• Singapore is expected to show signs of a 3Q20 recovery in its highly services-orientated economy from 2Q20 following the lifting of CB Measures. The advanced 3Q20 GDP estimates due by 14 Oct will also help set a tone for multiple business updates and outlooks expected by Singapore stocks from mid-October to mid-Nov.

• External market drivers will include the COVID-19 resurgence and potential vaccine developments, the US Presidential Election and push for further stimulus. Additional drivers will include China’s economic recovery, ongoing technology sector growth, in addition to currency volatility from political tensions & developments. 

• For the remainder of the 2020, the Banks, Real Estate and Industrial Sectors will be large determinants of the STI’s performance which will take cues from both these domestic and external drivers. Since 1985, the STI has averaged a 4% gain in the fourth quarter of the year.

4Q20 Started with Positive Data Prints 

The Singapore economy has entered 4Q20 on a positive note, with the preliminary 3Q20 URA Private Home Price Index gaining 0.8% from 2Q20, which in turn gained 0.3% from 1Q20. SIPMM also reported that Singapore’s manufacturing PMI in September rose 0.2 points to 50.3, with the Electronics PMI at 50.9, the highest level since September 2018. While technology stocks have been comparatively strong in Singapore, service-orientated stocks across banking, industrial services, tourism, hospitality and transportation have been more impacted by the Circuit Breaker (“CB”) measures and social distancing, as have real estate management and development stocks.

Henceforth, policy-makers are expected to be looking for broader, less uneven and gradually paced growth, structurally sustained through measures to support jobseekers and upskill workers. Key sectors that will remain in focus are the travel-related, consumer-facing domestic services and construction. 

Advanced 3Q20 Growth Estimates to Set Further Tone for 4Q20 

While Singapore’s August manufacturing numbers were also reported to be particularly strong albeit uneven on 25 September, like most advanced economies, Singapore’s GDP is most generated from service-generating industries. Advanced estimates for 3Q20 GDP growth in Singapore are due to be released no later than 14 October and will be largely based on information for July and August.

Consensus expectations are for Singapore’s GDP growth to be down 6.5% y-o-y, yet up more than 30% q-o-q, which follows sharp 2Q20 declines. Such a reading would indicate that much of Singapore economy is on gradual-paced economic recovery. As illustrated below, activity by service producing industries has a much stronger impact on Singapore GDP than goods producing industries, such as manufacturing and construction.

Approximately 70% of Singapore’s GDP comes from services industries with about 25% emanating from goods-producing industries. The less than 5% balance is generated by housing services provided by owner-occupiers and individuals who let out their residential properties. 

The service producing industries comprise multiple sectors highly relevant to Straits Times Index (STI) and the broader stock market such as wholesale and retail trade, business services, finance and insurance, transportation, information and communications. For the 1H20 financial reports, multiple corporate outlooks signalled vigilant intentions to continue building resilience by containing costs, boosting productivity, and where possible seeking opportunities to enhance value. 

The MAS is also scheduled to release its semi-annual monetary policy statement no later than 14 October and is expected to maintain the zero percent per annum rate of appreciation of the policy band announced on 30 March. 

STI’s Recent Strongest 4Q Performers 

Heavyweight stocks have a significant impact on the performance of the STI. Over the past 5 years, the 3 strongest fourth quarters were in 2017 (5.7%), then 2019 (3.3%) and 2015 (3.3%). In each of those 3 years, 3 of 4 of the STI’s big service-orientated heavyweights of DBS Group Holdings, United Overseas Bank and SingTel were amongst the 5 strongest current STI stocks of the fourth quarter. There was also a wide latitude of stocks appearing as the strongest performers in the final quarter of the year from 2015 through to 2019.

As tabled below, this vibrancy is exemplified with as many as 20 of the STI’s current 30 stocks ranking amongst the strongest 5 stocks in at least one of the final quarters of the past 5 years. Stocks that were among the top 5 performers more than once included DBS Group Holdings, Jardine Cycle & Carriage, Keppel Corporation, Venture Corporation and Wilmar International. 

Source: SGX, Bloomberg and Refinitiv (Data as of 6 October). Note based on current STI stocks.

For the remainder of the 2020, the Bank, Real Estate and Industrial Sectors will be large determinants of the STI’s performance. These mega sectors, built on traditional strengths of the Singapore economy, will take their cues from the state of the economic activity both at home and abroad, as they have throughout the 2020 year-to-date. 

STI’s Past 4Q Performances  

Since 1985, the STI has averaged a 3.8% gain in the fourth quarter of the Calendar Year, with the median total return of 4.0%. However, the constant caveat is that past performance doesn’t guarantee future results, and this is clearly relevant in these unprecented social and economic times.

Over the past 35 years, there were 24 years that the fourth quarter saw a positive return, with one quarter generating a flat return and 10 quarters of declines. For the eight US Presidential Elections that took place over the 35 years, the average gain was 0.4%, with the median gain at 3.8%.

