The world had a wet start to May as a string of water-related disasters struck. The worst floods to hit Brazil’s southern state of Rio Grande do Sul in 80 years killed 39 people. This was dwarfed by the loss of over 200 lives in Kenya’s popular Masai Mara nature reserve after one of the tributaries of the Mara River burst its banks causing flash floods.
Closer to home, on Star Wars Day (May 4), 65% of average monthly rainfall fell that one morning. The sudden deluge after numerous dry, scorching weeks forced the postponement of the Liv Golf tournament in Sentosa and delayed or cancelled flights out at Changi and Seletar. Not to be spared in North Asia, Taiwanese band Mayday was forced to move the encore session of their first show online and indoors and cancelled the second show on May Day itself.
All this news made for slight discomfort as we embarked on our delayed trip to Uzbekistan on May 6, following our lucky escape from Japan’s earthquakes last month. The prospect of diurnal temperatures in the “pre-summer” season while we are there, where temperatures range from 12°C to 32°C, means we won’t completely escape the sapping heat in Singapore. Nonetheless, it is a bit more encouraging than our originally scheduled trip in December which would have hit a cold snap of –9°C to –19°C.
Without freezing our fingers and toes off, it could make for a more objective survey of this western section of the Silk Road. Specifically, I am keen to see if the young and growing populations in the “-stans” present any investible opportunity, now that the markets of the Chinese end of the Silk Road could be stealthily building the base of a long-term bull market.
Contrary to the old market adage, I am not selling in May and going away. Rather, the timing of my upcoming trip is to avoid travelling during the school holidays. Furthermore, I am mildly optimistic that our long-awaited Straits Times Index’s (STI) breakthrough above 3,300 points could happen through the June-August summer months and I have stayed “indexed” and well positioned to take advantage of that.
See also: Bitcoin’s Trump-inspired rally is bad news for Korean small-caps
Surprising Singapore
On May 15, Prime Minister Lee Hsien Loong will hand over the top job after 20 years to his deputy, Lawrence Wong. In his last major political speech on May Day, Lee gave a broad overview of Singapore’s achievements and the emerging challenges this country will face in the future. The so-called 4G leadership is taking over in a tumultuous world that has turned its back on globalisation and shared prosperity embracing instead beggar-thy-neighbour’s form of economic and industrial policies. The US, when not focused on friend-shoring, is busy playing dicey geopolitical games involving race, religion and ideology from the Middle East to Ukraine and its own university campuses.
The myriad challenges were exemplified by Anthony Blinken’s chat with Xi Jinping recently. While it is good that the two superpowers can chat face-to-face without hot air balloons scuppering diplomacy, it is clear from the prepared post-meeting readouts that a gulf of differences remains.
My own career in the financial services industry largely overlapped with PM Lee’s tenure. Colleagues of my vintage will recall how he played the key role as chairman of the MAS to open up the industry so that it could better meet international competition. Under PM Lee, Singapore actively grew other high-value industry sectors ranging from biotech and pharmaceuticals to info-communications and technology — the very ones flagged by him when he, as the DPM, chaired the landmark Economic Review Committee formed in 2001.
See also: That's what friends are for
Along with steady economic growth, Singapore’s reserves were presumably built up too. Thanks to careful husbanding, the country can afford meaningful social transfers including the Pioneer and Merdeka Generation Packages and form the base for DPM Wong’s Forward Singapore to continue to level up, and tighten social cohesion even as seductive Western liberal ideas beckon and polarise.
As a small city-state, it is undoubtedly impressive that Singapore is playing highly visible and outsized roles in multilateral rules-based global organisations. Our neutral voice of reason, anchored on our own national strategic interests, is well respected. After all, in the old Three Kingdoms view of ancient China, the maxim was “small countries have no foreign policy”. Strong social cohesion; the need for and ability to plan long-term; and high political trust between the leadership and the electorate are three critical anchors to navigate an uncertain future of geopolitical competition, de-globalisation and climate change.
PM Lee’s May Day speech was made within a cavernous hall inside Marina Bay Sands, arguably as iconic in the Singapore perspective as China’s Great Hall of the People. In attendance were throngs of union officials, government officials and grassroots leaders (many of whom are also business owners), symbolic of the tripartism that is relied on to anchor Singapore for the future. Would the timing of the May 15 transition to the 4G leadership be the “golden cross” in technical analysis parlance that markets can look forward to if it indeed heralds the continuation of Singapore exceptionalism? I am marking that date in Uzbekistan but my sincere hope is it will.
