Return dispersion is a key theme of the new investing paradigm. It is therefore crucial to parse through the return of various markets around the world to identify meaningful divergences. 2022 saw major declines across the board for #equities , especially in USD-terms. #singapore ‘s index (“STI”) was the notable exception among advanced economies with a 4.7% return in USD terms vs -20% for the S&P500 (see chart). While very skewed to financials and property, the index carries a 12 PE and is rather inexpensive relative to the S&P 500’s 20. More importantly in 2022 the correlation with US equities was low to negative, hence providing some measure of diversification.

STI’s outperformance should not come as a surprise and we already highlighted the divergence last September (https://bit.ly/3QVNUp7). At times of elevated macro uncertainty, Singapore’s economic fundamentals are among the best for developed markets. As Hong Kong’s international vocation is coming into question, Singapore has strengthened its position as the preferred business and financial center in the region. Strategically located at the crossroads of some of the fastest growing economies in the world, the country is also the preferred destination for business and UHNWIs in the region. This year the economy is poised to benefit in a major way from China’s reopening. Over the longer term and in a world of increasing geopolitical instability, Singapore is looking uniquely resilient as it is the natural “terra franca” for both China and western interests.

Macro fundamentals will continue to be challenging in 2023 and the main positive for Singapore’s equities may come from the strength of its currency. The country runs a healthy current account surplus and it is a rare example of fiscal prudence. Singapore’s policymakers have been very careful to frontrun excesses in the property sector and ensure the relative stability of the currency, hence the USDSGD cross closing flat in a year with major fx volatility. The #sgd may start to get more adoption as an alternative reserve currency as the perceived valuation risk for the #usd is on the rise and more investors may want to diversify some liquidity away from the greenback.

Investors are facing a new and challenging macro environment and should be most discerning in capital allocation. Returns should be considered through a rigorous risk-adjustment and factor in categories of sovereign risk once considered “tail” but perhaps no longer such.

Disclosure: Not investment advice. Do your own research. Hold all assets mentioned. Twitter @pietroventani for more timely comments and updates

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