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East Asian Markets

In an earlier article I wrote that the East Asian markets will be among the first to recover when the recovery takes place either later this year or early next year barring any further unforeseen major financial crisis, and that I will highlight windows of opportunities for investments in markets that show potential for early and rapid recovery. Although the Asian markets are expected to perform well, each market has its’ own niche and the key to profitability is to try to identify the niche and consider them for longer term investments.

The market that I am writing about today is Singapore (one of the 4 Tigers) a small island of less than 700 km2 (not including offshore islands), which has recently made headlines with an impressive GDP growth of 26% in the second quarter from the previous three months, prompting the government to predict GDP will rise to 13% - 15% for 2010 which is very impressive even for a small economy. The expansion in the growth can be attributed to largely to the non-oil domestic exports and tourism which was recently boosted by the two large resort casinos completed in February and April this year. The government had finally agreed to granting licenses to operate casinos only if the owners make it a part of a resort/entertaining and convention centre as it hopes to lure more tourists and business conferences to this small island. The benefits flowing from it will be manifold as it will cascade to the hotels sectors, the retail sectors, the F & B sectors and many other related sectors such as the land, air and marine sectors; and of course all this will provide more jobs to the local and foreign workers and all this buzz and activities will fill the coffers of the Tax authorities.

What to invest in

Tourism has always been one of the major contributor towards the GDP but this year it has taken on a larger role and will continue to do so in the years to come; in fact the government is placing more importance to this sector as can be seen by the recently completed casinos and holding the annual event of the Formula racing in which the cars race around the city area, which has drawn spectators from around the region. Among the transportation vehicles the big winner will be SIA the national airlines which has been consistently profitable over the years and even during the last few turbulent years where many global airlines have floundered and suffered losses, can expect to increase its profits as more and more people will be flying in and out of Singapore.

Another area that is has been focusing and will be doing so with more emphasis is the financial sector and this is evidenced by the Singapore Exchange wooing companies from many countries like China to list their companies here and enjoying easier financing, more liquidity citing strong factors like a stable government, strong dollar and safe from natural disasters. The other big beneficiary will be the Banking sector as more loans will be made to local and foreign enterprises, commissions and interests from credit cards as spending by the local residents will bump up, and also loans to the property buyers who will be making more investments to property as their wealth increases; and naturally the property developers and companies will see bumper year profits.

Although it is a small island it is ideally located at the crossroads of marine-time water-ways, protected from natural disasters, and has a good infrastructure. Furthermore, she has kept abreast with the latest technology, has diverse business enterprises in the different fields, constantly seeking to expand its’ financial activities and most importantly it has a strong and stable currency. Consequently, it is not difficult to attract foreign investments into the island which is crucial to her existence and growth. Finally and most importantly for financial investments there is transparency and good governance in the financial and commercial sectors, a stable political environment internally and externally; so much so that over the years during a financial crisis in this region, money is diverted to this island as it is reputed to be a safe haven and the banks are safe and reliable as the banking and financial sectors are closely monitored by MAS (Money Authority of Singapore) which places stringent rules and regulations upon their financial requirements and activities.    

How to invest

Personally I have found it extremely difficult to pick outright winner(s) in stock investments (rewards may be high but the probability of success is low) so I have resorted to selecting a basket of stocks (lower rewards but higher probability of success) and this is true of markets especially as markets are subjected to more variables of uncertainty than stocks. Therefore it is wise to hold a portfolio of markets comprising of western and eastern markets and even emerging markets for those more adventurous and resourceful.

There are a number of ways to invest in the markets depending on the resources available, but first a reminder that investors (below 50 years) should remember to diversify their investments which means investing only a percentage of their funds perhaps 5 - 10% of their total funds, so that they will be able to invest in the other Asian markets. For investors outside of the East Asian regions should consider 35% - 50% of their total funds in this region with the balance in the western markets. For those living in the East Asian region may consider a larger percentage of 60% - 75% and the balance in the western markets. For older investors (above 50 years) with limited funds, the foremost priority is asset protection and generating income, so should consider investing only 50% or less on equities in domestic and overseas markets, with the balance in domestic securities or long term bonds.

For investors who are risk-adverse and have little knowledge on investing and limited resources, then buying mutual funds would be the recommended route to go. For others with more risk appetite and limited resources then they may consider ETF where it is available on the US exchange and Singapore is listed under EWS. Then for those with higher risk appetite and more resources then they can zero in on the sectors investment, and finally for those with high risk appetite and more resources and a competent stock picker than selecting a stock from each potential sector may be the way to go. It is best to go through a stock broker for overseas investments as their firm have the resources and research that would be essential to know and to have.  Only seasoned and knowledgeable investors should attempt to do this on their own through online platform.

For investors seeking more information on the listed products on the exchange can visit the SGX at http://www.sgx.com/wps/portal/marketplace/mp-en/home

In conclusion investors must remember to manage their risks and one way is through diversification and not put all their eggs in one basket no matter how attractive that particular basket is. Besides, the other remaining 3 ‘Tigers’ are just as attractive in their own rights and are doing extremely well; and of course not forgetting the ‘Dragon’ (China) and the ‘Phoenix ‘(Japan) a bird that I think is appropriate to use as an icon for Japan, as the Phoenix is highly regarded there and figurine of the bird are found in many notable places; because when the time comes for Japan to wake up from of its’ slumber, it will be like a ‘Phoenix rising from the ashes’, and it is likely to soar to great heights that it once has reached (not to 38,000 as that level was grossly inflated).

Disclaimer

The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Please refer to your financial adviser/brokers for further information and advice before making any purchases.




Disclosure: none