FREE KIC - NO. 14 NOVEMBER
SINGAPORE (NO CONFUSION HERE)
I have written two opinion pieces about Japan and
I have entitled them “Japan has me confused”. I have entitled
this piece Singapore (no confusion here) because I genuinely
believe that I can make a strong case for investing in Singapore.
I made my first trip to Singapore back in 1990. At the time I was with a
group of investors from various financial institutions. We were taken to
see a number of local companies but the visit that had the greatest impact
upon me was a visit to a semiconductor factory owned by the French
company ST Microelectronics. To my surprise the management team was primarily Scottish.
They gave a detailed presentation on the reasons why they were located in
Singapore. In particular they emphasised a pro-business government, low taxes,
good infrastructure and a highly motivated and well educated workforce.
I felt at the time that the speakers were completely genuine and so I
came away from that meeting convinced that Singapore was a place worth
The more I researched Singapore and the more I visited it (I have been there
six times in total) the more I began to realise that Singapore from an economic
perspective has an enormous amount in common with Ireland (In every other way
I would say that the two countries have very little in common).
Ireland and Singapore both have a high concentration of export led multinational
companies. These tend to be primarily in the electronics, healthcare and
financial services industries. The main attractions have been low taxes
and skilled workers. Domestic companies have tended to be in lower value
I would also like to point out that Singapore has a good legal system with
virtually no corruption and this translates into a well regulated stockmarket.
Accounting standards are good and corporate governance is also reasonable.
Quoted companies do tend to be run in a way that would attract foreign investors.
There has been stable government, in fact there has been one party rule since
the foundation of the state. In fact it has almost been one family rule
because the son of the first Prime Minister is the current incumbent.
The result of all the above factors has been a strong economy and
in the table below you can see just how strong it has been in recent years:
The growth pattern has been similar to Ireland with rapid growth in the late
1990s followed by a slowdown after the technology bubble burst and a significant
recovery since then. 6% growth last year and an estimated growth of 7% this
year is impressive.
In another way Singapore is similar to Ireland – being multinational dominated
means that the local stock market has a limited number of large companies to invest
in. In fact there is a high concentration of banks in the local stock market.
Not unlike Ireland there is very little exposure to retailers or consumer goods
companies. In fact in the past I found it very difficult to identify a really
good way to get exposure to the market. In fact I even found it hard to recommend
the Singaporean banks because they tended to be incredibly conservatively run.
I now believe however that I do have a good way to get exposure to Singapore
and that is through the Singapore Real Estate Investment Trust (REIT) market.
In particular I am a fan of Ascendas REIT.
Most Irish readers may not have heard of REITs and to tell the truth I had only
a limited knowledge of them myself until earlier this year. I had known that REITs had
existed in America for years but to be honest I never had the time to research them
or understand how they worked. It was only earlier this year when I read that the
UK was about to introduce them that I decided to find out what they are all about. In summary
they are a regulated way of buying into real estate. Each country sets their own rules as
to what can be called a REIT but generally there are a number of common characteristics:
Money is raised from shareholders, further money is borrowed and this money is used to
buy real estate. The rental income must be paid out in the form of distributions and special
tax treatment applies if these rules are met.
Singapore has set the following rules: no more than 60% of the capital can be borrowed, at
least 90% of rental income must be paid as distributions and no more than 10% of the assets
can be in development projects.
There are a number of REITs now listed in Singapore but what attracted me to Ascendas
REIT was the fact that it was one of the largest with one of the highest yields and it had
an excellent website that allowed me get an enormous amount of information on the more than
60 buildings they own. (www.a-reit.com). There are really good presentations on the web site
but for those of you that don’t have the time to look at all the detail here is a summary
of what Ascendas REIT is all about:
I believe that being able to buy into Singaporean properties yielding about 6% should turn
out to be a really good investment. I personally own this REIT so I will be keeping a close
eye on it. Watch this space!
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