Singapore offers good prospects for people who want to invest in a rising market in Southeast Asia. Knowing the pros and cons of investing in the country can help you make a more informed choice about whether to make it a part of your portfolio.
Key Takeaways
- Singapore is best known by investors for its participation in global trade as one of Asia's largest trading hubs.
- The country has a robust free economy, but slowdowns can happen due to its dependence on global trade.
- ETFs offer the simplest investment choice in Singapore.
Overview of Investing in Singapore
Located on the Malayan peninsula, Singapore is a maritime center linking over 600 ports in 120 countries. Its key spot allows it to serve as the main base for 37,000 global firms. The country's robust financial markets have become a top source of funding for a total market of four billion people.
The country attracts foreign investors for many reasons.
It contains thriving trade and financial sectors. Singapore has a large trade network that amounts to over 25 free trade agreements. This includes 15 bilateral and regional agreements among 15 countries as of January 2021. The country also ranked as the fifteenth largest export economy and the sixteenth largest importer in 2019. Its stock market, the Singapore Exchange Limited, has a market capitalization of around $7.9 billion as of February 2021.
It boasts a pro-business climate. Its low corporate tax rate of 17% and low level of corruption, a product of anti-corruption laws and audits, have made it home to around 7,000 global firms. More than half of Asia's global firms locate their regional main office in Singapore.
It has a skilled workforce. Singapore ranked second worldwide, and first among countries in Asia, in its ability to enable, attract, grow, and retain highly skilled workers, according to a study of 25 countries. More than half of the labor pool makes up white-collar workers.
It features good infrastructure. Singapore has highly advanced transportation. This includes over 100 airlines that connect about 80 countries. Its digital framework is also great, with broadband access in over 99% of the country.
Benefits and Risks of Investing in Singapore
Singapore has some of the world's richest people, good demographics, and a growing economy. Still, its focus on trade leads to some degree of fiscal reliance on global foreign trade that should be looked at before you decide to invest there.
Benefits of investing in Singapore include:
It has favorable demographics. Singapore is the second-richest country in the world based on GDP per capita buying power parity as of 2020. It also has one of the largest groups of millionaires and one of the lowest jobless rates among developed countries.
It boasts a free, diverse economy. Singapore is thought to be one of the freest global economies and one of the easiest countries in the world in which to conduct commerce as a result of its business-friendly climate. Its economy boasts diverse sectors that include shipping, finance, tourism, and pharmaceuticals.
Risks of investing in the country include:
Its reliance on foreign trade. Singapore depends on foreign trade. This led to shrinking during the 2001 bubble and 2008 financial crisis, but the country was quick to rebound.
It has a strong link to China. Singapore's economy is highly linked with China's, given the nation's weighty capital. This link has proven to be a problem in recent years, as China's fiscal growth has slowed bit by bit since 2011.
Singapore Investment Opportunities
You can get into the financial markets in Singapore by buying exchange-traded funds (ETFs), closed-end mutual funds, or American Depositary Receipts (ADRs).
Invest With ETFs
The most simple way to invest in Singapore is with ETFs. With ETFs, you gain access to the country in a single U.S.-traded security. One well-liked ETF chosen for investing in the country is the iShares MSCI Singapore ETF (EWS). It has a net asset value of more than $650 million and holds 19 securities spanning medium and large firms.
Since the country is mainly a trade spot, the ETF is weighted towards financial (49.06%), real estate (22.97%), and industrial (11.14%) firms. You should be aware that this weight could result in added risk if one of these sectors (for instance, the real estate market) was strained.
Buy Closed-End Mutual Funds
Unlike ETFs, these funds can trade at a premium or discount to their net asset value. Closed-end mutual funds offer limited shares, unlike open-end mutual funds. You can, for instance, purchase the Aberdeen Asia-Pacific Income Fund, Inc. (FAX), a closed-end mutual fund with a market capitalization of over $1.1 billion as of February 2021. This fund invests in the debt securities of countries, including Singapore, China, Indonesia, India, and Australia.
Note
Closed-end mutual funds differ from closed mutual funds, which are actually open-end funds that are closed to new investors.
Invest With ADRs
You can also purchase ADRs, which are certificates for shares in foreign firms. You can trade ADRs on U.S. stock exchanges, but they tend to be riskier than ETFs and mutual funds since they offer less liquidity and diversification.
The Bottom Line
You should weigh these pros and cons with care before you decide to invest in this country. Economic lows are hard to predict, even more so in emerging markets. These markets tend to be a bit riskier than developed markets. To hedge against risk, make any investments in Singapore a single part of a diverse plan.
