A Guide to Investing in Singapore
The Easiest Ways to Invest in Singapore
Singapore is well known in the investment community for its trade and financial sectors. By 2025, CLSA forecasts that the country will overtake Switzerland and handle nearly a third of the world's agri-commodity trade. The country's robust financial markets have also become a key source of funding for a total market of 4 billion people within a seven-hour flight radius.
The country's success in global trade is largely due to its location and the fact that it has very little corruption, a skilled workforce, low tax rates, and advanced infrastructure. These attributes have attracted about 7,000 multinational corporations from the U.S., E.U. and Japan as well as an additional 3,000 companies from India and China.
Investing in Singapore with ETFs
The easiest way to invest in Singapore is with exchange-traded funds (ETFs), which offer diversified exposure to the country in a single U.S.-traded security. The most popular ETF to invest in Singapore is the iShares MSCI Singapore Index Fund (EWS), which has a net asset value of more than $500 million and holds nearly 30 different securities, as of April 2016.
Since Singapore is primarily a trade destination, the ETF is heavily weighted towards financial (55.43%) and industrial (17.55%) companies. Investors should be aware that this overweight position could result in added risk if, for example, the financial system were strained.
The three largest holdings include:
- Singapore Telecom Ltd. (13.56%)
- Overseas-Chinese Banking Ltd. (12.16%)
- DBS Group Holdings Ltd. (11.99%)
Investors can also purchase The Singapore Fund Inc. (SGF), which is a closed-end mutual fund with a market capitalization of nearly $70 million, as of April 2016. Unlike ETFs, closed-end funds can trade at a premium or discount to their net asset value, while this fund also invests in other ASEAN Group countries, like Cambodia, Indonesia and Malaysia.
Finally, investors can purchase American Depositary Receipts (ADRs), which are U.S. traded baskets of foreign securities. These tend to be a bit riskier than ETFs and mutual funds, however, since they have less liquidity and diversification.
Benefits & Risks of Investing in Singapore
Singapore has one of the world's richest populations, very favorable demographics and a growing economy, but investors should be aware that its focus on trade leads to some level of economic dependence on global foreign trade.
Benefits of investing in Singapore include:
- Favorable Demographics. Singapore has the third highest income per capita in the world, the largest concentration of millionaires, and one of the lowest unemployment rates among developed countries.
- Free, Open Economy. Singapore is widely considered to be one of the easiest countries in the world in which to conduct business, with very favorable tax rates, low corruption, a skilled workforce and advanced infrastructure.
Risks of investing in Singapore include:
- Reliance on Foreign Trade. Singapore's economy is heavily dependent on foreign trade, which led to a contraction during the 2001 bubble and 2008 financial crisis, but the country was quick to rebound, growing 14.5% by 2010.
- Connection with China. Singapore's economy is highly interconnected with China's economy given its significant capitalization. Since 2015, this connection provided to be disadvantageous as China's economy has slowed down significantly.
Investors should carefully weigh these benefits and risks before making an investment decision. Of course, Singapore should also only be a single part of an otherwise diversified portfolio in order to ensure optimal risk-adjusted returns. Many economic downturns are difficult to predict, especially in emerging markets, which tend to be a bit more volatile than developed markets.
Key Points to Remember
- Singapore is best known in the investment community for its participation in global trade as one of Asia's largest trading hubs.
- The easiest way to invest in Singapore is through ETFs or closed-end mutual funds, including the iShares MSCI Singapore Capped Index Fund (EWS).
- Singapore has a very robust and successful economy driven by strong fundamentals, but it is susceptible to slowdowns in global trade.