Investing in shares (2021) - guide to buying SGX stocks

These days, owning Apple stock is as much a status symbol as owning an Apple watch. (Well, they’re both expensive…)

Apart from making you more attractive, stocks and shares are also investment vehicles and can help grow your money. Sounds great, right? So why don’t more Singaporeans invest in shares?

One reason is that the stock market is a big and confusing place. It’s hard to know where to start. If that sounds like you, read this 101 guide to investing in shares in Singapore.

What are stocks/shares?

I’ve been using the words “stocks” and “shares” interchangeably, but technically there’s a slight difference between them. Stocks can be used as a general term (“I own a bunch of stocks”) whereas shares are always of a certain company (“I own Alibaba shares”).

All right, so where do stocks/shares come from?

Most companies start off as entirely private endeavours. For example, Facebook used to be owned entirely by Mark Zuckerberg and pals.

But in 2012, Facebook launched (technical term: initial public offering, or IPO) on the Nasdaq stock market in the US. From that fateful day onwards, anyone with money can buy Facebook shares and thus become part-owner of the Zuck’s social media empire.

Why do private companies go public though? No, it’s not because they love you and want to give you a share of their profits.

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It’s usually because they want/need capital. When you buy Facebook stock, you’re giving them extra money to grow their business, hire developers, fight lawsuits, etc.

Shareholders usually do get a slice of the profits, if any, and these are usually paid out as dividends at intervals. (No promises though – it’s entirely up to the company’s discretion.)

Also, as part-owners, shareholders get the right to vote on certain business decisions at the company’s general meetings. On a day-to-day level, each publicly listed company has a board of directors to look out for shareholders’ interests in the company’s business decisions.

These perks apply to ordinary shares. There are also preferred or preferential shares, a special subclass of shares, which give you better voting rights and better or even guaranteed dividends.

What kind of returns can you get from shares?

Here’s where things get complicated.

When it comes to returns, it all depends on what type of investor you are. Not everyone buys shares for the same reason. I’ll highlight three main types of investors and you can figure out which one you are.

Growth investors or traders mainly try to take advantage of that constant share price fluctuation. They can buy stocks at low prices and sell when the prices high – the profit is called capital gain.

This can happen in a matter of days or even hours, so it requires a lot of time and effort. There’s also the risk of losing money if you’re looking at more volatile stocks.

Value investors primarily look for “undervalued” stocks, for example, in a little-known company that’s running a highly profitable business. Their goal is to buy shares in that company before other people realise it.

But such investing requires a lot of analysis and hard work – boring stuff like reading prospectuses and crunching numbers.

Passive investors describe the bulk of Singaporeans who don’t have the time or financial literacy to do growth or value investing. The strategy here is to buy a blue chip stock (i.e. very mainstream, established, and unlikely to fail) and hold it for a long time, making money through its dividends.

How do you choose what shares to buy?

Unlike common investments like Singapore Savings Bonds or the STI ETF, there are gazillions of options when it comes to buying shares.

Even though Singapore only has one stock market (Singapore Exchange, more commonly known as SGX) there are some 700 companies to choose from.

So where do you even start!? Here are some factors you can look at.

Industry: How well a company does is related to wider economic conditions. For example, if the healthcare sector is growing, it might be a good time to buy healthcare stocks.

Business model: How does the company make money? How about its expenditure? Is it an efficient company? Assess if the company’s business operations and revenue generation model are sustainable.

Management: Are the management actually competent and smart? Or are they bumbling fools? If you’re going to be part-owner of a company, make sure that the showrunners actually know their stuff.

Growth indicators (share price or dividend yield): No one wants a stagnating stock on their hands. For growth investors, look at the share price history – is there a possible upward trend? For passive investors, look at the dividend yield – you want consistency as much as decent returns.

Stability (debt/EBITDA ratio): Another indication of a company’s stability is the debt/EBITDA (earnings before interest, tax, depreciation and amortization) ratio, which shows you how deeply it’s in debt. 

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If the number is high, it might be borrowing more than it can handle… which can either excite you, or sound alarm bells.

Valuation (price/earnings or price/book value): For value investors, you want to look at either the price/earnings (P/E) or price/book value (P/BV) ratio which tells you how much people are willing to pay for a share. P/BV of one indicates perfect equilibrium.

<1 means the stock might be undervalued, while > one suggests that investors are very confident in the company’s ability to perform.

Don’t be too intimidated by the terminology – you don’t necessarily need to hire an investment banker to help get all this information (unless you want to, of course).

All the data you need to start investing is available for free on sginvestor.io, a database of information for anyone who wants to learn about SGX listed companies. However, it does take some investment knowledge to understand what all these numbers mean.

Top 10 stocks on SGX 2021 & how to analyse them

There’s no way to say exactly which stocks are best because the picks would be completely different for each investor profile, and they would change every day. What I’ve done instead is compile a list of the 10 most popular stocks on SGX so you practise doing a very simple analysis of key data points. 

Company	Share price	Market Cap
DBS Group	$29.29	$933.73 million
OCBC	$11.72	$524.28 million
UOB	$25.37	$469.71 million
SingTel	$2.32	$380.71 million
Yangzijiang Shipbuilding	$1.41	$263.60 million
Wilmar International Limited	$4.72	$236.99 million
Singapore Airlines	$4.50	$219.17 million
CapitaLand	$1.99	$202.23 million
Genting Singapore	$0.79	$174.58 million
Singapore Press Holdings	$1.58	$171.40 million

Most of these are blue chip stocks and most likely attract mainly passive investors. Therefore, they’re arranged by market cap (from best to worst), but that is by no means the only factor to look at. Also, I’m no stock market analyst so please don’t rush out and buy the stocks listed here!

