Singapore stocks climbed to their highest level since 2007 as the prospect of lower interest rates lifted the city-state’s real estate investment trusts, and boosted the appeal of the high-yielding market.
The benchmark Straits Times Index (STI) closed 1.1% higher on Thursday, taking its year-to-date gains to 12%. Much of the advance was driven by REITs, which are getting a boost from potentially lower rates. Meanwhile, banking shares have performed well thanks to strong dividend expectations and solid loan growth.
The milestone comes after the US Federal Reserve (US Fed) cut its interest rates by 50 basis points (bps), offering space for Asian markets to follow suit. Singapore is seen as a major beneficiary given the abundance of interest-rate sensitive REITs in the market.
“Singapore has shone this year as a safe haven amidst the volatility in other markets, and I think it will continue to be the case as we head into volatility events such as the US elections in the fourth quarter,” said Nigel Peh, a portfolio manager at Timefolio Asset Management.
Brokers have already taken note. Earlier this year, JPMorgan Chase & Co upgraded Singapore’s equities, citing stronger signs of recovery. BofA Securities has also said they are optimistic thanks to less-stretched valuations and solid earnings momentum.
While banks, which are heavyweights in the market, may see narrower margins due to lower interest rates, part of that should be offset by their robust growth outlook, said Timefolio’s Peh. As seen from their recent results, “earnings quality is high, sensitivity to rate-cuts near-term is low and there’s a strong capital management story.”
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In addition, investors’ optimism has been supported by a task force set up by the Singapore government looking at ways to strengthen the equities market. The city-state’s Second Minister for Finance Chee Hong Tat said the government is prepared to make “bold changes” to revive the market, which has been plagued by shrinking market capitalisation and sluggish trading volumes.
“A confluence of tailwinds currently stands in place for the broader index,” said Jun Rong Yeap, a market strategist at IG Asia Pte. That includes increased traction for dividend-paying stocks amid lower bond yields and authorities’ ongoing effort to increase its value proposition for investors, he said.
