We refer to The Sunday Times article, “Good time to invest abroad”, by Ms Melissa Tan, on 2 September 2012.
As Ms Tan notes, we are in the age of globalization and interconnected markets. Nowhere is this more apparent than in the wide-open nature of the Singapore economy and the resulting diversity found in its securities market.
For example, the market’s Straits Times Index (STI) is one of the world’s most diverse benchmark indices, comprising stocks of 30 companies which derive 60% of revenue from economies outside Singapore. Investing in the STI component stocks is therefore an easy way for Singapore investors to avoid putting all our eggs in one basket.
The 30 STI companies also represent 13 different sectors, providing another level of diversification from the sectoral perspective. Other ways to diversify investments include investing in Real Estate Investment Trusts (REIT) and Exchange Traded Funds (ETFs). Incidentally, many if not most REITS and ETFs listed in Singapore offer investment opportunities in overseas economies and markets.
When participating in overseas markets, investors may have to open individual depository accounts for each foreign market, and pay certain duties and taxes. Investors who use the Singapore stock market to access overseas investment opportunities minimise such measures.
Forex fluctuations may also affect overseas investment returns. As an illustration, in January-August 2012, the STI, Dow Jones Industrials Average (DJIA) and Hang Seng Index (HSI) gained 14.33%, 7.15% and 5.69% respectively. Due to the strengthening of our local currency against many other currencies, the DJIA and HSI gains were only 2.96% and 1.90% respectively in Singapore dollar terms.
While historical performance doesn’t indicate future performance, it is interesting to note Singapore has been the best performing market for the Singapore investor in recent years. Over the past decade, the most active ETF tracking the STI, the SPDR STI ETF, had average annualised returns of 10.63% from 31 Aug 2002 to 31 Aug 2012.
Risks and returns are key when making investment decisions. An investor who wants to spread out risks across overseas markets needs to weigh how currency moves and administrative costs affect actual returns. Such an investor may also want to consider sectoral and asset class diversification.
With inflation in Singapore around 4-5%, regular investing for Singapore investors is important to ensure our savings are not eroded. More information on returns of various investment instruments and other educational resources are available at www.sgx.com/mygateway.
Chew Sutat
Executive Vice President
Singapore Exchange