1. DBS Group (share price $29.29)

As practically the national bank of Singapore, it’s not surprising that DBS is on this list. There’s nothing particularly remarkable about their stats – everything looks healthy. As with the other banks, you can’t see their debt/equity ratio, but Singaporeans generally regard local banks as “safe”.

2. OCBC (share price $11.72)

The second local bank on the list is OCBC, which also needs no introduction. OCBC has an investment holdings arm, meaning it reinvests some of the capital from selling shares, which is a way to make every shareholder dollar work harder.

3. UOB (share price $25.37)

Like DBS, UOB doesn’t have to reveal a whole lot of financials for investors to feel confident, and its stock market profile is very similar to that of DBS and OCBC.

4. Singtel (share price $2.32)

The de facto telco giant in Singapore doesn’t trail too far behind the three big banks in Singapore in terms of market cap and because of that, it remains extremely popular nonetheless. Who would lose confidence in Singtel, right?

5. Yangzijiang Shipbuilding (share price $1.41)

Yangzijian Shipbuilding is actually a shipbuilding group based in China, and you are able to trade its shares on SGX in Singapore Dollars or China Yuan.

It’s one of the most profitable and efficient shipbuilders in China, boasting an 89 per cent year-on-year jump in 2021 Q1 net profit, according to The Business Times.

6. Wilmar International Limited (share price $4.72)

Wilmar International Limited is a Singapore-based agribusiness group started in 1991, and has since expanded into a market powerhouse for edible oils, rice, flour and biofuels. Demand for these products are unlikely to go away, and may in fact, increase due to the recent COVID restrictions.

7. Singapore Airlines (share price $4.50)

Whilst the current times for the beleaguered flag carrier of Singapore might not look good for it, online shopping and its resulting freight has sustained its operations. It’s only a matter of time before travel opens up again, and when it does, Singapore Airlines’ share prices will surely take off.

8. CapitaLand Ltd (share price $1.99)

Singapore’s commercial real estate giant is one of the big names on SGX too. (But don’t confuse this stock with their CapitaLand Mall and Ascott REITs – that’s a slightly different kind of investment.)

9. Genting Singapore (share price $0.79)

A key arm of Malaysia’s Genting Group, Genting Singapore is best known as the owner of Resorts World Sentosa. Its operations are mainly casinos, leisure and hospitality. While that sounds like a risky venture on paper, it borrows much less than it earns, which means it’s financially conservative.

10. Singapore Press Holdings (share price $1.50)

Singapore Press Holdings is one of Singapore’s biggest media companies, and its recent restructuring has had a positive effect on its market cap.

However, its media arm is only one part of the equation, because its board of directors are savvy enough to diversify its businesses to include property acquisitions in Australia, Germany and the UK, as well as dipping its toes in the aged care sector in both Singapore and Japan.

How can you start investing on SGX?

First, open a CDP account. Then, set up a trading account with the brokerage firm of your choice. (Some brokers let you do both at the same time.)

Many Singaporeans save up thousands of dollars as an investment fund before they start investing. But you don’t really need to set aside a huge amount.

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SGX shares come in lots of 100. (It used to be 1,000, but was lowered to make investing more accessible.) That means your minimum investment is only 100 x share price of your desired company.

Suppose you plan to buy shares in StarHub, and the price of a single share is currently $1.77. Your minimum investment is $177, excluding any transaction fees. Of course, you might want to increase the amount to make your brokerage commission fees worth it.

Alternatively, instead of investing a large lump sum, you can also start investing from as little as $100 a month using a Regular Savings Plan – read our comparison of RSPs in Singapore here.

The amount sounds measly, but this “monthly subscription” method is a legit investment tactic called dollar cost averaging. When you invest a big lump sum, there’s always the chance that you’re buying stocks at the wrong time (e.g. prices are about to fall).

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Buying a little bit each month helps spread out that risk, hence “averaging” your potential costs.

Most beginners start off as passive investors. That requires you to choose your stocks well so that you can get returns in the long run. But if you’ve chosen well, you needn’t worry too much about the stock market’s daily fluctuations. Don’t go crazy and hit the panic button every time the share price wobbles!

If you have a higher appetite for risk and want to try growth or even value investing, start with a smaller amount to get your feet wet. The great thing about shares is that they’re highly liquid.

If you decide that you prefer passive investing after all, you can always sell your shares and buy new ones. So, don’t feel like you need to get it perfectly right from the get go.

Can Singaporeans invest in foreign stock markets?

I’ve been talking about SGX shares this whole time, but what if you want to invest in Alibaba or Tencent in China? Or Apple or Google in the US?, sgx

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You absolutely can, but it’s harder and riskier.

Some brokerage firms let you invest in foreign stock markets for additional fees.

But know that there are more risks to investing overseas due to foreign exchange fluctuations and differences in regulations.

Your other alternative is to go through a professionally managed unit trust, although you’d have no say over which particular companies you want shares in.

This article was first published in MoneySmart. All content is displayed for general information purposes only and does not constitute professional financial advice.