Wednesday, 13 November 2013

Investing in the Singapore Straits Times Index (FSSTI)

Here's my view for investing in the Straits Times Index (Unfortunately named STI)

Singapore Economy & Equity Investment
Population (2012)
Singapore Dollar (SGD)
2012 GDP
US $331.9 billion
2012 GDP Growth
IMF GDP Growth Prediction for 2014
3.4%  (3.5% predicted for 2013)
1.9% (2012)
4.6% (2012)
Budget Deficit/Surplus
+2% GDP (2012)
Currency Rate
SGD/USD 0.81
IMF CPI Growth Prediction for 2014
2.3%  (2.7% for 2013)
Main Sectors of Economy
Services 73%, Industry 26% (E.g. Consumer electronics, pharma, petroleum refining)
Main Exports

Machinery & Equipment
Refined Petroleum
Main Export Partners
Malaysia 12.2%
Hong Kong 10.9%
China 10.7%
Indonesia 10.5%
Main Imports
Machinery & Equipment
Mineral Fuels
Main Import Partners
Malaysia 10.6%
China 10.3%
USA 10.2%
Main Stock Exchange
Market Cap
US $830.78 million
Market Performance YTD

Singaporean Exports

  • The Singaporean economy is one of the most open and least corrupt free market economies in the world.
·         Singapore’s sovereign wealth fund holds majority stakes in several of the country’s largest companies, including Singapore Airline, SingTel, ST Engineering & MediaCorp
·         Singapore is also a regional hub for wealth management and financial services
·         Singapore has tightened immigration controls recently with aims to reduce downward pressure on low level wages and increase wage equality. By doing this however, it risks losing its competitive manufacturing advantage which contributes about a quarter of GDP.
·         MAS doesn’t use a base interest rate as monetary policy, instead it intervenes in the SGX markets, giving it less power to regulate inflation and exchange rates.
·         The Singapore Dollar is one threat to the economy. MAS can’t regulate it closely and steady strengthening in the currency markets in the last decade has led to high inflation due to the local cost of living rising and pushing up wages.
·         A further challenge for the economy is the price of petroleum veruses Middle Eastern crude oil. A proportionate divergence in futures prices or lessening demand would be damaging to the economy, for example caused by discovery of new large Australian reserves.
·         The 5 biggest companies on the FSSTI are: Singapore Telecom (SGX:Z74)  - telecoms; Jardine Strategic Holdings (SGX:J37) – Stock Holding; Jardine Matheson Holdings (SGX:J36) – Conglomerate; DBS Group Holdings (SGX:D05) – Banking; Oversea-Chinese Banking Corp (SGX:O39) - Banking
·         The STI is part operated by Singapore Press Holdings; Singapore Exchange and the FTSE Group. It has historically been more volatile than the FTSE percentage wise.

·         SPDR Straits Times Index ETF (STTF SP) closely tracks STI and has achieved a 10.2% return in the last 10 years.

·         Nikko AM Singapore STI ETF (DBSSTI:SP) also invests in STI according to each stock’s weighting in the index.

My Outlook
Singapore is in a good position to take advantage of continuing growth in the East. As the potential for disruptions to Middle Eastern crude apparently recede, Singapore is well placed to exploit a rise in petroleum demand as prices continue to level. While Singapore tries to reduce cheap foreign labour, I expect consumer product manufacturing will gradually lose its prominence to be replaced by financial services, but this should be gradual, not necessarily negative, and shouldn’t severely affect performance of the FSSTI in the next 12 months. The FSSTI is also weighted quite widely over several sectors so exposure to any one sector isn’t too high. I expect SGD to hold value over the next 12 months without much increase or decrease as a decade of strengthening peters out, so the value of stocks in Sterling shouldn’t be affected too much. With relatively high IMF growth predictions, I would be bullish an ETF closely tracking FSSTI, the most positive for any of the four economies I've posted about.

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