2020 US Presidential Election 

While the quarterly returns during election years were mostly in-line with non-election years, investors will recall that the Asia trading session on 9 November 2016 saw a volatile session for the STI, which opened near highs at 2,838, formed a low at 2,760 and closed back up at 2,820. In the year 2000, when an immediate election result was too close to call, there were close to five weeks from the election date to when the US Supreme Court ordered an end to the Florida recount on 12 December. This resulted in former US Vice President Gore conceding defeat on 13 December. From 8 November through to 14 December, the STI was basically unchanged, moving from 2,042 to 2,038, however had closed as low as 1,954 on 22 November and as high as 2,070 on 13 December. 

History suggests that for the 2020 election, a return of US President Trump, with Democrats still controlling the House of Representatives would bring less market uncertainty and hence less market volatility. Less market votality may also prevail if former Vice-President Biden is elected President, with the Republican Party still controlling the Senate. 

Alternatively, markets would also be assured with less uncertainty if the Democrats control the Senate and the Republicans control the House. In essence, US markets face potentially less social and economic policy uncertainty when congress is split between the two major parties. A study by LPL Research and Bloomberg in 2018 showed that the S&P 500 had a history of better performances for the preceding 70 years when Congress was split between the Republicans and the Democrats. As noted by Eurasia Group, President Trump and former Vice President Biden remain locked in a competitive race for the presidency, with Biden still the favourite to win the election in early November (click here for more).

At the same time, the calls by the Fed Reserve, push by both parties and debate for further stimulus in the US is expected to continue, with Republicans calling for less than S$2 trillion in supportive measures and Democrats calling for more than S$2 trillion in stimulus. 

COVID-19 Vaccine by 4Q-end? 

The biggest driver of markets in 4Q20 will continue to be the social and economic impacts of containing COVID-19 in addition to vaccine developments. Over 3Q20, the global infections more than tripled to 33 million cases with more prevalent testing seeing the total mortality rate decline from 4.9% to 3.0%.

According to the World Health Organisation (“WHO”), there arre currently over 169 COVID-19 vaccine candidates under development, with 26 of these in the human trial phase. The WHO maintained that when a safe and effective vaccine is found, COVAX (led by WHO, Gavi, the Coalition for Epidemic Preparedness Innovations) will facilitate the equitable access and distribution of these vaccines to protect people in all countries. On a hopeful note, last night the WHO Director-General stated that a vaccine for COVID-19 may be ready by year-end. 

Medtecs International and SATS lead Most Actives in 4Q-to-Date 

Singapore’s 40 most traded stocks in the 2020 year to 6 October are tabled below, sort by avergae daily turnover and include 29 of the 30 STI stocks. The 2 strongest stocks of the 40 over the first four sessions of October with 10% returns include Medtecs International and SATS. Medtecs International Corp was one of the most positively impacted stocks this year, while SATS, was one of the more negatively impacted stocks by the measures imposed to contain the pandemic both in Singapore and abroad.

Source: SGX, Bloomberg and Refinitiv (Data as of 6 October)

Singapore’s largest and most traded stocks also have significant regional ties hence potential currency volatility will continue to drive corporate and market sentiment in 4Q20. Regional exposures are quantified regularly in Financial Statements with geographical segment reporting According to these statements and the most recent weightings - 50% of the revenue of the STI in its weighted form was reported to Singapore with 44% reported to Asia Pacific countries outside of Singapore. There is also 6% of the revenue attributed to United States, Europe and other jurisdictions.

STI stocks with the most exposure to Greater China include Dairy Farm International, Hongkong Land, Yangzijiang Shipbuilding Holdings, Wilmar International and CapitaLand. In addition, Singapore lists close to 150 stocks that report anything from 10% to 100% of their revenue to China, including as many as 10 REITs. Since 2010, DBS Group Holdings, Oversea-Chinese Banking Corp and United Overseas Bank have increased their combined annual income that is segmented to Greater China by 175%. The combined Greater China income of the three banks grew from S$2.33 billion in 2010, to S$6.42 billion in 2019.

In the 2020 year-to-date China small-cap Indices have outpaced its large-cap Indices, with the Smaller Cap stocks  generating more than double the price returns of the former. In August, the price-ratio spread of the FTSE China A Small-Cap Index to the FTSE China A50 Index reached a 16-month high. China Industrial production for the first eight months of 2020 grew 0.4% from the same period in 2019 and current consensus estimates are for 5% y-o-y growth in 3Q20, which will be released on 19 October. 

Upcoming Event on 12 October – Recovering from COVID-19: A Global Perspective on the Challenges Ahead

SGX will be hosting an upcoming live webinar with Eurasia Group (12 Oct, 7pm SGT) – one of the world’s leading global political risk research and consulting firm. This will be the first of a series of webinars and monthly content as part of our partnership with Eurasia. To join the event click here.