Unlocking value in Singapore’s evolving equity market

Given its strategic geographical positioning and the push toward the development of key sectors such as manufacturing, finance, and logistics, Singapore has evolved into a prosperous export-oriented economy since its independence in 1965. In recent decades, Singapore has been built on the bedrock of a robust governance framework, alongside coordination between fiscal, monetary, and macroprudential policies, which has manifested in financial stability and a solid macroeconomic backdrop. Given the reliance on external demand, the headwinds stemming from structural shifts in industrial policies such as tariffs imply that policy calibration will become increasingly critical to guide the economy’s macroeconomic growth over the medium term. More recently, the government has introduced measures to enhance capital markets, such as the Equity Market Development Programme (EQDP), with the goal of supporting broader financial and economic development in one of Asia’s leading financial hubs.

SG60: From humble beginnings to economic hub

When Singapore became independent in 1965, nominal gross domestic product (GDP) per capita was USD 500. Today, that has grown to USD 90,674, making it the 8th highest economy in the world according to the World Bank. The beginnings of this growth were very much rooted in export-led industrialization and attracting global multinational corporations (MNCs) to Singapore. The robust governance framework bolstered investor confidence, with manufacturing’s share climbing to one-fifth of GDP by 1975, from 14% in 1965. However, as the economic growth slowed due to fading cost advantages, there was a need to shift gears, which led to the rise of services as a second growth engine, particularly in financial, business, and information & communication services. The need to prioritize productivity-driven growth became apparent at the onset of the COVID-19 pandemic, as global supply chains faced severe disruptions. Even as the trade-related services cluster experienced a pullback, the domestic-facing services cluster, such as finance & insurance and information & communication services, continued to be key pillars for growth (Exhibit 1). In 2024, 70% of the added nominal GDP value was generated by the services industry.

A robust governance framework at the core

The stable corporate governance framework has resulted in sustainable economic growth, as well as price and financial stability, which has buoyed investor sentiment in recent decades. This mix of monetary, fiscal, and macroprudential strategies has enabled policymakers to navigate external shocks.

The Monetary Authority of Singapore takes the helm in coordinating both monetary and macroprudential policies. The goal of the former is to maintain price stability through targeting the Singapore Dollar Nominal Effective Exchange Rate (S$NEER), while the latter aims to build financial system resilience in various sectors such as the property market. Singapore’s healthy external buffers, such as its strong official foreign reserves, have in turn ensured the Singapore dollar remains well supported. Meanwhile, Singapore’s fiscal policy is driven by the Ministry of Finance, with measures aimed at achieving long-term, sustainable economic growth. In addition to the monetary policy response, strong fiscal buffers have enabled it to respond adeptly to economic shocks while addressing long-term challenges such as an ageing population and climate change.

Given the open nature of its economic structure, Singapore remains susceptible to changes in external demand. With high exposure to pharmaceutical goods, consumer electronics, and semiconductors, changes in effective tariff rates could impact the externally-oriented sectors. Moreover, a potential correction in artificial intelligence (AI)-related spending could pose an additional risk to the growth outlook.

The Singapore equity market at a glance

The Singapore equity market provides a compelling mix of income, growth, and diversification, with attractive prospects across financials, real estate, communication services, consumer staples, and select industrials, healthcare, and information technology companies. The market continues to deliver a stable dividend yield across the index. Encouragingly, there has been an improvement in capital allocation and shareholder returns from some companies over the last 18 months.

On real estate in particular, lower interest rates have driven an improved earnings outlook in the sector. Singapore real estate investment trusts (REITs) remain vital for income and diversification due to their depth, sector and geographic reach. As a pillar of Singapore’s economy and given its importance as a wealth management hub, financial institutions continue to deliver stable earnings and favorable dividend yields. Over time, select companies are well-positioned to capitalize on long-term trends such as demographic shifts and digital innovation, which could benefit healthcare and information technology sectors.

However, whether looking at MSCI Singapore or the Straits Times Index (STI) benchmarks, the financial sector makes up more than half of the local market’s capitalization, and to a lesser extent, real estate stocks (Exhibit 2). 

“Value Unlock” to inject vigor to the equity landscape

Even as expectations are for the central bank to remain on hold for the foreseeable future, the current macro environment has led to an increase in equity exposure among retail investors in Singapore. Recently, the Monetary Authority of Singapore and the Singapore Exchange (SGX) have launched the “Value Unlock” program for listed companies, with the goal of improving shareholder value and deepening investor engagement, similar to developments in corporate governance landscapes in Japan and South Korea. One key highlight is the introduction of a dual listing bridge connecting the SGX and Nasdaq, providing companies with the opportunity to raise capital in both North America and Asia.

EQDP in focus

Prior to the “Value Unlock” package was the introduction of the USD 5billion Equity Market Development Programme (EQDP), which aims to increase investor participation in Singapore equities alongside wealth creation, leveraging the diverse investment strategies, research capabilities, and distribution networks of the local fund management industry.

As part of both the EQDP and the “Value Unlock” programme, the liquidity injection for small- and mid-cap stocks will enable retail investors to access a wider equity offering beyond the large-cap banks and high-yielding real estate stocks. This could also boost long-term valuations, potentially aligning the price-to-book (P/B) value of Singapore’s equity benchmark with that of developed Asian markets.

Investment implications

For investors seeking to rebalance and diversify their portfolios, Asian equities offer high secular growth opportunities through themes such as technology and corporate governance reforms, while also providing a source of steady income generation through high-dividend stocks. For Singapore in particular, the series of measures that have been announced are likely to strengthen the competitiveness of the local equities market and support wealth creation for local retail investors over the medium to long term. The increasing exposure to small and mid-cap stocks through recent measures can help investors achieve a more balanced portfolio, combining stability with capital appreciation. Progress in corporate reforms may drive the next market rally, and with forward price-to-earnings valuations at 15.8x, Singapore equities present a compelling investment opportunity within Asian equity allocations.

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