The STI Is Up - But Are Singapore Investors Really Getting Richer?

When investors talk about the Singapore stock market, the conversation usually starts with one number:

How much did the Straits Times Index (STI) return?

It is a reasonable starting point.

The STI is one of the most widely followed indicators of Singapore's equity market, and its performance gives investors a useful reference point for understanding how large Singapore-listed companies have performed.

But there is a problem with looking at only one number.

A positive stock-market return does not automatically mean that an investor's real wealth increased by the same amount.

To understand what actually happened to an investment, we need to look beyond the headline index return.

We need to consider:

• Equity-market performance

• Inflation

• Currency movements

• Volatility

• Drawdowns

• Risk-adjusted performance

• Investment horizon

• Purchasing power

This changes the question from:

“Did the STI go up?”

to:

“How much wealth did the investment actually create after considering the factors that affect its value?”

1. What Does the STI Actually Tell Us?

The Straits Times Index (STI) is a benchmark representing major companies listed on the Singapore Exchange.

When the STI rises, investors generally interpret that as positive performance from Singapore's large-cap equity market.

For example, imagine an investor puts S$100,000 into an investment that tracks the STI.

If the investment rises by 10%, the nominal value becomes approximately:

S$110,000

At first glance, that looks straightforward.

The investor made S$10,000.

But this calculation leaves out an important question:

What can that S$110,000 buy compared with what S$100,000 could buy when the investment started?

2. Nominal Return Is Not the Same as Real Return

Investment performance is often reported as a nominal return.

Nominal return simply measures the change in the investment's stated monetary value.

The basic calculation is:

Nominal Return = (Ending Value ÷ Beginning Value) − 1

But investors ultimately care about purchasing power.

If prices increase during the same period, some of the apparent investment gain is offset by inflation.

A simplified real-return calculation is:

Real Return = (1 + Nominal Return) ÷ (1 + Inflation Rate) − 1

For example, suppose:

• Investment return = 10%

• Inflation = 4%

The real return would be approximately:

(1.10 ÷ 1.04) − 1 = 5.77%

So although the investment increased by 10% in nominal terms, its purchasing-power-adjusted increase would be closer to 5.8%.

This distinction is particularly important when comparing investment performance over several years.

3. Then There Is the Currency Question

Singapore is an internationally connected financial centre.

For an investor whose reference currency is USD, EUR, INR, GBP or another currency, the SGD return may not be the complete picture.

Suppose a Singapore investment produces a positive return in SGD.

The investor may still experience a different return when measured in another currency because of movements in the exchange rate.

The simplified relationship is:

Foreign-currency return ≈ Local asset return + Currency impact

More precisely, when converting an investment from SGD into USD, both the investment value and the SGD/USD exchange rate matter.

This creates an important distinction:

Return in SGD

How much did the investment increase in Singapore dollars?

Return in USD

How much did the same investment increase after accounting for SGD/USD movement?

These can be different numbers.

And neither is necessarily the "wrong" number.

4. Why Currency Matters for Global Investors

Consider a simplified example.

An investment in Singapore produces a 12% return in SGD.

At the same time, suppose the SGD weakens by 5% against the investor's reference currency.

The investor's foreign-currency return would not simply be 12%.

A simplified calculation would be:

(1.12 × 0.95) − 1

= approximately 6.4%

The exact result depends on the direction and magnitude of the currency movement.

The important point is:

A local-market return does not necessarily equal an international investor's return.

This is one reason institutional investors and global portfolio managers monitor both asset performance and currency exposure.

5. Singapore Investors Should Also Think About Inflation

There is another layer.

Even if an investor measures everything in SGD, inflation still matters.

Imagine two investments:

Investment A

• Nominal return: 8%

Investment B

• Nominal return: 6%

At first glance, Investment A looks better.

But suppose Investment A experienced substantially higher risk and volatility.

Or suppose the investor's required return was much higher because of the risk taken.

The headline return alone doesn't tell the whole story.

This is why professional portfolio analysis doesn't stop at:

“Which investment went up the most?”

It also asks:

“How much risk was required to achieve that return?”

6. Return Without Risk Is an Incomplete Number

Two portfolios can produce the same return while having very different risk profiles.

Imagine:

Looking only at return, they appear identical.

But an investor's experience could be very different.

Portfolio B may have experienced much larger swings and deeper temporary losses to achieve the same final return.

This is why quantitative portfolio analysis considers measures such as:

Volatility

How widely investment returns fluctuate.

Maximum Drawdown

The largest decline from a previous peak.

Sharpe Ratio

A commonly used measure comparing excess return with volatility.

Sortino Ratio

A risk-adjusted measure that focuses more specifically on downside volatility.

These measurements provide additional context around headline returns.

7. The Problem With Looking Only at the Index

The STI is useful.

But the STI is still a benchmark, not necessarily an investor's actual portfolio.

An individual investor may hold:

• Singapore banks

• REITs

• Technology companies

• Industrial companies

• Global ETFs

• US equities

• Bonds

• Cash

• Property

• Alternative investments

The actual portfolio experience can therefore be very different from the STI.

For example, an investor could outperform the STI while taking substantially more risk.

Another investor could underperform the STI but experience significantly lower volatility and drawdown.

