Ever wondered what is currently driving the local and regional markets? #whatstrending is a series addressing some of the most trending questions/topics on the markets for investors. Designed to be educational, expect to get factual information on what is driving sectors and stocks listed on SGX, featuring insights from professionals in the community.

Today, we hear more from FTSE Russell’s Global Investment Research team. Belle Chang, Senior Manager of the Multi-Asset, Global Investment Research team, shares her thoughts on the rising importance of Financials, Telecommunications and Utilities industries in Singapore to its economy and equity markets. 

Q1: How has the Straits Times Index (STI) performed in recent years and what has contributed to the performance? 

From Belle Chang, Senior Manager, Global Investment Research team at FTSE Russell:

• The STI has outperformed many other Asia Pacific markets in the past two years, mainly due to the strong performance of Financials and the defensive nature of the market. As of 3 Dec, the index has gained over 16% in 2024 and has reached a 17-year high.
• The STI's performance has been bolstered by the high dividend yields and defensive characteristics of the market, as well as the strong performance of banks in a high-interest-rate environment. Financials and Real Estate have significant weights in the STI, with Financials accounting for 53% and Real Estate for 17% as of September 2024.  
• Meanwhile, Telecommunications and Utilities, despite their lower weight, have also benefited from the AI cycle since 2022.  As of October 2024, the STI leads with a 4.9% dividend yield, the highest in Asia Pacific.

Q2: How has the financial industry in Singapore and the STI evolved over the past decade? 

From Belle Chang, Senior Manager, Global Investment Research team at FTSE Russell:

• Over the past decade, Singapore's financial industry has seen significant growth, particularly in its contribution to the country's GDP. The finance industry's contribution to total GDP has increased the most – expanding from a 5% share to 14% of GDP – solidifying Singapore's role as Asia's financial hub.
• The STI, which represents the Singapore economy, has seen the weight of Financials increase from 34% in 2014 to approximately 53% as of September 2024.
• This growth has been driven by the robust performance of banks and other financial institutions, especially during the recent rate hike cycle. Financials, especially Banks, tend to perform better than other industries in a high-interest rate environment which allowed Banks to keep a high net interest margin. Singapore rates tend to move closely with US rates. As long as the US Federal Reserve’s rate cut cycle is a shallow one, US and Singapore interest rates could stay at a level that is still high compared to historical levels. As a result, banks could continue to benefit from a “higher for longer” rate environment.

Q3: What roles do Telecommunications and Utilities play in Singapore’s economy and the equity market? 

From Belle Chang, Senior Manager, Global Investment Research team at FTSE Russell:

• While Telecommunications and Utilities together account for about 11% of the STI weights, their importance is growing. These two industries have outperformed since the second quarter of 2024, benefiting from advancements in AI and increased demand for data centres and electricity.
• Singapore announced Green Data Centre Roadmap in May 2024 – the government not only aims to increase more than one-third of its current data centre capacity, but also to keep data centres green. As a digital economy has become one major area of development, stock prices of both Telecommunications and Utilities have benefited as a result since 2Q24.

Q4: How has Singapore's economy developed through the years, and how can investors capitalise on these developments?  

From Belle Chang, Senior Manager, Global Investment Research team at FTSE Russell:

• Initially established as an international trade hub, Singapore leveraged its strategic location and built a business-friendly environment with free trade agreements, tax breaks, and freer foreign exchange frameworks. In the 1970s, Singapore was one of the Asian Tigers, experiencing impressive economic growth. Net exports' contribution to GDP increased from 0% in the 1990s to 30% in the 2020s.
• Singapore rose as the trade hub of ASEAN and became a key regional hub in APAC. Singapore's educated and competitive workforce also supports its strong manufacturing sectors, such as electronics and chemicals, contributing 25% to GDP.
• Singapore's economy is also characterised by a robust services sector, which accounts for 65% of its GDP, marking a significant increase from 55% over the past decades. In particular, the contribution of the finance industry to total GDP rose the most, raising the importance of Singapore’s role as Asia’s financial hub.
• Singapore’s equity market reflects this strong growth, the flagship Singapore equity index, STI, has a strong correlation with GDP. STI reflects Singapore’s strategic economic focus, with Financials being a critical contributor and Telecommunications and Utilities industries becoming a rising area. As an Asian financial hub, the Financials industry, particularly Banks, benefit from a high-interest-rate environment. Telecommunications and Utilities have gained momentum due to the AI-driven demand for data centers, supported by Singapore government’s Green Data Centre Roadmap. These two industries are expected to become rising contributors to Singapore’s economy and equity markets.

Visit here for more resources on the STI, including list of index constituents and performance data.

For more insights from FTSE on the STI, visit here. 

Enjoying this read?

• Subscribe now to the SGX My Gateway newsletter for a compilation of latest market news, sector performances, new product release updates, and research reports on SGX-listed companies.
• Stay up-to-date with our SGX Invest Telegram channel.