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Good time to invest overseas, Singaporeans told
Publication Date : 02-09-2012
Singapore's economy is losing steam and the stock market has been quiet of late.
Faced with this, nimble investors chasing healthy returns may want to try seeking their fortunes abroad.
Geographical portfolio diversification is no longer as necessary as it once was in this age of globalisation and interconnected markets, but the approach still has its benefits, experts note.
As Robert Aspin, head of equity investment strategy in Standard Chartered Bank's group wealth management division, says: "Don't put all your eggs into one basket."
He adds: "Spreading your risk also helps to expose your portfolio to economic development elsewhere, which may improve returns."
This is especially the case if the foreign market in question is posting solid economic growth, such as China.
Singapore's economy is tipped to grow a subdued 1.5 per cent to 2.5 per cent this year.
However, China's economy, while slowing somewhat, is still expected to expand by about 7.5 per cent.
"The performance of equity markets tends to fluctuate according to the economic performance of the country," says Shrikant Bhat, head of wealth management at Citibank Singapore.
But, of course, no investment strategy comes without risks.
Bhat points out that the principle of geographical diversification is based on the notion that "financial markets in different parts of the world are not highly correlated with one another".
"However, the dependence between global stock markets has increased as a result of growing financial globalisation," he says.
Investors will also have to bear foreign exchange risk and geopolitical risks.
Still, Aspin says that spreading out a portfolio would "reduce the chances of your investment capital being wiped out in the event of a sudden market movement".
He recommends that investors should "have 20 to 40 per cent of their equity exposure in foreign- domiciled names".
Brokerages tell The Sunday Times that local investors have started to buy more equities listed on foreign exchanges.
Low Hung Huat, head of retail channels at DBS Vickers Securities, says: "Foreign shares, especially US-listed stocks, have been gaining popularity among local investors due to their global coverage and branding presence."
Jeffrey Goh, executive vice- president of retail business at Maybank Kim Eng Securities, also says that trading in foreign equities has been increasing over the years.
Brokers say that popular foreign markets for Singapore retail investors are the United States and Hong Kong.
Head of e-Business at Citibank Singapore, Ms Shirley Ramli, says the US markets accounted for 65 per cent of business volume, with Singapore and Hong Kong accounting for the rest.
At StanChart, Adrian Goh, senior product manager at its wealth management division, says that "the US remains the most popular, comprising in excess of 55 per cent of trades".
He adds: "The United Kingdom is the second-most popular at 20 per cent followed by Hong Kong at 12 per cent".
Gary Tan, who heads market development and iOCBC at OCBC Securities, says the top three foreign markets for his clients are the US, Hong Kong and Malaysia.
"Since 2009, we have seen at least a 40 per cent year-on- year increase in customers trading these stocks," Tan says.
The US economy may have been in the doldrums recently, but experts say investors could still reap gains if they tap into sectors such as consumer staples, energy, technology and telecommunications.
Apple, Exxon Mobil, Microsoft, Walmart and Google - the five largest stocks by market capitalisation in the US - belong to these sectors.
US stocks can also be used to gain exposure to China's economic boom.
In a recent report, The Economist says that its in-house "Sinodependency" stock market index made up of 135 S&P 500 companies, weighted by China's reported share of their revenues, starkly outperformed the S&P 500 in recent years.
The Sinodependency index has rocketed almost 129 per cent since the beginning of 2009.
In comparison, the S&P 500 reported a gain of 57 per cent.
The Economist notes that the index has also "performed far better than China's own stock markets".
Restrictions that prevent foreign investors from buying China-listed equities also mean US stocks are a more attractive option than investing directly in the Chinese markets, the magazine writes.
Another straightforward way to gain exposure to mainland China is to go through Hong Kong.
"As a beneficiary of China's monetary policy easing and negative real interest rates, Hong Kong is an interesting proxy for the Chinese market," Bhat notes.
Experts say that attractive sectors in Hong Kong include property developers and gaming stocks.