Emerging markets are out of favor this year with heavy
losses piling up in the space. The biggest bump was seen recently
on increased chances of the Fed tapering QE3 and its impact on
emerging market capital flows (read:
3 Currency ETFs Hit Hard By Taper Talk
Additionally, the widening current account deficits, rising
inflation, sluggish export and political disorder are dulling the
appeal of emerging markets. The rising U.S. Treasury yields and the
threat of turmoil in Syria spilling over have added further woes to
these nations. These trends have pushed investors out of the
emerging market securities, especially the currencies.
As such, emerging market currencies and related ETFs have been
plunging against the U.S. dollar and other developed market
counterparts. Among these, Asian currencies like Indian rupee,
Indonesian rupiah, Brazilian real and Thailand baht have been the
worst hit by this trend (see:
all the currency ETFs here
The news has also hurt developed market currencies in the region,
such as the Singapore dollar. This currency is heavily dependent on
trade, so weakness in some of its key neighbors can have a negative
impact on this city-state.
In such a backdrop, the Singapore dollar, as represented by the
CurrencyShares Singapore Dollar Trust (
is also bearing the burnt, having fallen more than 2% in August.
This slump has led to widespread concerns about whether the
currency ETF would rise on the recovering global economy or if it
will follow its neighbors.
Basically the movement of the any country currency depends on its
economic growth prospects. So, let's dig into the Singaporean
economy and its growth prospects in detail to find the answer
Inside The Only Singapore Dollar ETF (FXSG)
Singaporean Economy: Bright Spot
Singapore - the business hub of Southeast Asia - appeared back on
track in the second quarter buoyed by a series of solid
that suggested bad times might be over for this nation.
The economy rebounded nicely after the slowdown in the last two
years, posting growth of 3.8% year over year in the second quarter.
This marked the strongest growth in three years and a remarkable
improvement from 0.2% growth in the first quarter.
This impressive performance was mainly driven by an unexpected
surge in the manufacturing and service sectors. The manufacturing
sector grew 0.2% against 6.7% contraction in the previous quarter
while the service sector rose from 2.7% to 5.5% in the second
Are Singapore ETFs Back on Track?
Based on the recovering economy, the Singaporean government lifted
the growth outlook from 1-3% to 2.5-3.5% for this year and the
central bank slashed its inflation forecast for 2013 to the range
2-3% from 3-4% predicted previously. As such, the nation is
seemingly recovering from the twin attacks of slow growth and
Further, the nation is running at low inflation (1.6% in Q2),
impressive unemployment (2.1% in Q2) as well as strong trade
surplus (19% of GDP) compared with many of its neighbors that made
it a compelling choice for investment.
Being a trade dependent economy, Singapore's growth is vulnerable
to the declining exports to Europe, Asia and the U.S. A sharp
slowdown in China's economy, continued weakness in Europe and the
imminent winding down of the massive U.S. economic stimulus
measures would remain the major headwinds to exports and economic
growth in the second half of the year (read:
4 Outperforming ETFs Leading Europe Higher
The biggest risk to the country's growth story is the possible
housing bubble. The household debt and property prices are rising
at an unprecedented level, posing significant threat to the
country's financial system. The Singapore household debt increased
from 64% of GDP in 2007 to 77% of GDP currently, just behind South
Korea (88%) and Malaysia (80.5%).
However, unlike America or Japan, this situation seems under
control, with the government taking several steps to cool down
property market and safeguard households from being over leveraged.
FXSG in Focus
For investors looking to target the currency, a look to FXSG is a
good idea. The product looks to track the price of the Singaporean
dollar, net of expenses, which is 40 bps a year.
The ETF provides long exposure to the Singaporean dollar,
appreciating when the currency goes up against the U.S. dollar, and
down when Singapore's dollar declines against the American currency
(see more in the
However, investors should note that the product is still quite
young (debuted in February this year) having accumulated only $7.8
million in its asset base and trading in a paltry volume of below
3,000 shares per day. FXSG is down 3.5% since inception.
The Singapore currency ETF has shown strong resilience despite the
rout in many of its neighbor currencies, suggesting it is unlikely
to follow its emerging market peers given a relatively strong
economy and current account surplus (read:
3 Currency ETFs Crushed in Emerging Market Rout
). Recovering global economies, particularly the Singapore trade
partners would add to future growth.
Apart from these, the Monetary Authority of Singapore (MAS), the
nation's central bank, controls the Singapore dollar and ensure its
trading within the tight range policy of 0.02%. This limits the
pronounced movements in the currency and likely protects it from
broad market sell-offs, suggesting FXSG should remain a stable
pick, and that it will not follow its neighbors lower in the in the
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ISHARS-SINGAPOR (EWS): ETF Research Reports
ISHARS-MS SG SC (EWSS): ETF Research Reports
CRYSHS-SING DLR (FXSG): ETF Research Reports
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