividend-paying companies to park cash in today’s low-interest-rate environment.

Author’s Call as of 2nd Jan 2021

• The STI is still sluggish due to its lack of appeal relative to other markets and asset classes
• STI consolidation is extended due to the resurgence in cases and partial lockdowns around the world
• Domestic markets reopened but the market expects revenue to drop significantly due to a lack of international visitors
• The index continues to show potential for recovery but is still waiting for the next positive trigger

Author’s Call as of 27th December 2020

• Holiday mood strikes again with lower trade volumes and a slight increase in optimism
• Trump’s delaying of the Covid relief bill dampened the spirits of the markets but did not trigger a sell-off
• Virus outbreaks around the world have become old news even for new clusters and potential lockdowns
• The global economy continues to trend cautiously at the moment as the new virus strain threatens the efficacy of the vaccine