Why Singapore investors should pay attention to how consumers feel

Singapore consumers are feeling pretty low. This means the Singapore stock market could soon be moving up.

Credit card company MasterCard regularly surveys people in 17 Asia-Pacific countries, including Singapore, about their feelings on the economy, the stock market, quality of life, income, and employment. And the results for Singapore in the latest survey were pretty gloomy.

Singapore scored in the low-30s – on a scale where 100 is extremely optimistic, and zero is semi-suicidal. This was one of the lowest scores out of all the countries surveyed (along with Hong Kong).

The highest-scoring countries – in other words, the most optimistic – were Myanmar with a very happy score of 99.8, and India with a score of 97.6.

Consumer confidence in Singapore hasn’t been this low since June 2009 – at the tail end of the global financial crisis. Since the end of 2015, consumer confidence has dropped by 10 points.

But just like strong economic growth does not necessarily mean good things for the stock market, happy consumers are not always a good stock market omen. Instead, low consumer confidence often signals that the stock market is about to climb.

As shown below, the stock market and consumer confidence tend to bottom out at about the same time. The chart shows the relationship between the Straits Times Index (STI) and Singapore's consumer confidence index.

Since 2000, a consumer confidence index low has preceded a recovery in the STI several times. For example, December 2002, June 2009, December 2011, and December 2013 all saw consumer confidence lows. And each time, the STI started to rally (more on some occasions than others) either just before, or at about the same time, consumers were feeling the gloomiest.

(This is far from the only reason to consider investing in Singapore shares… Learn more about other good reasons to invest in Singapore here.)

Why does this happen?
Stock markets are forward-looking. They tend to "price in" economic conditions before the average person even realises anything has changed. So by the time consumers are feeling good about the economy, the stock market has already climbed and is starting to move on.

However, when consumers are generally feeling pessimistic, the stock market has already priced poor economic conditions in to share prices as well. And it means shares are now in a good position to climb.

That means that the fact that Singapore has one of the lowest consumer confidence ratings in the Asia-Pacific region should be good for markets here. On the other hand, investors in India should be getting a little worried.

The cycle of investor emotions
Like the economy, commodities, and stock markets, investor emotions also go through cycles. The chart below shows this cycle of emotions. It shows that when people are most optimistic, it's usually one of the worst times to invest. But the best investment opportunities come when people feel the most despondent.

The latest consumer confidence results could be a signal that Singapore consumers are at the point of despondency. But this means Singapore investors are most likely looking at the "point of maximum potential opportunity."

Consumers can always get more despondent and markets can go lower. But based on Singapore consumers and the STI's history, local investors should be experiencing Myanmar-levels of optimism.  

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