An exchange traded fund that invests in Singapore has had a tough year as a result of its exposure to the financial sector and worries over the global economy.
Yet Singapore’s economy is forecast to grow due to boosted financing within the commodity sector.
The iShares MSCI Singapore Index Fund (EWS) is down about 15% year to date but some say the ETF could avoid the debt troubles brewing in Europe and the U.S.
“Anchored at the crossroads of Asia, this island nation is hardly blessed with abundant natural resources. It’s dependent upon its neighbors for nearly everything — except human capital. In this regard, it’s leveraged its resources well. It’s picked its niches carefully, excelling in financial services, pharmaceuticals and information technology,” writes John Wasik at Reuters.
“As a result, its economy grew almost 15% last year,” according to the report. “The government has embarked on a long-term program to turn the country into Southeast Asia’s major trading and technology nexus. As one of the wealthiest nations in Asia, it has a low jobless rate and small budget surplus; its per-capita GDP ranks it among the highest in the developed world.”
“Growth for the Singapore market has been boosted by a huge increase in financings for the commodity sector,” Boey Yin Chong, managing director of syndicated finance at DBS Bank Ltd., said. “From a $500 million base in 2007 we’ll probably hit $9billion plus by the end of 2011.” [Frontier Market ETFs: Is This Their Year?]
Property developers and frequent commodity trading has helped boost the syndicated lending in Singapore. Katrina Nicholas for Bloomberg reports that loans have risen 91% to $38.3 billion this year from the same time period in 2010. Singapore is home to the second-busiest container port and is Asia’s main oil refining,trading and storage center. [The Contrarian: Single Country ETFs]
However, Singapore is not immune to the Eurozone debt crisis and the economy will be feeling the pressure of the latest warning from Standard and Poor’s.
The growth outlook for 2012 relies upon the fate of the Eurozone countries and according to the Ministry of Trade and Industry, the economy can expect growth from a range of 1-3% in 2012. [Malaysia, Singapore ETFs Rise on Rail Link]
As the growth in the developed world, such as Europe and the U.S., slows, Singapore does have an edge as a source of funding for energy traders and commodity suppliers such as grains, sugar and edible oils, points out Eugene Szeto, HSBC Holdings Plc’s head of Southeast Asia loans syndicate, on Bloomberg.
The Singapore ETF has “a heavy exposure to financials and industrial companies, almost all of which have regional Asian operations,” Morningstar says in a profile of the fund.
“A slower-than-expected global economic recovery will weigh on the growth of export-oriented Singapore,” Morningstar added. “Singapore is a very small country with almost no natural resources. Economic growth is very dependent on international trade and financial services. This fund is fairly concentrated, with the top-10 holdings accounting for about 70% of the total portfolio. Financial companies, which include real estate companies, account for almost 50% of the total portfolio.”
iShares MSCI Singapore Index Fund
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Tisha Guerrero contributed to this article.