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Summary

  • Since its independence in 1965, Singapore has become a global economic powerhouse.
  • With its 'entrepot' history, Singapore is a regional trading hub ranked as the 2nd most competitive country in the world.
  • Recently, Singapore has moved up the economic ladder into higher value added sectors, e.g. biotechnology and the biomedical industry.
  • Singapore's fiscal conservatism, ample FX reserves and solid legal infrastructure underscore the country's relative attractiveness within a fast growing region.

For a little red dot in Southeast Asia, Singapore makes quite a splash on the international scene. Following its independence in 1965, Singapore has become one of the ten wealthiest nations in the world, even overtaking its former colonial master Great Britain. Moreover, with its solid fiscal position complemented by two of the world's largest sovereign wealth funds (Temasek and GIC) Singapore public policymakers have ample flexibility in drawing up policies to ensure the country retains its economic competitiveness in the coming years.

Singapore
GDP (USD PPP)339 billion
GDP growth4.1%
GDP Per Capita (PPP)62,400
Population5.6 million
Unemployment1.9%
Inflation2.4%
Budget Surplus (% of GDP)1.3%
Exports410 billion
Imports373 billion
FX Reserves273 billion
Source: CIA Factbook accessed on August 3, 2014. All data 2013, estimates in USD.

With a small, industrious population of 5.5 million, Singapore is the preferred port of call for multinational businesses venturing into Southeast Asia and farther afield. The country's role as a regional trading hub has propelled Singapore's Changi Airport to become the thirteenth busiest air hub in the world, serving 53.7 million passengers in 2013. Likewise, in 2012 Singapore s port was the second busiest in the world, superseded only by Shanghai.

The Republic's reputation as an easy place to do business is well established. Alongside world class physical infrastructure is a top notch legal and regulatory framework, all in English. There are few hurdles to establish a company. Foreign investment and ownership are free of cumbersome bureaucratic hurdles. The commercial legal framework is equitable and efficient. Not surprisingly, Singapore was listed as the second most competitive global economy during 2013-2014 by the World Economic Forum.

However, all is not smooth sailing on the island. Recently, the country has become an expensive place to do business. In a recent survey by the Economist Intelligence Unit, Singapore ranked as the most expensive city in the world for expatriate workers. To be sure, the increased costs come as the economy has slowly but surely moved into higher value added sectors and away from traditional smokestack industries.

For example, the financial services industry is no longer simply about being an offshore back-office transaction processing center but includes a world class private banking infrastructure. With total assets under management of USD 1.4 trillion, Singapore is well on its way to transforming itself into an international private banking hub. The country already plays a leadership role in the foreign exchange trading arena. According to the Bank for International Settlements, Singapore overtook Japan as the largest FX trading hub in Asia with average daily trading volumes of USD 383 billion in recent years. The nation's financial services industry should see above trend growth given the steadily increasing affluence of nearby nations, particularly China and India.

Another area exemplifying Singapore's 'new' economy is biotechnology / pharmaceuticals. The island's biomedical industry manufactures almost USD twenty billion worth of products for the export and domestic market annually. In the 2000-2010 decade, Singapore had the third fastest growth rate in the market for the export of pharmaceutical goods. Research and development focused industries such as pharmaceuticals capitalize on Singapore's strong intellectual property laws and well educated workforce.

With a confluence of positive factors working in its favor, the Singapore story makes a compelling investment thesis. Certainly, Singapore's geo-strategic location within a fast growing region - but with many first world attributes - makes the country an interesting 'Asia Lite' investment destination. Exposure to Singapore can be obtained through iShares MSCI Singapore (NYSEARCA:EWS) ETF. EWS tracks the MSCI Singapore Index. The ETF has approximately USD one billion in AUMs and provides a yield of 3.3 percent.

Source: Singapore: Asia's Little Red Dot And Economic Powerhouse

Additional disclosure: I do not own EWS. However, I do maintain long positions in many individual stocks and REITs listed on the SGX (Singapore stock exchange).