How much did Singapore’s Straits Times Index decline during past recessions?

For real-time updates, do join our:

1. Telegram Group: The InvestQuest
2. Whatsapp Broadcast: Just send “Hello IQ” to +65 8840 2520

---

---

Difficulty Level: Easy

---

We looked at Singapore’s Straits Times Index (STI) during the past four recessions

1) STI’s peak-to-trough declines ranged from -47% to -63%

2) STI took 200-300 days to reach the trough from Day 0

3) STI took 400-970 days to recover to levels seen at Day 0

Day 0 is the first day of the first quarter with negative GDP growth.

---

Singapore has had four recessions since independence

Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.

George Santayana

Definition of an economic recession: Negative GDP growth of two quarters or more.

Since independence, Singapore has experienced a total of four economic recessions with the following timeline and reasons:

• 2Q1985 – 4Q1985 Global slowdown: Slowing growth of industrialized countries like USA, poor performance of key domestic industries like oil refining and shipbuilding due entry of new competitors, ASEAN countries trading directly rather than going through Singapore as a trade hub, less favourable tax policies implemented by ASEAN nations (ie Malaysia implementing 50% tax on goods bought from Singapore). Details here.
• 4Q1997 – 3Q1998 Asian Financial Crisis: There was an overvaluation of regional currencies as a result of prior persistent inflows of foreign capital. Loss of confidence across the region after Thailand failed to defend the Thai Baht’s peg to USD. Details here and here.
• 1Q2001 – 3Q2001 Dot-com Bubble: Singapore was impacted due to exposure to electronic and semi-conductor manufacturing.
• 2Q2008 – 1Q2009 Global Financial Crisis: Closer to home was the souring of Lehman’s Minibonds, DBS High Notes 5 and Merrill Lynch Jubilee Series 3 LinkEarner Notes (details here)

---

We analysed how the Straits Times Index (STI) performed during recessions

While Singapore’s broader economy has never failed to bounce back post recession, it would be interesting to find out how did the Singapore stock market perform, leading up to and out of the past recession.

Our analysis. In the below chart, we’ve shown the price return of the benchmark STI Index / Straits Times Industrial Index (prior to 1998) in the 500 trading days leading up to when GDP first prints negative growth and 500 trading days after.

---

Conclusion 1: During past recessions, STI’s peak-to-trough decline ranges from -47% to -63%

During past recessions, the Straits Times Index’s (STI) peak-to-trough decline ranges from -47% to -63%

• 1st recession, Global Slowdown: -47%
• 2nd recession, Asian Financial Crisis: -63%
• 3rd recession, Dot-com-bubble: -52%
• 4th recession, Global Financial Crisis: -62%.

What this could imply for the current crisis. Flash estimates are now pointing to a 10.6% quarter-on-quarter decline in 1Q2020 annualized GDP for Singapore. So assuming this crisis’s Day 0 is 31 Dec 2019, our pre-crisis peak would be the STI’s 2 May 2018 level of 3,615. A decline of 47% to 63% would suggest a fall to a level between 1,916 and 1,338…?! Yikes.

---

Conclusion 2: During past recessions, the STI took 200-300 days to reach its trough

During past recessions, the Straits Times Index (STI) took 200-300 days from Day 0 to reach its bottom. Day 0 is the first day of the first quarter with negative GDP growth.

What this could imply for the current crisis. Assuming this crisis’s Day 0 is 31 Dec 2019, and if the above timeline holds true, the best time to enter the market would be between September 2020 and February 2021.

---

Conclusion 3: During past recessions, the STI took around 400-970 days to recover to Day 0 levels

During past recessions, the Straits Times Index (STI) took 400-970 days from Day 0 to recover to its level on Day 0. Day 0 is the first day of the first quarter with negative GDP growth.

The STI took the longest to recover from the 3rd recession (Dot-Com Bubble).

• 1st recession, Global Slowdown: 396 days
• 2nd recession, Asian Financial Crisis: 407 days
• 3rd recession, Dot-com-bubble: 969 days…
• 4th recession, Global Financial Crisis: 536 days

What this could imply for the current crisis. Assuming this crisis’s Day 0 is 31 Dec 2019, and if the above timeline holds true, the market could recover to 31 Dec 2019 levels between June 2021 and September 2023.

---

Of course, history does not repeat itself with such exactness. The economic damage dealt by the Covid-related social distancing as well as the impact of government stimulus has yet to fully play out. Following which, the duration for markets to recovery back to pre-crisis peaks would be heavily reliant on when an effective vaccine is found. But it’s good to bear these data points in mind as a potential reference point.

The InvestQuest’s View: I have never believed in timing the bottom. Once stock valuations provide a sufficient margin of safety, I personally phase in my positions in a gradual manner.