Why Singapore Stocks Shouldn’t Be Overlooked

As we celebrate National Day, it’s important to recognize the investment opportunities that are available right here in Singapore. Many retail investors make the mistake of overlooking the local market in favor of investing overseas. However, as an investor living in one of the world’s strongest economies, there are compelling reasons to consider Singapore stocks as part of your investment portfolio.

Singapore is home to strong, stable companies with a defensible moat and steady growth. These blue-chip SGX listed companies can be attractive investments, especially when they are trading at the right valuations. For example, an investment in DBS during the 2016 oil crisis has yielded more than 8% in dividends and a capital return of over 2X. Companies like iFast, which was bought at $1 a few years ago, have also provided excellent returns.

The local stock market also offers opportunities for undervalued and dividend plays. There are many Singapore-listed companies that are undervalued and offer attractive dividend yields. The key is knowing where to look and conducting thorough research. If you’re not confident in picking individual stocks, another option is to invest through Exchange-Traded Funds (ETFs) that focus on the Singapore market.

One advantage of being a Singaporean investor is the ability to use cash savings or SRS funds to invest in local bonds, stocks, or ETFs. Singapore’s government bonds, such as Singapore Treasury bills, Singapore Savings Bonds (SSB), and Singapore Government Securities Bonds (SGS), are backed by the highest AAA credit ratings and are considered some of the safest options for risk-averse investors.

Retail investors can also gain exposure to government bonds through SGX-listed ETFs like the ABF Singapore Bond Index Fund. This ETF tracks a basket of high-quality AAA rated bonds issued primarily by the Singapore Government and quasi-Singapore government entities. It provides retail investors with access to stable yields from government bonds.

In addition to government bonds, corporate bonds from blue-chip companies can also offer higher yields. Businesses issue corporate bonds to finance their operations and capital expenditure plans. These bonds can provide yields ranging from 4% to 12%, depending on the credit risk spread. It’s important to be cautious with high-yield corporate bonds, as they come with higher risks of default.

Investing in an ETF like the Nikko AM SGD Investment Grade Corporate Bond ETF can provide exposure to corporate bonds issued by stable, blue-chip companies with low default risk. This ETF predominantly consists of investment grade corporate bonds and offers a lower risk of default compared to individual bond purchases. Investors can track their returns through the ETF, rather than monitoring individual bond yields and capital changes.

Singapore’s top-listed companies are not only making a name for themselves domestically but also capturing market share abroad. Over recent years, close to half of the revenue associated with the Straits Times Index (STI) was derived from abroad. Companies like SATS and Wilmar have expanded globally and continue to grow their revenues.

Investing in an ETF like the Nikko AM Singapore STI ETF provides easy access to the top 30 Singapore-listed companies within a single investment position. The ETF automatically rebalances its constituents semi-annually, ensuring exposure to companies that are capturing market share both domestically and globally. This eliminates the need to track individual companies and allows investors to benefit from the growth of these companies.

Singapore’s economic growth has been stable and on an upward trend in recent decades. The country has consistently ranked first in the world’s index of economic freedoms. Singapore operates one of the world’s largest ports and has grown to become a major manufacturer of chemicals and electronics. It has also attracted global companies like Dyson, Visa, and ABB to set up their innovation hubs in the country.

As a Singaporean investor, there are advantages to investing locally. Singaporeans are not taxed on their dividends or capital gains, and there are no foreign currency exchange risks involved. This makes investing in Singapore even more appealing. Investing in local ETFs is a convenient way to gain exposure to the local market within a few clicks.

Overall, Singapore offers a sweet spot of stable growth and income for investors. The local market provides opportunities for strong, stable companies, government bonds, and corporate bonds with attractive yields. As a Singaporean investor, it makes sense to take advantage of the homegrown advantage and invest in the local market.

Benjamin Low
Benjamin Low

Benjamin is known as The Passive Income Guy. He has helped hundreds of people to build passive income. He is also a member of the Million Dollar Round Table, and Certified Financial Planner™ (CFP®) and Certified Private Banker (CPB).

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