Most investors feel more assured buying into these well-known companies and are less likely to expect bad things to happen.
Unfortunately, Singapore’s blue chips have been performing badly. Even holding long term couldn’t alleviate their poor performance.
This left many investors in Singapore blue chips frustrated, and even angry.
They were made to believe that blue chips were safe and it would be fine as long as they held these stocks long term.
Imagine losing -38% in Singtel, -59% in Keppel Corp and -61% in SIA, after holding them for the past 12 years!
These results are hard for anyone to swallow. It’s no wonder that investors are left feeling penalised. We cannot blame them for losing faith in the stock market (or just the Singapore stock market).
The Straits Times Index (STI) is essentially a basket of blue chip stocks in Singapore. The Index was revamped with the help of UK indexing company, FTSE, on 10 Jan 2008. This was in the midst of the Great Financial Crisis where the stock markets were crashing.
It doesn’t take a genius to see the STI has been trading in a horizontal range for the last 12 years.
But most investors probably didn’t buy the index. They probably picked and chose some blue chips instead. I would think that this might even be a worse option as many of the individual blue chips did really badly in the past 12 years.
I tracked the returns of the revamped STI components dated 10 Jan 2008 – prices are adjusted for corporate actions such as dividends.
|STI Components on 10 Jan 2008||Adjusted Opening Price on 10 Jan 2008||STI Components Currently or Date Of Replacement||Closing Price on 26 Aug 2020||% Change||Remarks|
|Fraser and Neave||1.493||3 Apr 2013||2.6051||74%||Replaced by HPH Trust on 3 Apr 2013|
|Jardine Strategic||15.9||Jardine Strategic||20.8||31%|
|ST Engineering||3.2102||ST Engineering||3.5||9%|
|Jardine C&C||19.5498||Jardine C&C||19.48||0%|
|CapitaMall Trust||2.1383||CapitaMall Trust||1.9||-11%|
|Hongkong Land||4.89||Hongkong Land||3.93||-20%|
|SIA Engineering||4.2721||18 Sep 2017||3.37||-21%||Replaced by Jardine Strategic on 18 Sep 2017|
|Olam||2.9364||21 Sep 2015||1.995||-32%||Replaced by SATS on 21 Sep 2015.|
|Starhub||2.88||24 Sep 2018||1.71||-41%||Replaced by Dairy Farm on 24 Sep 2018|
|Keppel Corp||11.1251||Keppel Corp||4.61||-59%|
|Noble Group||8.5647||21 Mar 2016||3.4012||-60%||Replaced by CapitaComm on 21 Mar 2016. Suspended|
|Yanlord||2.7||23 Mar 2009||1.02||-62%||Replaced by ComfortDelGro on 23 Mar 2009|
|SPH||3.7045||22 Jun 2020||1.35||-64%||Replaced by Mapletree Ind Tr on 22 Jun 2020|
|Sembcorp Industries||5.3507||Sembcorp Ind||1.87||-65%|
|Sembcorp Marine||2.4885||19 Sep 2016||0.8164||-67%||Replaced by Jardine Matheson on 19 Sep 2016|
|Cosco Corporation||5.66||22 Mar 2010||1.24||-78%||Replaced by CapitaMall Asia on 22 March 2010.|
|Keppel Land||Delisted||23 Mar 2009||Delisted||Delisted||Replaced by SMRT on 23 Mar 2009. Delisted on 15 Jul 2015.|
|NOL||Delisted||24 Sep 2012||Delisted||Delisted||Replaced by IHH on 24 Sep 2012.|
20 out of 30 stocks had losses with an average of -42% over the 12 year period (or until some of the stocks were kicked out of the index)! It is likely to perform worse than an underperforming index.
8 stocks had gains with an average 40% returns over the past 12 years. The best performer was ThaiBev with 142%.
2 were delisted and I couldn’t even get their historical price data.
