2018 has been a tumultuous year for local investors, and it has not been anything noteworthy to boast about having a bountiful year for most equity investors. Ask anyone in the Street and chances are people telling you that their portfolio’s performance in 2018 were sub-par.

Despite the negative capital returns, income returns in the form of dividends, say from the three local banks like DBS Group Ltd, UOB Group, and OCBC continue to provide some consolation in 2018.

Bank Names Dividend Yield (%) Dividend Payout Ratio
DBS Group Holdings Limited 5.1% 53.3%
UOB Group Limited 3.9% 41.1%
Overseas-Chinese Banking Corporation Ltd (TTM) 3.5% 36.0%

Source: SGX Stockfacts, Yahoo! Finance Singapore

As one might note from the above table showing the breakdown of each local banks’ dividend yield and payout ratios, we noted that DBS Group Holdings Limited has the highest dividend yield and payout ratios among the three local banks.

2018 In Perspective

STI2018

Source: Phillip Securities Pte Ltd (31 December 2018)

The Straits Times Index (STI) started out 2018 on a firm footing at 3430.30 after scoring 18 percent full-year return in 2017. However, by February 2018, the STI suffered a drop of 1.5 percent owing to the first instance of heightened market volatilities returning to the global markets.

During the same month, the Volatility Index (VIX) or the “Fear” Gauge traded on the Chicago Board Options Exchange (CBOE) rose to 50 level, which was one of the highest readings since September 2008 when Lehman Brothers firm collapsed, sparking off the Global Financial Crisis (GFC) as we know today.

CBOE Volatility Index (VIX)

CBOE

Source: Yahoo! Finance (31 December 2018)

Following the February market lows and volatility mess, the STI recovered and finished at a high of 3,641.65 in April on the favourable expectations that interest rate hike would benefit local banks’ net interest margin.

The favourable first quarter earnings news on DBS also contributed to the market gains, and there was market-wide anticipation that rival banks, UOB, and OCBC might follow, thus fueling more gains for STI.

However, it only took slightly more than one month later in July before the STI started to go south following the implementation of the ninth round of property cooling measures since 2009. The further curbs in mortgage borrowing to finance private property purchases were one of the final straws to bring down the stock prices of banks and real estate developer stocks.

At year’s end, STI closed 2018 at 3,068.76, or a 10.5 percent decline from the start of 2018.

What Is In Store For 2019?

Despite falling equities, Singapore’s economic growth in 2018 remained sound at 3.3 percent, with inflation relatively subdued. However,  most market watchers continued to ratchet their estimates for STI downwards with the worst expecting it to hit around 2,800.

The Singapore government has already updated its 2019 economic growth forecast to be around 1.5 percent to 3.0 percent. However, despite the narrowed forecast range, most investors are not feeling highly optimistic either. The first half of 2019 is expected to be filled by global market events including the various regional elections in Indonesia and Thailand, “Brexit ” by end March, the outcome of the US-China trade talks, and the US Federal Reserve meeting outcomes, among others.

Back at home, investors will be eagerly watching closely for the Budget Day 2019 which will usually take place around end-February. Depending on the type of incentives laid out for individuals and businesses in that Budget statement, it could provide some push for STI.

No Point Timing The Market

Going into 2019, investors might think of recouping 2018 or even earlier losses, and bet big on further gains. However, this approach might backfire sometimes as it is remotely possible to outwit “Mr. Market”.

Instead, one might want to consider turning to a “regular-savings-plan” style of investment where you may put in a certain portion of your disposable income into a dividend focused stock, or an Index ETF overtime while ignoring the various market volatility.

Related Article:

Gabriel Gan: Early Signs Of Asian Bull Markets Returning?

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