You may be surprised, but I get asked the above question more often than I care to remember.
Here’s the thing.
Many investors agree that the US stock market is perfect for finding growth stocks that can compound your way to retirement.
As a result, the Singapore stock market is viewed as being boring and stodgy by comparison.
But lest you write off the local bourse, there’s a silver lining.
Income investors view the Singapore stock market as a great hunting ground for dividend stocks.
And if you dig a little deeper, you will realise that there is more growth than you’d expect.
Let’s size up the market to look at whether it is an appropriate time to invest your money now.
Interest rates poised to head lower
First off, investors may be glad to see some respite soon from the high-interest-rate environment.
The US Federal Reserve chairman, Jerome Powell, said that “the time has come for policy to adjust”, implying that the central bank is finally looking to reduce interest rates as inflation is moving towards its long-term 2% target.
However, he did not indicate the timing and extent of interest rate cuts and cautioned that these decisions will depend on incoming economic data, the overall outlook, and any risks to the economy.
Recall that the trio of local banks, namely DBS Group (SGX: D05), UOB (SGX: U11) and OCBC (SGX: O39), has enjoyed strong earnings growth in line with higher overall rates.
Back in early July, the sharp rise of these banks’ share prices propelled the Straits Times Index (SGX: ^STI) to a six-year high.
Although investors may worry that lower interest rates will crimp the banks’ profits, DBS Group has affirmed that its business is less sensitive to interest rate fluctuations as compared to the past.
For the second quarter of 2024 (2Q 2024), Singapore’s largest bank disclosed that its net interest income will be reduced by S$4 million for each 0.01 percentage point reduction in the Federal funds rate.
This contrasted with a fall of around S$18 million to S$20 million back in 2021.
OCBC will invest HK$1.5 billion in the Greater China region over three years to build its presence and modernise its technology platform and products.
Its private banking arm is looking to grow its assets under management by 50% in Hong Kong by the end of 2026.
Hence, investors could see the banks as resilient, blue-chip plays that can continue to grow despite the spectre of lower interest rates.
A silver lining for the REIT sector
On the flip side, lower interest rates will strongly benefit the REIT sector.
As REITs rely heavily on borrowings and need to pay out at least 90% of their earnings as distributions, they will benefit from lower borrowing costs.
Take Mapletree Pan Asia Commercial Trust (SGX: N2IU) for instance.
The retail and commercial REIT saw net finance costs rise 9.8% year on year for the first quarter of its fiscal 2025.
Over at OUE REIT (SGX: TS0U), finance costs jumped 18.5% year on year for the first half of this year.
Lower interest rates will benefit these two REITs and others as borrowing costs ease, allowing them to report higher distributable income and distribution per unit.
Pockets of growth
Aside from banks and REITs, there are also pockets of growth within the local stock market.
Take iFAST Corporation (SGX: AIY).
The fintech saw its net profit leap 346% year on year to S$16 million for 2Q 2024 on the back of a 73% year-on-year increase in net revenue.
The group’s assets under administration also hit a new record of S$22.37 billion.
iFAST upped its interim dividend from S$0.011 to S$0.015 in line with the good results.
Over at Grand Banks Yachts (SGX: G50), the company reported record high revenue and net profit of S$133.6 million and S$21.4 million, respectively, for its fiscal 2024 ending 30 June 2024.
These two examples showcase the growth potential in selected companies that can continue in the years ahead if their business can keep up the momentum.
Get Smart: Wade in for bargains
From the above, it’s clear that there are still good growth and dividend stocks to be found in Singapore’s stock market.
Depending on your risk appetite and investment objectives, there will be something for you to include in your buy watchlist.
The idea is to wade in slowly while keeping an eye on each business’s growth plans and risks.
You will be surprised at the bargains you can find in stocks that you can own for many years or even decades.
In our latest report, we dive into five standout Singapore REITs offering distribution yields exceeding 5.5%. Why settle for less? Get more dividends hitting your bank account with our REITs guide. Click here to download for free now.
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Disclosure: Royston Yang owns shares of DBS Group and iFAST Corporation.