Wind in our sails
The Changing of the Guard is not just taking place in Singapore. As flagged in various Chew On This in March and April, there is a changing of the guard too in global stock leadership from the Magnificent 7 to more routine traditionally boring sectors in the US, where a recovery in consumer, healthcare, energy and financials are holding the indices up. While Chinese tech stocks like Tencent Holdings are coming up from a very depressed base (vis a vis its falling US counterparts), it is cyclical stocks like PetroChina and Kweichow Maotai consumers are “addicted to”. Europe’s largest stock is now Novo Nordisk — the maker of anti-diabetes and weight-loss drugs Ozempic and Wegovy — eclipsing luxury goods conglomerate LVMH. There is more money in healthcare than handbags — I suppose when push comes to shove, what ranks as a higher priority?
Similarly, investors appear to be looking for cash flow and dividends, notwithstanding that the early May US employment numbers were disappointing, which immediately put the Fed’s strong anti-inflation and continued reluctance to engage in rate cuts, reiterated just the day before, into question. This is evidenced by the types of private equity deals that are focused on long-term infrastructure transactions with better-defined cash multiples or IPOs of companies in the West that promise growth and dividend payouts. Private equity firm CVC’s successful debut in Amsterdam recently, up 30%, showed that there was interest beyond pure tech and AI stories. Even the power of Donald Trump seemed to have waned as Truth Social lost some of its allure after its auditing firm BF Borgers was disbarred by the US Securities and Exchange Commission.
The relative strength in the boring STI of late flirting with 3,300 points once again perhaps is a case in point. The first leg of the rebound was carried by the three local banks which rallied initially when the index was closer to 3,100 points because a delay in interest rate cuts by the Fed could translate to better earnings for our stalwarts DBS Group Holdings, Oversea-Chinese Banking Corp and United Overseas Bank U11 . Having run out of steam, cyclicals sold off on profit-taking after stellar runs including Keppel, Singapore Airlines C6L and Sembcorp Industries U96 caught up. All these provided between 5%–15% trading ranges for individual stocks.
The STI pulled back in April again after the banks caught a breather and as Singapore Telecommunications Z74 debunked rumours of divesting its Australia unit Optus. Yet, when the first quarter results reporting season later in the month became marked by another sterling showing by DBS, the index charged back.
Sink your teeth into in-depth insights from our contributors, and dive into financial and economic trends
True, our own more boring tech stocks like Venture Corp, Aztech Global 8AZ and AEM Holdings AWX have also recovered 5%–10% but the Singapore market is characterised more by what is globally more fashionable among institutional investors today, which is well-managed cash flows and distributions in sectors that have predictable earnings. What is notable is that the overall index has continued to creep up even as several bellwether stocks have already gone ex-dividend. That these stocks have generally held up is a good sign that we might not have the traditional ex-dividend sell-off in May which takes place before investors go off for the June holidays with a bit of extra shopping money.
Carried by the tide
According to my old colleague at the Singapore Exchange S68 , market strategist Geoff Howie, there were 50 stocks going ex-dividend in the May Day week and another 70 counters the following week. Here are some absolute numbers of why dividends matter. Just for FY2023, the three local banks will be paying out a total of $11.5 billion. As flagged by Howie, the STI Total Return Index, built on price returns and reinvested dividends, has made fresh all-time highs as it climbs above 6,000 points. That is a four-fold return from the 2009 post-Lehman low of 1,500 points and more than 50% return from 3,800 points just before the pandemic started. Volatility-loving traders probably do not care about such returns but staying put in local counters is something investors here have banked nicely.
With the investing climate changing over the world, and the risks of a US pullback (my guess is not till the November US presidential elections), is it still safe to stay in or buy in? Even after any initial shocks, such as the one-day 10% drop suffered by Nvidia Corp last month, I do expect that markets and the economy will be buffeted by Fed rate cuts. A sell-off in the US eventually may well be net positive for the rest of the world as money flows out from the giant Hoover machine that characterises the US market. In any case, with a dividend yield closer to 5% that the STI gives, one could be long and wrong temporarily if it trends down back to the lower end of the last three years, which is 3,100 points. But investors in Singapore are compensated for staying invested after all.
With the carry behind the trade well supported, and robust company earnings still being delivered generally, could this May Day 2024 herald a golden cross that finally lifts us out of the trading range? I guess I will find out after I return from the Silk Road as Chew On This takes a break amid the minarets and domes in Uzbekistan.
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange, and he was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore
