What is STI Investing
The FTSE Straits Times Index (STI) is a capitalisation-weighted stock market index that is regarded as the benchmark index for the Singapore stock market. It tracks the performance of the top 30 companies listed on the Singapore Exchange. See below.
You can invest in STI via Exchange Traded Funds (ETF) such SPDR STI ETF (SGX: ES3) or Nikko AM STI ETF (SGX: G3B). Different banks or financial institutions in Singapore also offered different plans for STI investing. You can find out how to invest in STI in this post by another blogger.
DOW JONES INDUSTRIAL AVERAGE AND NASDAQ-100
The Dow Jones Industrial Average (DJIA) is an index that tracks 30 large, publicly-owned blue chip companies trading on the New York Stock Exchange (NYSE) and the NASDAQ. Some notable names are Apple, Microsoft, IBM, Wallmart, Nike, McDonalds, Coca-cola, Exxon, American Express, JP Morgan etc. Refer to the components of DJIA here.
The Nasdaq 100 Index (Nasdaq-100) is a basket of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks. A large portion of the index covers the technology sector, which accounts for 54% of the index’s weight. The next largest sector is consumer services, represented by companies like restaurant chains, retailers, and travel services. Refer to the top 30 of components in Nasdaq-100 here.
STI BEATING INFLATION
Below table show the closing performance of STI comparing to US Stock Exchanges (NYSE or Nasdaq) major indices Dow Jones Industrial Average (DJIA) and Nasdaq-100 every five years in the last 35 years. I also singled out years such as 1999, 2007 and 2017 where STI is closing at peak values.
Refer to above table, If you invested in STI 35 years ago in 1985 with $100, you will have ~$400 today. Using MAS website for inflation calculation, $100 in 1985 will cost $170 today. Hence, even after taking into the account of inflation, investing in STI is definitely a much better choice compared to keeping cash.
Source: MAS website
STI IS NOT AS LUCRATIVE, BETTER INVEST IN DOW JONES OR NASDAQ
That said, if you invest in Dow 35 years ago, your $100 will become ~$1500, and Nasdaq will become close to $7000 today. The disparity is huge.
In fact if you invested $100 into STI in 1999, you will lose $2 of your capital after 20 years of investment. On the contrary, Dow investment will give you 2 folds increase and Nasdaq-100, 2.5 folds.
Even worse, if you invested $100 in STI during the peak of 2007 end, you will lose close to 30% of your capital, after more than 13 years. Instead, if you invested in Dow or Nasdaq-100, even if you invested during the peak year, you still return more than 2 folds. Of course you will still collect your dividend every year, but I am sure that are many alternatives aside STI.
Hence, investing in STI blindly over long term without any strategy is seriously not as lucrative as what you think.
In fact chances that you will lose your capital (excluding dividends collection) is quite high. If you invested at the close of every year in the last decade from 2009 until 2019, every of your investment will lose capital today. 10 years of wasted effort?
Do you still think that putting money into regularly without looking at the market price of STI is a good investment? If you are do not have investment knowledge, maybe just put in CPF OA or Singapore Savings Bonds or Fix-Deposit better still!
WHAT IS THE LONG TERM FUTURE OF STI?
STI heavy towards Real Estate, Banking & Manufacturing
If you look at the 30 top companies in STI, it is centred around Real Estate and Banking. Conglomerates like Jardine, Keppel & Sembcorp have businesses mostly also in the manufacturing, financial, trading etc. The rest of the components are also all not that exciting either in teleco, transport, aviation, F&B, newspaper, shipbuilding etc. Perhaps ST Engineering or Venture Corp are the closest to technology stocks, but still centre around engineering and manufacturing rather than internet-related service providers.
STI has no futuristic technology nor pharmaceutical stocks
When you consider the long-term future potential of SGX constituent stocks, it seriously pale in comparison to future potential of Dow Jones, let alone Nasdaq Tech-heavy stocks such as Amazon, Alphabet, Apple, Facebook, Alibaba, Microsoft, Oracle, Tesla, Netflix etc that provides internet-related services of e-commerce, cloud computing, digital streaming, artificial intelligence, block-chain technology etc.