This is why:

Benchmark performance and portfolio performance are not the same thing.

8. A Better Way to Evaluate Singapore Market Performance

Instead of looking at a single return number, investors can build a broader framework.

Layer 1 - Equity Return

Start with:

STI performance in SGD

This answers:

How did Singapore large-cap equities perform?

Layer 2 - Currency

Then consider:

SGD/USD movement

This answers:

How did the investment perform for a USD-based investor?

Layer 3 - Inflation

Then consider:

Singapore inflation

This answers:

How much purchasing power did the nominal return actually create?

Layer 4 - Risk

Then evaluate:

• Volatility

• Maximum drawdown

• Downside deviation

This answers:

How much risk was taken to achieve the return?

Layer 5 - Risk-Adjusted Return

Finally:

Return ÷ risk

It helps investors understand whether the return was achieved efficiently relative to the risk taken.

9. The Question Investors Should Really Ask

Instead of asking:

“Is the STI up?”

investors could ask:

“What did I actually earn after inflation, currency effects and the risk I took?”

That question produces a much more complete picture.

A 10% nominal return may sound attractive.

But its significance depends on:

• The inflation rate

• The investment horizon

• Currency exposure

• Volatility

• Drawdown

• Alternative investment opportunities

• The investor's personal base currency

This is why there is no single number that completely describes investment success.

10. What Does This Mean for Portfolio Management?

This is where portfolio construction becomes important.

The objective should not necessarily be to find the asset with the highest historical return.

Instead, investors can evaluate how different assets behave together.

This is one of the fundamental ideas behind Modern Portfolio Theory (MPT).

The portfolio question becomes:

Can we combine assets in a way that improves the relationship between expected return and risk?

For example, a portfolio could potentially combine:

• Singapore equities

• Global equities

• Bonds

• REITs

• Cash

• Other diversified assets

The purpose is not simply to add more investments.

The objective is to understand:

correlation + expected return + volatility + downside risk

and determine how those characteristics interact within the overall portfolio.

11. Why Diversification Changes the Conversation

Suppose an investor has 100% exposure to one market.

The investor is then exposed to the risks associated with that market, its economy, its currency and its sectors.

With a diversified portfolio, the sources of return and risk can be different.

For example:

Singapore equities

→ SGD exposure
→ Singapore corporate earnings
→ Singapore financial sector exposure

US equities

→ USD exposure
→ US corporate earnings
→ different sector composition

Global equities

→ multiple economies
→ multiple currencies
→ broader geographic exposure

Diversification does not eliminate risk.

But it can change the portfolio's overall risk characteristics.

12. The Bigger Lesson: Don't Confuse Market Growth With Wealth Creation

This is perhaps the most important distinction.

A market index can rise.

But an investor's financial position depends on much more than the index.

Consider the complete equation:

Investment outcome

= Market return
+/- Currency impact
− Inflation impact
− Investment costs
− Taxes where applicable
+/- Portfolio allocation effect
+/- Risk-management effect

This is why two investors can experience very different outcomes even when they invest during the same period.

13. What Quantitative Analysis Adds

Quantitative analysis allows investors to move beyond opinions and headlines.

Instead of saying:

“The market looks expensive.”

or

“The market looks attractive.”

we can examine measurable variables.

For example:

📊 Historical returns
📉 Drawdowns
📈 Volatility
💱 Currency exposure
💰 Inflation
🔗 Correlations
🧮 Risk-adjusted returns
📐 Portfolio optimization
⏱ Different investment horizons

The goal is not to predict the future with certainty.

The goal is to make the decision-making process more systematic.

14. A Better Framework for Singapore Investors

At PredictivePick, this is the type of framework we believe is worth examining when evaluating markets and portfolios:

1. What did the market return?

Look at the relevant benchmark.

2. What did the investor actually earn?

Account for portfolio allocation, costs and timing.

3. What happened to purchasing power?

Consider inflation.

4. What happened to the currency?

Consider the investor's base currency.

5. How much risk was taken?

Measure volatility and drawdown.

6. Was the return efficient?

Evaluate risk-adjusted performance.

7. Could diversification improve the portfolio?

Analyse correlations and portfolio construction.

This provides a much more complete picture than looking at an index chart alone.

Conclusion: The STI Is Only the Beginning

The next time someone says:

“The Singapore market is up.”

there is a useful follow-up question:

“Up by how much—and measured in what?”

The answer can change depending on whether we measure:

SGD return

vs.

USD-adjusted return

vs.

inflation-adjusted real return

vs.

risk-adjusted portfolio return

The point isn't that the STI is a bad benchmark.

It isn't.

The point is that one benchmark cannot answer every investment question.

For investors, the ultimate objective isn't simply to see a higher number on an index chart.

It is to understand whether capital is being deployed efficiently, whether the return compensates for the risk taken, and whether the investment is actually increasing purchasing power over time.

The market return is the beginning of the analysis - not the end.

Data & methodology note

For the Singapore-specific numerical version of this analysis, the appropriate primary/open sources include:

• Singapore Exchange (SGX) -STI/index information

• Monetary Authority of Singapore (MAS) - monetary and exchange-rate information

• Singapore Department of Statistics (SingStat) - CPI and inflation statistics