For Sing Investments & Finance Limited’s (SGX:S35) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This is measured by its beta. Not all stocks are expose to the same level of market risk, and the market as a whole represents a beta value of one. A stock with a beta greater than one is considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.

Check out our latest analysis for Sing Investments & Finance

What is S35’s market risk?

Sing Investments & Finance’s beta of 0.35 indicates that the stock value will be less variable compared to the whole stock market. This means that the change in S35’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. S35’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.

How does S35’s size and industry impact its risk?

A market capitalisation of S$247.47M puts S35 in the category of small-cap stocks, which tends to possess higher beta than larger companies. Furthermore, the company operates in the consumer finance industry, which has been found to have high sensitivity to market-wide shocks. As a result, we should expect a high beta for the small-cap S35 but a low beta for the consumer finance industry. This is an interesting conclusion, since both S35’s size and industry indicates the stock should have a higher beta than it currently has. A potential driver of this variance can be a fundamental factor, which we will take a look at next.

How S35’s assets could affect its beta

An asset-heavy company tends to have a higher beta because the risk associated with running fixed assets during a downturn is highly expensive. I test S35’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Considering fixed assets is virtually non-existent in S35’s operations, it has low dependency on fixed costs to generate revenue. Thus, we can expect S35 to be more stable in the face of market movements, relative to its peers of similar size but with a higher portion of fixed assets on their books. Similarly, S35’s beta value conveys the same message.