Singapore ETFs In Focus Following Policy Easing

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Includes: EWS
by: Zacks Funds

In a surprise move, the monetary authority of Singapore (MAS) eased policies on April 14, 2016. The step was taken to boost economic growth which halted in the first quarter of 2016. Notably, the Singapore Monetary Authority uses currency as a key tool to ease monetary policy rather than interest rates and resorted to a flat slope, budging from the prior target of a 0.5% annualized gain in the currency. However, no changes were made to the center of the band or the width, which is usually +/- 2%, per barrons.com.

The preliminary estimates revealed that the economy grew 1.8% year over year in the first quarter of 2016, maintain the pace seen in the previous two quarters and slightly above 1.7% growth expected by the market. Sequentially, growth was flat on a seasonally-adjusted annualized basis, declining from 6.2% growth recorded in the fourth quarter and falling shy of the market expectation of 0.2% growth.

MAS expects the economy to expand more moderately over the rest of the year. External shocks due to the slowdown in its major trading partners caused the worry. And if this was not enough, consumer prices in Singapore declined in February for 16 months in a row. So, the authority had to react to arrest the downtrend and revive this export-centric economy.

The move instantly lowered the value of Singapore dollar which recorded the biggest plunge in eight months. Many analysts are speculating further policy easing given the dour economic scenario.

Market Impact

Though Singaporean stocks and the related ETFs have surged so far this year, the recent central bank comments point to the fact that the economy is reeling under pressure. China Renminbi devaluation and the recent weakness in the U.S. dollar also acted as headwinds to the Singaporean currency.

Export-centric Asian economies like Singapore were thus forced to depreciate their currencies to stave off competitive pressure (probably) and rev up their exports while growth issues in China marred investing prospects of countries with close trade ties.

However, the present situation is a bit dicey with the monetary easing opening room for growth while submissive central bank comments making investors wary. So, it is better to stay on the sidelines at the current level, wait for some definite improvement and obviously better entry points.

The large-cap fund covering this economy's equity market - iShares MSCI Singapore ETF (NYSEARCA:EWS) - had a solid stretch in the last three-month period (as of April 14, 2016) gaining 16.9%. It has a Zacks ETF Rank #3 (Hold). We have briefly highlighted the ETF tracking the country below.

EWS in Focus

EWS is easily the most popular Singapore ETF on the market as it has about $550 million in AUM and an average daily volume of 1.8 million shares a day. The product charges 47 basis points a year from investors. With 28 stocks in its basket, this fund from iShares puts more than 50% of its total assets in the top five holdings, suggesting higher concentration risks. The financial sector actually makes up roughly half of the portfolio, leaving around 18% for industrials followed by 14.5% for telecommunication.

EWS pays a solid yield of 4.06% annually (as of April 14, 2016), implying that it may be an income pick if payout levels hold.

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