Should You Invest Or Remain on The Sidelines During A General Election Period?

With General Election 2021 (GE2021) announced, Singaporeans look forward to listening to candidates from PAP and Opposition parties talking about their vision for Singapore within the coming years.

Of course, this will be also an especially important General Election as we are in the midst of combating the COVID-19 pandemic as well as need to navigate tricky geopolitical developments as a result of the US-China trade war.

Should You Invest Throughout an Election Period?

What's also interesting is that Singapore's GE2021 will coincide with the US Presidential Election in November 2021. Much research has been done on the historical performance of the stock market during the US Presidential Elections.

According to Charles Schwab, since 1928, 17 of the past 23 US Presidential elections years ended on the positive note for the S&P 500 index. The typical annual return was 7.1%.

Does Singapore's General Election Change up the Stock Market?

Of course, the US is the world's largest economy, and when compared with events in Singapore, including our General Elections, are more likely to have an impact on global investor sentiments.

As such, we should not expect Singapore's General Election to possess much bearing on global stock markets. Any relationship from such an analysis may be purely coincidental. I believe my statistics lecturer used to say “correlation does not mean causation”.

That being said, any “causation” will probably show up only in Singapore's stock exchange, and the Straits Times Index (STI) may be the benchmark for Singapore's stock market.

In Singapore, the last 6 election years were held in 2021, 2011, 2006, 2001, 1996, and 1991:

Here's how the Straits Times Index (STI) performed 30 days preceding and 1 month following each general election since 1991.

On average, the STI has dipped 1.7% within the one month preceding a General Election and gained 1.2% within the month following a General Election. However, we can't see any discernible patterns by looking at the statistics with the STI depicting a significant wide divergence from the average in many years.

In the past one-month period, the STI is already up 2.4%. This shows a couple of things: 1) there is even less correlation towards the average of the past six General Elections, and 2) even during a crisis year, stock markets can show positive returns when looking at specific windows. Looking at the year-to-date, the STI has struggled, delivering coming back of -19.6%.

Interestingly, two of the last six general elections were locked in years which we experienced an economic crisis – during the 1997 Asian Financial Crisis and the 2001 Dot-Com bubble. This year looks to be headed this way.

Should We Invest Without Relation to its The General Election?

During a general election in Singapore, the news may be dominated by politics and investment topics may become slightly drowned. Nevertheless, it doesn't mean there any sterling opportunities to uncover or that people should stay away until the news cycle normalises.

What we can do is continue to invest based on our existing strategy. As dollar-cost averaging on a monthly basis, we should not stop during a downturn, and similarly, we should not stop throughout an election window. If we are attempting to uncover undervalued stocks in the market, there will continue to be opportunities whether we're in a General Election or otherwise.

What we should try to refrain from is buying according to stock tips from the General Election. Within the CGS-CIMB report we read, SPH, HRNet and ST Engineering were three firms that were highlighted that could take advantage of the election, given the heightened interest in media coverage, likely jobs-related discussion respectively and push towards smart nation status, respectively.

We are not saying that we think CGS-CIMB is wrong or right. What we should are saying is do not blindly follow these kinds of analysis or, worse, stock tips from friends who may say “invest in Zoom because political parties need to campaign online now”.

Always stick to your original investment strategy, so when you want to deviate from it, understand why your original strategy was wrong before jumping on any flavour from the month.

Finally, we can determine by ourselves what the market expectation is perfect for the outcome of the General Election in Singapore. When there is a major deviation to the outcome, there could be potential for a major stock market reaction. This was seen in the outcome of the unexpected outcomes of the election in Malaysia in 2021 – when Najib Razak's Barisan Nasional was toppled after 61 years in power – with several major counters and also the Ringgit dipping.