Markets

What Lies Ahead For Singapore ETFs?

Singapore's economic growth slowed in the fourth quarter as the manufacturing sector contracted. This is because manufacturing contributes to more than 20% of the city-state's GDP.

The economy grew 3.5% in 2017 at the upper end of the ministry's guidance of 3-3.5%. As a result, economists now predict that the latest GDP reading will provide the government room to increase taxes once the government unveils its budget in February. Moreover, it might also drive the central bank to tighten monetary policy, in line with other regions of the developed world.

Inside the Headline Numbers

Singapore's GDP grew at 3.1% year over year in the fourth quarter of 2017, beating the 2.6% expectation of economists. This was below 5.4% growth registered in the previous quarter, which was the strongest reading since the fourth quarter of 2013. On a seasonally adjusted basis, Singapore's economy grew 2.8% sequentially compared with 9.4% in the prior quarter (read: ETFs in Focus as Singapore GDP Exceeds Expectations ).

Singapore's economy is largely trade dependent. Hence, developments in the manufacturing sector largely drive GDP growth. Singapore's manufacturing data has been weak for fourth-quarter 2017. On a year-over-year basis, manufacturing sector surged 6.2% year over year in the fourth quarter compared with 19.2% in the third. Sequentially, it contracted 11.5% compared with an expansion of 38.0% in the third quarter.

Moreover, continuing contraction in the construction sector weighed on the GDP growth. The construction sector contracted 8.5% year over year in the quarter compared with a decline of 7.7% in the prior quarter. Weak private sector construction activities weighed on this sector throughout 2017, pushing the sector 8.1% lower.

However, the services sector was a major bull for Singapore's economy in 2017. It grew 2.5% in 2017 compared with 1.0% in 2016.

Monetary Policy

The Monetary Authority of Singapore (MAS) decides on the monetary policy by managing the trade-weighted exchange rate index. It is the only country in the developed world to not rely on short-term interest rate changes as its tool to conduct monetary policy changes.

Having eased thrice since January 2015, the MAS adopted a neutral stance on the monetary policy in its last meeting in October. However, growth in the services sector is driving economists' expectations of the central bank adopting a policy-tightening stance in the second half of 2018.

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 $671.2 million and charges 49 basis points in fee per year. Financials, Real Estate and Industrials are the top three sectors of the fund, with 39.3%, 21.4% and 18.0% allocation, respectively (as of Dec 29, 2017). DBS Group Holdings Ltd, Oversea-Chinese Banking Ltd and United Overseas Bank Ltd are the top three holdings of the fund, with 14.1%, 11.9% and 10.6% allocation, respectively (as of Dec 29, 2017). The fund has returned 28.8% in a year (as of Dec 29, 2017). EWS 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, namely Singapore, Indonesia, Malaysia, Thailand and the Philippines. It is appropriate for investors looking for diversified exposure to South East Asia.

ASEA is less popular with AUM of $16.2 million and charges a fee of 65 basis points a year. From a geographical perspective, the fund has 30.1% exposure to Singapore, 22.2% to Malaysia, 22.1% to Thailand, 19.2% to Indonesia and 6.5% to the Philippines (as of Sep 30, 2017). Financials, Telecommunication Services and Industrials are the top three sectors of the fund, with a 46.2%, 14.8% and 8.3% allocation, respectively (as of Sep 30, 2017). DBS Group Holdings Ltd, Oversea-Chinese Banking Ltd and United Overseas Bank Ltd are the top three holdings of the fund, with an allocation of 8.0%, 7.3% and 6.1%, respectively (as of Dec 29, 2017). The fund has returned 32.2% in a year (as of Dec 29, 2017). ASEA currently has a Zacks Rank #3 with a Medium risk outlook.

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

Source: Yahoo Finance

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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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