Rarely you can find large-cap companies in SGX that is seen as potential darling of futuristic technology. Perhaps you can find none! The closest I can think of is Keppel DC REIT, which by itself is not really in the league of future e-commerce, cloud-computing, AI etc, service provider. Instead, Keppel DC REIT core is still real estate.
If not for future-internet-related, then there should at least be large cap stocks in pharmaceutical or biotechnology with breakthrough R&D looking into the future. Once again, there is none in SGX.
HANG SENG INDEX
Alternative to Dow or Nasdaq, I think Hong Kong Stock Exchange (HKSE) is also a much better exchange offering more variety of stocks than SGX. The Hang Seng Index (HSI) is a benchmark for blue-chip stocks traded on the Hong Kong stock exchange. The index is composed of four sub-sector indices in industry, finance, utilities, and real estate investment trusts. In my own opinion, HSI future is much brighter than STI. I am positive on the growth of large Chinese-cap listed in HKSE, example, China Petroleum & Chemical Corporation (Sinopec), Tencent, China Mobile, CSPC Pharmaceutical etc. Furthermore I reckon more and more Chinese US listed companies are targeting secondary listing in HKSE. Alibaba make its US$13B second listing last year in HKSE. Baidu is also said to eye secondary listing in HKSE.
ROLF’S FINAL THOUGHTS
Long term STI investing is not good unless…
STI investing is not as lucrative as you think unless you started during the 1980s or early days of 1990 when Singapore is building a nation. From 1993 onwards, there is high chance you will lose your capital today, even after decades of investing. However, if you only care about collecting dividends and don’t care if you lose capital, then it is fine! But that is not so wise.
You can generally have more promising return in STI when you time the period of your investments during the period of crises. For e.g. 1997-1998 Asian Financial Crisis, 2000-2003 Dot-com bust, 9/11 or SARs and the 2008 Great Financial Crisis, when STI falls below 2000 points.
In my humble opinion, STI at 2500 and below is also a good benchmark of buying, because if STI reaches 3000 and beyond, you can take 20% or more profit when you sell. Only if you know how to sell. I am not saying that STI will definitely reach 3000 points. But looking at historical data, the chances are higher. Afterall, I genuinely feels that investment is about weighing risks and rewards. In fact making life decisions is about that too.
Tangible and Intangible knowledge
To be honest, if you are a person who has no investment knowledge but put $10K in Dow Jones three decades ago, today you will have $90K. Better still, if you believe more in technology back then, and put your $10K in Nasdaq-100, you stock will be worth $450K today. Of course sometimes you have to stomach through the ups and downs of the stock market cycle to last that long. Of you have to resist the urge of selling to realise profits, if you already witness double or triple baggers.
This kind of knowledge of NOT letting your emotions affecting your investment decision is a kind of intangible investment knowledge.
Or simply, you just need to ignore or forget that you own that stocks entirely, until 30 years later, you realise “oh…I did own the stock!”
As a matter of fact, while tangible knowledge of stocks such as analysing reports, trends and data are important, the intangible expertise are equal if not more important. Other important intangible knowledge includes the macro-understanding of the world and global economy over time (past, present and future), understanding country-to-country relationships, understanding human nature and how people and market reacts, understanding of yourself, and your own portfolio, ability to control your emotions etc.
Invest in stocks of the future
STI thirty components are undoubtedly heavy on Real Estate, Banking or Manufacturing today. In my opinion it is just too old-fashion. If the current STI-30 composition persist, I feel that the long term future of SGX to attract investments is bleak.
For all we know, the 20th century saw the innovation of electricity, machines in factories, automobiles, ships and planes etc.
The 21st century is going to be Industrial 4.0 revolution….
Internet of Things (IOT), wireless connectivity and sensors, cloud computing, artificial intelligence, cyber-security, big data analytics and advanced algorithms, data management, data visualisation, smart cities, smart factories etc
What do you think? And what kind of stocks should you invest?