And not to forget Noble, which is currently suspended after inflating the investment value of its associated companies in Australia. Yes, a blue chip can turn out to be a fraud. Fraudulent companies are not limited to China.
Olam was also attacked by a short seller(Muddy Waters) until Temasek Holdings saved them from the ugly episode. However, Temasek couldn’t save it from being kicked out of the index as its performance waned.
The beauty of index investing is that the fund manager will replace the stocks that get kicked out of the index. But an investor is unlikely going to sell a stock just because it is no longer in the index. In the case of Olam, an investor would have lost 32% if he sold it in 2015 (the year Olam was kicked out). But if he would to hold Olam until today, he would have lost 55%.
11 of the STI components on 10 Jan 2008 were replaced. I believe many investors are still holding on to them till today. Here are their performances, most were worse off.
|Date the stock was booted out of STI||Returns if sold||Returns if held till today|
|F&N||3 Apr 2013||+74%||-14%|
|Olam||21 Sep 2015||-32%||-55%|
|Yanlord||23 Mar 2009||-62%||-55%|
|SIA Engineering||18 Sep 2017||-21%||-56%|
|Starhub||24 Sep 2018||-41%||-58%|
|SPH||22 Jun 2020||-64%||-71%|
|Sembcorp Marine||19 Sep 2016||-67%||-91%|
|Cosco Corp||22 Mar 2010||-78%||-97%|
|Noble Group||21 Mar 2016||-60%||-99% (suspended)|
Very ugly numbers right?
But what is done is done.
If you happen to have suffered some of these losses, you have to learn and move on.
Why SG’s stock market has been underperforming
It has not been able to transform into the “new economy“.
The “new economy” consists largely of the technological companies while the old economy is mainly made up of finance and real estate companies.
Here’s a diagram I drew last month. I wanted to show the correlation between the index tech exposure and its returns – the higher the tech exposure, the higher the returns.
It is not surprising that STI has no tech exposure. Half of our index weight consists of the 3 banks (DBS, OCBC and UOB) and REITs make up a another big chuck of our index weightage.
This explains the poor performance, in my opinion.
That said, please don’t jump to the wrong conclusion. This trend doesn’t suggest that the solution is to just buy tech companies and hold them forever.
Rather, the main lesson is that:
The Markets are Always Changing
What’s trendy today may not be so in the future.
Case in point, Keppel Corp, Sembcorp Ind and Sembcorp were the drivers of stock market returns during the 2007 bull run. They made so much money that it is common to hear stories of employees receiving 6 months bonuses. Those were the good days.
These stocks were the hot favourites back then, and that was how many investors got sucked into them at the peak, and were left holding them till today. Even giants like ExxonMobil were not spared when the economy restructured.
SPH was a monopoly of the print media in Singapore. What could go wrong until it went wrong – Google and Facebook took away the lunch.
Singtel and Starhub were also darlings among investors, raking in recurring subscription fees with high retention rates. Until the government decided they have made too much and introduced competition which eroded the margins and dampened their share prices.
So I repeat again – the market changes. Indices change to reflect the changes in the economy and the markets. Not just the STI, even the S&P 500 has also gone through so much changes over the decades – companies come and go.
It is so hard to buy a stock that would grow over the decades because things change. Your investment views need to be updated and your portfolio need to change with times too.
Now tech stocks are all the rage because the market favours the narrative now.
Don’t just buy because their performances have been good, only to make the same mistakes with the oil and gas stocks in the past – buy high and see the prices drop when the narrative changes.
You need to have a well thought through investment thesis that is updated with times.
Change is the only constant.
Cliche? Doesn’t make it any less true.
Charles Darwin said, “it is not the strongest of the species that survives, nor the most intelligent; it is the one most adaptable to change.“
As an investor, it’s also important to discern what is a temporary impact (which you should hold on to) versus a permanent change (which you should bail). It is hard to tell between the two at times.
Sounds like hard work?
Well as Charlie Munger said, “it’s not supposed to be easy. Anyone who finds it easy is stupid.“