Singapore Has Just Become Asia’s Best-Performing Stock Market

There’s been lots of competition for the title of Asia’s best-performing stock market this year. Among the major equity indexes in the region, eight have climbed to records in the first four months alone.

On May 2nd, Singapore’s Straits Times Index nudged higher, boosting this year’s gain to 6.2% in local currency terms, and took the top spot from Vietnam’s VN Index, which plunged 2%.

The city-state has its 3 big banks to thank for gaining the top spot across all major equity markets in the continent. On April 30, DBS Group Holdings Ltd., Southeast Asia’s largest lender, reported quarterly profit that beat analyst estimates helped by signs of economic growth and higher U.S. interest rates. Rivals United Overseas Bank Ltd. and Oversea-Chinese Banking Corp. report in the coming days, and could fuel further gains in the Straits Times Index.

“Singapore’s stock market is very much a reflection of its open economy,” said Edward Lim, chief investment officer of Covenant Capital Pte. in Singapore. “It’s really a reflection of the mood in rates and the relatively large exposure that the Singapore stock market has on banks.”

Meanwhile, Vietnam’s benchmark index has been paring advances after a 43% surge in the past year. The VN Index has fallen 14% from a record high on April 9th, as investors take profit and as a spate of local share sales curbed gains. The country’s stock market more than doubled in value in the past year to $174 billion.

Two of the markets which climbed to records this year – the Philippines and Indonesia – are now among the worst performers of 2018. China stock indexes in Shanghai and Shenzhen are down by more than 6% this year.

Even so, some investors aren’t convinced that Singapore will remain the best stock market in the region. “Valuations are actually stretched. If you look at other Asian markets, China still remains our top pick,” said Covenant’s Lim.

The Straits Times Index is trading at 1-year forward price-to-earnings ratio of 14 times, which is almost 1-standard deviation above its 5-year average, according to Bloomberg data.

While it’s possible that there’s still room for the benchmark index to climb another 3% to 4%, “a lot of the gains driven by domestic reasons have been factored in and upside is limited,” said Geoffrey Ng, director of Fortress Capital Asset Management Sdn – Bloomberg

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