SINGAPORE - As stagflation concerns mar the outlook for the world's biggest developed markets, shares in small Singapore have held up surprisingly well in 2022.
The Straits Times Index has eked out gains of about 1 per cent in 2022, the only developed market gauge in positive territory in US dollar terms. In contrast, a world gauge is down 22 per cent in what could be its worst year since the 2008 global financial crisis.
A rising interest rate environment, a shift towards cheaper valuations and economic tailwinds generated by Singapore's Covid-19 pandemic recovery have helped underpin the benchmark, where banks account for about half of the weighting.
The measure's lack of exposure to technology shares has helped as well, contrasting its performance with the United States and Europe, economies that are struggling with issues ranging from inflation and energy shortages to supply chain disruptions.
"Until the Fed slows or pivots, developed markets probably won't catch up" with Singapore, said Mr Daniel Dubrovsky, strategist at DailyFX. The market is focused on the Federal Reserve, even after Australia's smaller-than-expected rate hike this week, and "there is still room for the labour market to absorb a near-term slowdown" in the US, he added.
Forward earnings estimates for Singapore stocks are up about 16 per cent year to date, four times the increase seen for members in the global gauge. Still, Singapore's trade-dependent economy is not without risk – factory activity contracted in September for the first time since June 2020 and retail sales show signs of slowing.
Auto distributor Jardine Cycle & Carriage is the top performer on the Straits Times Index in 2022, up 72 per cent, followed by utilities firm Sembcorp Industries' 53 per cent advance. Shares of DBS Group Holdings, the biggest stock on the gauge, are up 2.3 per cent. BLOOMBERG