Here's my view for investing in the Straits Times Index (Unfortunately named STI)
Singapore Economy & Equity Investment
Name
|
Singapore
|
Population (2012)
|
5.4million
|
Currency
|
Singapore
Dollar (SGD)
|
2012 GDP
|
US
$331.9 billion
|
2012 GDP Growth
|
1.3%
|
IMF GDP Growth Prediction for 2014
|
3.4% (3.5% predicted for 2013)
|
Unemployment
|
1.9% (2012)
|
Inflation
|
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
Pharmaceuticals
Refined
Petroleum
|
Main Export Partners
|
Malaysia
12.2%
Hong
Kong 10.9%
China
10.7%
Indonesia
10.5%
|
Main Imports
|
Machinery
& Equipment
Mineral
Fuels
Foodstuffs
|
Main Import Partners
|
Malaysia
10.6%
China
10.3%
USA
10.2%
|
Main Stock Exchange
|
FSSTI
|
Market Cap
|
US
$830.78 million
|
Market Performance YTD
|
+21.38%
|
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.
ETFs
·
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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