[SINGAPORE] While Saturday’s General Election (GE) offers a welcome signal for investors who value political stability, market watchers say its impact on the stock market is likely to be limited.
On Saturday (May 3), Singaporeans went to the polls and gave the ruling People’s Action Party (PAP) an overall share of 65.57 per cent of the votes in GE2025, a stronger show of support than the party’s 2020 showing of 61.24 per cent. The de facto opposition party, Workers’ Party, retained its existing seats, but made no gains.
OCBC’s managing director of investment strategy Vasu Menon told The Business Times that the local bourse could “enjoy decent gains” when markets open, buoyed by the ruling party’s strong showing in the weekend polls, Wall Street’s rally on Friday, and upbeat US April jobs data.
“While some may view the size of the ruling party’s mandate as a factor for investor sentiment, any impact will typically be short-lived, as investors often quickly shift focus back to broader macroeconomic drivers following the election,” he added.
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Danny Khoo, country head of sales trading at Saxo Singapore, also believes the local market is unlikely to see much reaction.
“Historically, the STI has shown to be more impacted by the Singapore Budget announcements, which can more directly affect the various business sectors in Singapore,” he added.
Still, Khoo noted that this year’s outcome, a victory for the incumbent government, may be viewed positively by investors who “value stability in the status quo”.
The STI index has a current price-to-earnings (PE) ratio of 12, which Khoo considers well within historical averages.
For Menon, this suggests that the local stock market is cheap relative to its history, and this augurs well for Singapore equities.
Based on consensus earnings forecasts, he noted the STI is currently trading at a forward 12-month PE ratio of 11.7 times, which is nearly one standard deviation below the 10-year average.
In comparison, global equities based on the MSCI All Country Global Index is trading at a much higher PE ratio of 17.5 times. In addition, the STI’s 5.1 per cent dividend yield is attractive and the highest among Asian bourses.
Previous elections and the STI
Menon, saying that Singapore’s general elections have not shown to have a lasting impact on the local stock market, said he believes that the performance of local equities will be shaped more by global factors in the coming weeks, particularly by US President Donald Trump’s trade policies and the broader economic response to tariff threats and recession risks.
“Ultimately, political developments only have a meaningful impact on markets if these developments have a significant economic and earnings impact,” he said.
In that context, Khoo pointed to rising trade tensions as a potential drag on the local market.
While the Singapore dollar has pulled in some safe-haven inflows in the short term, he warned that “over the longer run, we cannot run away from the fact that Singapore is a global trading hub that thrives on more globalisation, not less”.
In 2015, the PAP secured 70 per cent of the vote, its best showing since 2001, but the STI still fell 0.6 per cent on the next trading day.
IG’s Yeap attributed that decline more to external pressures, such as China’s stock market slump and concerns over a potential US Federal Reserve rate hike, than to the election outcome itself.
While the index was 5 per cent higher a month after GE2015, it was down 2.4 per cent by year-end.
In GE2020, the PAP’s vote share dropped to just over 61 per cent. Still, the STI dipped only 0.8 per cent following the result. A year later, the index surged 18 per cent as concerns about Covid started to ease.
“In 2020, Covid – more so than the local election – was a key driver of the Singapore stock market,” said Menon.
