Global stock markets have fallen more than 20% from their respective high lately due to the fear of recession in US and EU with the exception of STI. With intra-day low of 2,659.01 on 23rd Sep 2011 and intra-day high of 3,313.61 on 9th Nov 2010, STI only fell 19.75%; with the 20% mark at 2,650.89 ( ironically, the 2,650 is also the critical support level, the lowest in May 2010 before market rebounded due to the Greece's debt issue first surfaced ). Many questions have been asked why STI has such resilient performance as compared to other Asian bourses like Hong Kong, Japan, China, Taiwan, South Korea, India, etc.
The resilient of STI probably has to view from fundamental aspect of the Singapore economy. Singapore is renowned for her open economy style whereby export business weighs at least 1/3 of her overall GDP. Export business to troublesome regions like US and Europe will definitely hurting the economy but recent years due to the fundamental shift in global economy, the impact has slowly been minimized. China has taken over as the "world factory" as compared with decade ago whereby Western countries still have their manufacturing facilities in Singapore and this has shifted some burden away. Western MNCs nowadays mainly use Singapore as logistic and regional hub for their manufacturing activities in China.
Secondly, Singapore still have a very low interest environment despite the rising in inflation like many other Asian countries whereby their respective central banks have to raise interest rate to curb inflation. Singapore MAS all along uses forex exchange rate as a primary fighting tool against inflation and that has resulting in still a low interest rate environment. The low interest rate situation has allowed corporate borrowing to be easy to avoid corporates being credit crunch.
Thirdly, with the 2 IRs ( Marina Bay Sands and Resort World Sentosa ) being fully functional as compared with 2008 financial crisis period, this has helped Singapore economy to rely a bit more on consumption based and offsetting the downside of export oriented contribution.
Next corporates' balance sheet is much more healthier than in the case in 2008. Bigger corporates are full of cash at the moment as compared in the case of 2008. In 2008, companies like Capitaland, CapitaMall Trust, CapitaComm Trust, DBS, NOL, AscendasReit, OCBC, UOB, Kepland, etc have to raise cash to stock up their balance sheet by means of rights issue, placement, selling preferential shares, etc. Presently, these companies are mostly in net cashflow position which enable them to distribute bumper dividend payout lately ( KepCorp, SembMar, SIA, SingTel, Capitaland, Kepland, etc ) and daily share buyback ( SIA, SingPost, SembCorp, OCBC, Capitaland, etc ). These corporates are in a better position to handle any downside risk should global economic situation worsen than in 2008.
Singapore domestic activities still very much active as compared in 2008. Infrastructure spending by the Government like Circle Lines, Downtown Lines and public housing still as active or even more than in 2008. This more or less has helped the job markets stay resilient and SME in domestic business still able to function.
Finally, Singapore unlike US is a net surplus country with no debt. Since Singapore Government taken out S$4b in 2008/2009 from the Singapore reserve as stimulus package, they have also returned that amount back to the reserve in 2010 when global economy recovered from recession due to the sub prime crisis in 2008. Should any recession occurs in Singapore in future due to global financial crisis again, Singapore Government will be able to tap on the reserve again. This has given investors a very much confident in Singapore economy.
While it is still too early to conclude STI will not drop below 2,650 or Singapore will not get into full-blown recession, the fundamental aspect of Singapore economy nevertheless is in a better position to handle any downside risk as compared to 2008. This has probably given investors in particular foreign investors the very much confident and thus making STI resilient as of now.
