Understanding home bias amongst Singaporean investors
Endowus Insights

Understanding home bias amongst Singaporean investors

June 21, 2022
August 4, 2020
singapore flags

What is home bias?

Home bias is the inclination for investors to invest the majority of their savings into local equities and bonds.

The phenomenon was first highlighted by a research paper made by Kenneth French and James Porterba in 1991. They concluded that most investors still hold most of their assets in local assets, despite research-backed benefits of international diversification. Home bias led to higher risk in their investment portfolios over the long-term.

This phenomenon has been observed recently, and in Singapore as well. As evident from the chart below, despite how Singapore equities only represent 0.4% in global equity indices, on average, Singaporean investors have 39% of their portfolio in Singapore's stocks.

chart of equity market home bias by country
Source: Vanguard, IMF's Investment Survey, Barclays, TR Datastream, and Eastspring Investment. Compiled by https://apngroup.com.au/blog/how-sweet-home-bias-can-turn-sour/

3 reasons why home bias is prevalent in Singapore

There are several reasons why investors tend to favour investing in domestic equities and bonds, and many of the reasons are consistent across nationalities.

1. Preference for investing in familiar companies and brands

For many people starting out, investing in the equities market can be intimidating: they have to set up a brokerage, understand how to trade and invest, and come to terms with how share prices are divergent from company performance and outlook.

With all the uncertainty involved, there is greater comfort in investing in familiar companies and brands whose services and products that we use and interact with on a day-to-day basis. This is especially true for the Singaporean banks, local telecommunications companies, and Real Estate Investment Trusts (REITs).

As Warren Buffett famously said,

"Never invest in a business you cannot understand."

Want to know how well a shopping mall REIT is doing? Just waltz into to a shopping mall and have a feel of the crowd and the shopper traffic.

Want to monitor blue-chip companies' strategy and growth plans? Just flip through The Straits Times and one may get insights on the innovations the companies have projected to accomplish.

The ease of access to information and the sense of security to be able to physically gauge operating performance gives investors more confidence to hold local equities relative to foreign stocks. This contributes to home bias in portfolio allocation.

2. Concerns around transaction costs and security of assets

Traditional Singapore brokerage firms charge a confusing array of fees for overseas investments, including brokerage charges, foreign currency conversion, stamp duty, custodian and security management fees. Investing in the overseas market seems intimidating and expensive relative to the simpler fee structure when investing locally.

There are also concerns surrounding the safety of their investment assets. Investors may be uncomfortable that their investments are not secure as it is regulated by a foreign regulator or that they aren't held under a CDP account.

3. Lower FX exposure

Investing overseas usually requires the transactions to be made in foreign currency. Given the appreciation of the Singapore Dollar (SGD) over the past few decades, it is a due concern that investing overseas, with foreign currency exposure, will lead to poorer returns. In contrast, most of the share price of the equities listed in SGX is in SGD, so investors do not need to buy/sell other foreign currencies to invest in this market

How does home bias affect Singapore investors' investment portfolio?

1. Fewer options due to delisting of SGX companies

While the stock markets in other developed countries are vibrant, with many new local and foreign companies listing in their local exchange, the same cannot be said for SGX. The SGX has seen many delisting and privatisation of well-known Singapore companies. Also many big Singapore tech companies, such as Razer, SEA Limited are choosing overseas exchanges over SGX.

table of not listed/delisted notable singapore companies on SGX

Market observers attributed this trend to several reasons: the low liquidity in the Singapore Exchange, poor valuations found in the market, and increased requirements around reporting standards. The significant premium offered in the latest restructuring of CapitaLand's business is an example of the poor market valuations in SGX.

What this means to investors who restrict themselves to SGX offerings is that they will find themselves with fewer investment options if the trend of delisting continues

2. Higher portfolio volatility and lower returns

An investment portfolio which has a huge domestic exposure can lead to greater risk and here are the reasons why.

Diversification gives investors lower portfolio volatility and can contribute to more consistent investment returns. On the contrary, high volatility in portfolio value can lead many investors to abandon their long-term investment strategy during trying periods in the financial markets.

During the Covid-19 crisis, the Singapore economy slipped into a technical recession in Q2 2020, with GDP shrinking by 41.2%. On a year on year basis, the Straits Times Index has dropped by 21% in Q2 2020. In contrast, while the US economy shrunk by 32.9%, the major US stock market index, the S&P 500 has crept up by 4% year on year in Q2 2020. Much of the gains have been attributed to the growth of the US giant tech companies, such as the the likes of Amazon and Netflix which thrived during the pandemic.

chart of past year performance of big tech companies

This highlights the lack of sectoral diversification in Singapore's equities market. There is a lack of technology and healthcare companies in our exchange and in the Straits Times Index that have done well during this CoVID-19 crisis.

In the same vein, the lack of exposure to high-growth sectors such as technology/healthcare and lack of revenue streams from the emerging markets can also lead to lower returns, similar to what Japan's stock market has gone through in the 2000s through the lost decade. Domestic companies may find challenges in growing revenue locally and sustain growth.

Read more: "Hindsight is 20/20": Why we should stick to consistent, global diversification (Endowus Insights)

3. Imported inflation risk from SGD depreciation

Imported inflation is a phenomenon where a higher cost of living arises from an increase in the cost of imported products. This price increase can be due to the weakening of the local currency relative to foreign currency.

While investing in global markets comes with FX risks and volatility, it can also hedge against Singapore's dependency on imports and the risk of imported inflation. As the Singapore economy is highly dependent on imports, being highly SGD-exposed is an issue, especially if the SGD weakens against major currencies. This can lead to a loss in purchasing power in the case if the SGD weakens during retirement.

This was what British retirees experienced from 2016 to 2017 when the pound depreciated drastically due to Brexit, with inflation surging from 0 to 3%.

woman in supermarket

Final thoughts

Given the risks involved when an investment portfolio is heavily weighted in Singapore's market, Singaporeans should consider being globally diversified in their investments, especially since the Singapore stock market takes up a minuscule portion of the global stock market (<1% by most measures). By investing in a portfolio which is weighted by global market capitalisation, one can obtain global exposure while not neglecting the Singapore market.


Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Past performance is not an indicator nor a guarantee of future performance. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund. 

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endow.us Pte. Ltd (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus Pte. Ltd., its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.

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