• Manufacturing remains an important sector of the Singapore economy that accounted for 22.2% of nominal GDP in 2010. In terms of 2010 Singapore export destinations, ASEAN accounted for 30.3% versus Europe at 9.8%, and the United States at 6.4%.

• On its elasticity to the external environment, the industrial sector has weighed the SIMSCI - from 31 Dec 2011 to 9 Sep 2011, the industrial sector declined 23.96% and is made of a dozen companies such as Keppel Corp (-14.9%), Noble Group (-26.3%), Fraser & Neave (-10.3%), Singapore Airlines (-23.9%) and Singapore Tech Engineering (-12.3%).

• From 31 Dec 2010 to 9 Sep 2011, the SiMSCI has outperformed the EURO STOXX 50^® Index, the MSCI Taiwan Index and the Nifty Index. The underperformance of the EURO STOXX 50^® Index to Asia benchmarks has been evident in the month of August and first week of September, that saw the Index diverge from the price performance of the SiMSCI, FTSE China A50, MSCI Taiwan Index and Nifty Index.

Sectorial and global benchmark contrasts of the MSCI Singapore Free Index^TM (SiMSCI) in 2010 reveal the elasticity of the index to business cycles and global industrial policy. The lack of industrial policies in the United States and Europe to help sustain the fiscal stimulus, expansionary monetary policies and ward off anemic GDP growth has been evident in recent language delivered by respective policy makers.

Manufacturing remains an important sector of the Singapore economy that accounted for 22.2% of nominal GDP in 2010 as detailed in the Monetary Authority of Singapore’s (MAS) report on Recent Economic Developments in Singapore (available here). The report also stated that in terms of export destinations in 2010, ASEAN accounted for 30.3% versus Europe at 9.8%, and the United States at 6.4%. As the region continues to industrialise, Singapore exports almost five times to ASEAN as it does to the United States.

Sector Trends

The table below details the sector performances as well as the overall SiMSCI Index in 2011 and over the month of August and first seven trading sessions of September. From 31 Dec 2011 to 9 Sep 2011, the worst sector performer has been the industrial sector, which declined 23.96% and made of a dozen companies such as Keppel Corp (-14.9%), Noble Group (-26.3%), Fraser & Neave (-10.3%), Singapore Airlines (-23.9%) and Singapore Tech Engineering (-12.3%). On its elasticity to the external environment, the industry sector has weighed the SIMSCI which declined 14.29% over the same time period.

Much of the 23.96% decline of the industrial sector was made after 29 Jul 2011, which saw the sector fall 17.13% while the SiMSCI declined 12.61%. During this time, Europe policy makers were calling for structural reform and the United States focused on the potential further measures the Federal Reserve could adopt to stimulate growth and employment.

The SiMSCI is most weighted to financials that currently represents 46.0% of its market capitalisation, with industrials representing 24.1% and telecommunications representing 12.2%. The SiMSCI consumer sector is comprised of discretionary and staples names that represent 9.6% and 8.1% respectively.

The recent performance of the index has been almost paralleled by the financial sector which, as aforementioned, accounts for almost half of the Index weightings. Aside from the financial sector, the other sectors have displayed varied performances such as telecommunications that have outperformed the index.

Global Benchmark Comparisons

From 31 Dec 2010 to 9 Sep 2011, the SiMSCI has outperformed the EURO STOXX 50^® Index, MSCI Taiwan Index and Nifty Index. A component of the from the industrial integration of Singapore to global demand, is the regional demand that emanates from ASEAN.

The table below details the respective percentage declines, in addition to the relatively better performance of the FTSE China A50, which has declined 9.90% from the period 31 Dec 2010 to 9 Sep 2011.

The underperformance of the EURO STOXX 50^® Index to Asia benchmarks has been evident in the month of August and first week of September, that saw the Index diverge from the price performance of the SiMSCI, FTSE China A50, MSCI Taiwan Index and Nifty Index. The relative performances of these indices from 1 Jul 2011 into the first week of September is illustrated in the chart below.

SiMSCI Index & EURO STOXX 50^® Index

The SiMSCI Index and EURO STOXX 50^® Index both represent global benchmarks with divergent performances in the first eight months of 2011. The EURO STOXX 50^® Index is a free-float adjusted market capitalisation index that tracks the daily performance of the 50 blue-chip companies in 12 Eurozone countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. France, Germany, Spain and Italy are the heaviest weighted countries in the Index and all banking constituents originate from these four countries.      

Singapore Exchange provides futures contracts on both these key benchmark indices that can be traded from 9am through to 2am the next trading day with each contract making use of trading break to separate its day trading session to night trading session.

Pair Trading SGX SiMSCI & EURO STOXX 50^® Index Futures

As illustrated in the relative performances chart, the MSCI Singapore Index has outperformed the EURO STOXX 50^® Index since the beginning of July to date. Investors were able to take a holistic approach to the relative index performance by implementing a mean-reversion or mean-diversion strategy. If implementing a reversion or diversion strategy, investors and traders must manage the risk that in the event of a significant change in fundamentals, the pre-existing mean relationship may no longer exist. Investors wishing to participate pair trading should be mindful of such changes before trading.

Based on historical data since the beginning of 2011, the Price Ratio median of these 2 contracts is 7.7637 with a standard deviation of 0.4218 while the Price Ratio mean is around 7.6695.  As of closing prices of 8 Sep 2011, the price ratio is around 1.00 EX to 6.62 SG.

Initial margin requirements on the SGX EX and SG contracts are listed below. As aforementioned an up to 40% inter-commodity spread margin credit on both these contracts is available.

Exchange Traded Funds

SGX Exchange Traded Funds (ETFs) traded S$1.175 billion in August, achieving record monthly turnover and more than doubled than a year ago by 156%. There are a number of ETFs that cover the regional and country benchmarks discussed in this update. The table below details the relevant ETFs.

Specified Investment Products

As part of the Monetary Authority of Singapore’s (MAS) initiative to introduce stronger measures and enhance requirements to further safeguard the interests of individual investors, Futures and Exchange Traded Funds have been categorised as Specified Investment Products (SIPs).

SGX SIPs have structures, features and risks that may be more complex in nature. From Jan 2012, the MAS will require broking firms to ascertain whether an individual investor has the relevant knowledge and experience to understand the risks and features of SIPs before allowing the individual to open an account to trade SIPs listed on both securities and derivatives markets.

SGX has introduced two online initiatives, a Customer Account Review Module and an Online Education programme, to support individual investors in their understanding and trading of SIPs listed on SGX. Click here to access these initiatives.

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