Asia and Singapore Economies
Many investors outside of Asia get excited about the economies of Asia Pacific, but then their excitement boils down when they recall the horror tales associated with the downside of investing in Asia (for e.g. environmental degradation, political instability, pollution challenges and infrastructure deficits).
It is not easy to bet on the growth of revenues in emerging markets like APAC. Volatility in inflation, interest rates and political climate can keep the market depressed for a long period of time. Investors should closely monitor corporate governance issues while investing in emerging market and double check the financial numbers presented. A well-developed bond market in emerging economies often means that a company may have to seek equity financing too frequently; diluting the stake of existing shareholders. Singapore is one economy where investors can find a win-win situation, the exciting growth prospects of APAC without much of the downside.
Why Invest in Singapore?
Those who are fond of desktop research can start by exploring the website of Singapore Economic Development board. You will be impressed by the statistics presented there. Singapore matches some of the Scandinavian countries in high literacy rate, percentage of people with graduate degrees, low instances of crime, few drug or corruption problems. The unemployment rate is low and the city-state is home to people of many nationalities.
Singapore finishes high in rankings such as easy to do business. It is host to more than 500 multi national corporations. It has one of the busiest ports in Asia and has a well-diversified economic base including shipping, financial services, tourism and technology.
Invest in Singapore – Get Started!
Modern finance provides multiple tools to gain exposure to companies in Singapore, even if you are not living there.
Index Funds: An investor can use different types of index funds to gain exposure to Singapore economy, industry sectors within a company, securities with specific features (stocks, bonds, or complex hybrids) or public stocks within a company with a minimum market capitalization. One such closed ended mutual fund is The Singapore Fund.
These index funds typically track particular indexes, which represent a sector of the emerging market economy (for example Vanguard’s emerging market index fund, which tracks the MSCI emerging markets index). An investor can also utilize Exchange Traded Funds (ETFs) for passively gaining exposure to emerging markets. ETFs differ from index funds as they trade on home country exchanges. One example of such fund is iShares MSCI Singapore index fund.
Private Equity: Investing in private equity in Singapore is is another option. Private equity investing in emerging market economies can be potentially very lucrative as there are many niche industrial areas that have become saturated in west but are practically uncontested in emerging economies. Identifying local managers, gauging employee talent available, understanding strength of relations with a vendor and familiarly with government rules and procedure are key elements in successful private equity investing.
Hence private equity investing is much more of a local business than investing in public stocks through exchanges, indexes or ETFs. Tembusu Partners is one venture capital firm that focuses on this.
Companies with APAC revenues: An investor can gain exposure to Singapore by investing in a home country stocks that in turn makes most of its revenues in Singapore or APAC. Advantage of such an approach can be that revenues of many American companies in emerging economies like China, India and Singapore will grow significantly over the next two decades. For example beverage companies like Coca Cola and Pepsi, FMCGs like P&G and Reckitt Benckiser and liquor companies like Diageo are expected to expand in APAC as more people consume goods like Coke, Tide and Budweiser. The North American companies that have very high exposure to APAC (50% to 75%) are typically mining, metals, utilities and industrial goods companies (e.g. AED Corp, Expeditors International and Newmont Mining) as they are supplying lot of raw material to emerging economies.
However, even if you find a bargain in emerging markets, it can remain undervalued for a long period of time. An investor should invest with a lot of patience and a long-term investment horizon in mind.Recommend0 recommendationsPublished in