Markets

Singapore Business Confidence up: ETFs in Focus

Singapore is witnessing an increase in business confidence, which improved for the second consecutive quarter. As per Singapore Commercial Credit Bureau (SCCB), the Business Optimism Index rose to 3.58% in the third quarter of 2017 from 2.66% in the prior quarter. Moreover, on a year-over-year basis, the index rose to 3.58% in the third quarter from 1.1% in the prior-year quarter.

Per Straits Times , the transportation sector has the most optimistic outlook with all six business indicators, volume of sales, net profit, selling price, new orders, inventory and employment in the green. On the other hand, the outlook for the financial sector was bleak with all six indicators in the red. However, S&P affirmed AA- credit rating in late May 2017 for three major Singapore banks, DBS Bank, Oversea-Chinese Banking Corporation (OCBC), and United Overseas Bank.

Singapore seems to be recovering steadily from the setback of last year's GDP contraction . Despite the positives, there are still some risks that the economy is facing. Nikkei Singapore Purchasing Managers' Index (PMI) fell to 51.4 in May 2017 from 52.6 in April, reflective of a threat to private sector growth.

We will now discuss a few ETFs providing exposure to Singapore (see all the Asia Pacific ETFs here ).

IShares MSCI Singapore Capped ETFEWS

This fund focuses on Singapore equities and is the most popular option for exposure to the economy.

The fund has AUM of $597.67 million and charges 48 basis points in fees per year. Financials, Real Estate, and Industrials are the top three sectors of the fund, with 37.01%, 20.08%, and 18.41% allocation, respectively (as of June 2, 2017). DBS Group Holdings Ltd, Oversea-Chinese Banking Ltd, and Singapore Telecommunications Ltd are the top three holdings of the fund, with 12.69%, 11.29%, and 10.40% allocation, respectively (as of June 2, 2017). The fund has returned 10.10% in the last one year and 19.77% year to date time (as of June 5, 2017). EWS currently has a Zacks ETF Rank 3 (Hold) with a Low risk outlook.

We will now compare the performance of EWS to a broader South East Asian ETF, ASEA.

Global X Southeast Asia ETFASEA

This fund provides broad exposure to the five members of the Association of Southeast Asian Nations, Singapore, Indonesia, Malaysia, Thailand, and the Philippines. It is appropriate for investors looking for a diversified exposure to South East Asia (read: Bank Indonesia Leaves Rates Unchanged: ETFs in Focus ).

ASEA is less popular with an AUM of $12.09 million and charges a fee of 65 basis points a year. From a geographical perspective, the fund has 30.64% exposure to Singapore, 22.11% to Thailand, 21.77% to Malaysia, 20.24% to Indonesia, and 5.23% to Philippines (as of March 31, 2017). Financials, Telecommunication Services, and Industrials are the top three sectors of the fund, with 45.10%, 16.05%, and 7.86% allocation, respectively (as of March 31, 2017. DBS Group Holdings Ltd, Oversea-Chinese Banking Ltd, and Singapore Telecommunications Ltd are the top three holdings of the fund, with 7.13%, 6.55%, and 6.00% allocation, respectively (as of March 31, 2017). The fund has gained 12.80% in the last one year and 18.53% year to date (as of June 5, 2017). ASEA currently has a Zacks Rank #3 with a Medium risk outlook (read: Malaysia Growth at 2-Year High: ETF in Focus ).

Below is a chart comparing the year-to-date performance of the two funds.

Source: Yahoo Finance

Bottom Line

Though ASEA has outperformed the Singapore ETF by almost 2.7% in the last one year, the recent boost in confidence in the Singapore economy contributed to the positive performance of EWS in the year-to-date timeframe, as evident from the YTD chart. Investors looking for exposure to this economy can consider EWS. Although the outlook is positive, the risks faced by the economy make it prudent to remain on the sidelines for now.

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ISHRS-MS SNGPRE (EWS): ETF Research Reports

GLBL-X SE ASIA (ASEA): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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