STI index: Is it safe to buy Singapore stocks as they underperform?

The Strait Time Index (STI) index has underperformed its global peers as concerns about Singapore slowdown continues. The index, which tracks the biggest companies in Singapore, was trading at S$3,245 on Friday, a few points above this month’s low of S$3,130.

Singapore’s economy is slowing

Singapore’s economy did relatively well during the pandemic as demand for its manufactured products rose. It also did well as investors and companies rushed out of Hong Kong, one of its closest neighbours.

Recently, however, there are signs that the economy is slowing. Data published by the government has showed that the country’s non-oil exports have been in the red for months. These exports started falling in November last year and have been in the red since then.

Singapore will publish its trade numbers on Monday morning and analysts polled by Reuters expect that non-oil exports dropped by 12.90% during the month. The country’s imports have also been in the red. They dropped by a whopping 14.6% in May and analysts expect the trend to continue. The most recent data showed that Singapore’ economy narrowly avoided a recession, expanding by 0.7% YoY.

Another challenge for the STI index is that Singapore’s banks are not growing their margins at a faster pace. This is notable since banks like DBS, UOB, and OCBC are the biggest companies in the index.

Meanwhile, the Strait Time Index (STI) has been left behind because of its weighting in traditional companies. Unlike the hot Nasdaq 100 index, the STI index has no technology company. In addition to banks, its other biggest companies are Singtel (telecoms), Wilmar (conglomerate), Jardine Cycle, and CapitaLand among others.

Singapore stocks have also underperformed because of the recent actions by the government. It has recently hiked property taxes in a bid to lower house prices.

STI index technical analysis

The daily chart shows that Singapore stocks have moved sideways in the past few days. After falling to a low of $3,130, the index has jumped to slightly above the key resistance point at $3,240. It has moved slightly above the 50-day and 100-day moving averages. 

The index has also risen above the key support level at $3,157, the lowest point in June. Therefore, the outlook for the index is neutral, with the underperformance set to continue for a while. The key support and resistance levels to watch will be at S$3,200 and $3,350.