Singapore Safe Haven

In today's Wall Street Journal Asia print edition, Cris Prystay comments on bearish Asian analysts' takes on how to play a softening U.S. economy and weakening U.S. dollar in HEARD IN ASIA: Singapore's Steady Earners Offer Safety Amid a Slowdown.

Some bearish Asia-based analysts are suggesting Singapore's "safe and steady earners" as a way to shelter oneself from a slowing U.S. economy and thus weaker Asian exports to the U.S. Two points to look for are domestic consumer demand companies and countries with strong currencies that could appreciate further against the dollar. Sean Darby, a regional strategist at Nomura Securities comments:

"We're at a turning point in earnings right now -- earnings quality across the region isn't likely to be very robust. So you want to be owning companies that are a little bit boring: companies with a large market share in a domestic industry and a stable earnings stream."

Darby especially likes 3 stocks from Singapore: StarHub, a mobile phone and cable company, Singapore Post, and Singapore Press Holdings, Singapore's leading publishing company. He does admit that a weak dollar won't directly impact these companies but would boost foreign investors' returns in the end since the Singapore dollar is expected to appreciate.

Singapore's safe haven status is based on its favorable trade position, stable economic outlook, and large current account surplus. The economy still has a large exposure to electronics manufacturing but has made efforts to diversify into such areas as chemicals and pharmaceuticals.

Comment: None of the stocks mentioned in the article trade in the U.S. However, there is an easy and economical (0.59% expense ratio) way to play Singapore via iShares MSCI Singapore Index Fund (EWS).

As of July 31st, iShares disclosed that the Singapore Fund is invested in the following sectors:

36.43% Banks
15.01% Capital Goods
13.24% Telecommunication Services
10.07% Real Estate
9.30% Transportation
4.21% Media
2.86% Consumer Services
2.02% Technology Hardware & Equipment
1.87% Diversified Financials
1.55% Semiconductors & Semiconductor Equipment

The funds' largest holdings as of July 31st are as follows:

13.55% DBS Group Holdings -- Banks
13.24% Singapore Telecommunications -- Telecom. Svcs
12.36% United Overseas Bank -- Banks
10.52% Overseas-Chinese Banking -- Banks
5.33% Keppel Corp -- Conglomerate
4.68% Singapore Airlines -- Transportation
*4.21% Singapore Press Holdings -- Publishing
3.25% CapitaLand Ltd -- Real Estate
2.91% Fraser and Neave -- Alcoholic/Non-alcoholic Beverages
2.86% City Developments -- Real Estate

The heavy exposure to more than 50% of assets in the top-ten holdings is not ideal but ultimately it is what happens with small economies that are dominated by a handful of companies. Note that iShares Singapore consisted of 39 securities as of July 31st.

Another way of investing in Singapore is via the Singapore Fund listed on the NYSE (SGF). It is a closed-end fund and has an expense ratio of 1.81% according to Morningstar.com.

* The '*' means the company is a holding of iShares Singapore. Also, Singapore Post, which was a pick by the Nomura analyst is a holding at 0.93% of assets. StarHub is not a holding.

For more details see iShares Singapore webpage.