Gantry cranes stand at the Port of Singapore in Singapore, on Friday, July 12, 2019.
Ore Huiying | Bloomberg | Getty Images
Even though Singapore‘s economy is taking a big hit from the U.S.-China trade war, stocks in the city-state remain attractive compared to the rest of Asia, analysts told CNBC.
“The trade war impacts (Singapore) quite a bit, but at the same time, I think Singapore has an advantage relative to other Asian markets,” said Vasu Menon, executive director of investment strategy at Singapore’s OCBC Bank.
“Singapore companies offer you pretty good yield. The dividend yields in Singapore are one of the highest you have in Asia,” Menon told CNBC in late August.
The real estate investment trust (REIT) sector in Singapore is “huge,” he added.
Menon’s views were echoed by REYL Singapore’s Head of Portfolio Management Daryl Liew.
“Singapore equities (have) got a reputation for being a safe-haven, dividend play, simply because of the REIT market,” Liew said. “Singapore was … one of the first few Asian markets to start to roll out the REITs. That’s why it’s attracted a lot of listings, not just Singapore players but also offshore.”
In the current risk-off environment where yields are low as interest rates come down, Singapore’s markets could “get some interest,” Liew said.
As of Friday’s market close, the Straits Times index saw an increase of more than 2.4% since the beginning of this year. In comparison, the broader MSCI Asia ex-Japan index has grown more than 6% in the same period.
Singapore’s export-reliant economy has suffered in the midst of a protracted trade war between the world’s two largest economies, that has dragged on for more than a year as both sides slap escalating tariffs on billions of dollars of worth of goods from each other.
The Southeast Asian nation’s economy contracted by 3.3% on quarter in the April-to-June period, with some analysts warning that a recession may be around the corner. Last month, Singapore’s government slashed its 2019 official growth forecast to between 0% and 1%, from between 1.5% and 2.5% previously.
Singapore dollar stability
The Singapore dollar remains relatively stable, and that may also add to the island nation’s attractiveness for investors, according to Liew.
The country’s central bank and financial regulator, the Monetary Authority of Singapore, allows the currency to float within a band against a basket of currencies to prevent wild fluctuations.
Investors of Asian equities, particularly those in emerging markets, tend to face the risk of taking a hit on the currency front during a market sell-off, he said.
“The (Singapore) dollar tends to be a lot more stable … in that kind of environment,” Liew said. For investors in REITs or the defensive, high dividend stocks listed here, that allows them to get the yield while not losing too much on the currency front, he added.
Tapping into Southeast Asia
Beyond offering investors with safer investment options, Singapore-listed companies could also offer investors an opportunity to tap into the growth of the wider Southeast Asian region.
“Increasingly, the companies that are listed on our stock market … (are) not tied to (the) economic growth of the nation,” said Francis Tan, investment strategist at Singapore’s UOB Private Bank.
“More and more companies that are listed (in Singapore) have increasingly more revenue from places that are outside,” Tan said.
As a result, this gives investors a buying opportunity to tap into the growth of Southeast Asia as well as the wider Asia continent, he added.
Challenges ahead
Still, Singapore’s stock exchange could see growth headwinds ahead as it aims to attract high-profile listings. In the last two years, it has lost the likes of Southeast Asian internet powerhouse Sea Group and gaming hardware manufacturing firm Razer, which chose to list overseas in New York and Hong Kong, respectively.
“The irony is that … you have these tech start-ups in Singapore who are not listing here,” REYL Singapore’s Liew said. “It’s a question of trying to get these guys to list here.”
“It’d be a great coup if they could get Grab, for example, to list in Singapore,” Liew said, referring to the Southeast Asian ride hailing giant which has grown rapidly across the region.
UOB Private Bank’s Tan was more upbeat about the listing prospects for Singapore, saying that there “should be more business deals coming up.”
In particular, Tan pointed to the potential for Singapore to tap on “national champions” regionally that do well in their respective domestic economies and are looking to tap into the strength of Singapore’s financial system.
One possible way this could happen is through the Singapore Exchange’s dual-class listing system, which was launched in the middle of 2018, shortly after a similar structure at the Hong Kong Exchanges and Clearing went into effect.
— CNBC’s Yen Nee Lee contributed to this report.
