Here's how you can diversify your investments overseas via SGX:
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How To Diversify Your Investment Portfolio Outside Of Singapore
Diversification is an important strategy to spread your investment
risks without affecting your potential returns. While there are
many ways to go about achieving this, we will look at how we can
add stocks from countries outside Singapore to limit our
portfolio’s exposure to headwinds in the local Singapore
market.
Firstly, if we chose to only invest in companies that operate in
Singapore, we could still achieve some form of diversification by
ensuring we invest in different companies. By doing this, we would
be able to limit the potential negative impacts of any single
company in our portfolio. No matter how strong or stable a company
is, we could still end up being blind-sided by poor management,
unreliable suppliers or credit risk of its customers not paying
up.
Investors focusing on Singapore should also invest in companies
across various sectors of the local market. This is to mitigate
against poor performance, of any one sector. Such situations could
arise out of government policies, macroeconomic pressures or just a
downcycle in the particular sector.
Next, a natural progression from that is to invest in companies
beyond Singapore’s shores. This will further shore up our
portfolios by ensuring that even if Singapore’s economy experience
a slowdown, our portfolio will still be able to deliver stable
returns because other economies in the world are still in the pink
of health.
This is the reason we need to understand the importance of
diversifying our investments outside of Singapore.
While it is true that globalization has increased the correlation
of how international economies and its respective stock markets
perform, investing in overseas businesses still makes sense as
Singapore is an open trade-dependent economy that relies on dynamic
global trade to prosper.
Other countries, with large enough populations to support domestic
businesses or with natural resources can thrive even if the broader
global economy is subdued.
Because of Singapore’s relatively small size, many local businesses
have had to expand overseas for growth. In fact, more than half of
Singaporean companies now have an overseas footprint,
with larger
local companies reporting close to 40% share of their revenue
coming from their foreign operations.
SGX has done a great job of attracting foreign companies to list in
Singapore. They offer viable options for local investors to get
started on their overseas diversification journey. Of course, in
more recent times, the exchange has lagged peers in doing this,
however, this is for another article.
Singapore’s government has also done a good job of encouraging
local companies to seek new pastures overseas even as they hone
their core expertise locally. Many local companies, big and small,
have adopted this strategy and now offer a good option for
investors to diversify from the Singapore market.
This bring us to the fact that some of these local businesses which
have successfully expanded overseas are also listed on the
Singapore Exchange (SGX). This provides an excellent starting point
for investors to take on global exposure by continuing to invest in
pretty much the same way.
Singtel is one example. In 2016, the group derived just 29% of its
revenue from Singapore. Its Australian business made up close to
24% and its regional associates contributed the bulk of the
remaining 47% of revenue.
Similarly, DBS Holdings, Singapore’s and South East Asia’s largest
bank, has an established presence in six markets including Hong
Kong, China, Taiwan, Indonesia and India. In 2015, its Singapore
operations contributed just 62% of its nearly $1.5 billion income,
while Hong Kong made up the second largest market with 21% and the
rest of the markets contributed the remaining 17%.
Looking it at more broadly, the benchmark Straits Times Index
(STI), comprising 30 of Singapore’s strongest stocks, including
Singtel and DBS, earned
about 50% of its revenues from outside Singapore. This makes it
a good place for investors to start their diversification into
overseas investments.
Another favourite for Singaporean investors is the REITs segment.
Many REITs listed in Singapore also derive a large percentage of
their revenues from overseas. This includes many with managing
properties worth over $1 billion such as Ascendas REIT, Ascendas
Hospitality Trust, Ascott Residence Trust, MapleTree Logistics
Trust and more.
A good number of our small cap local companies also have strong
overseas presence and market penetration. QAF Limited, a leading
food company with exposure to Australia, Malaysia, Philippines and
China, derives over 82% of its revenue from its overseas
markets.
Q&M Dental, an established local dental healthcare provider,
has 30% of its revenue derived from China and Malaysia. MM2, a
content producer and distributer as well as a cinema operator,
recognised 27% of its revenue from countries outside Singapore,
namely, China, Taiwan, Malaysia, Hong Kong.
Further, some small- to mid-sized local companies, listed on SGX,
with strong core expertise locally have used the greater market
awareness and funds they gained to try to export their business
overseas.
They do this for the same reason as individual investors – they
want to diversify their income from overseas and ride on it for the
next phase of the company’s growth. Some example of these companies
include LHN Limited, which was recently
talked about in parliament for its drive to expand into China,
has fruitfully expanded its business into Indonesia and
Myanmar.
ISOTeam is another local company with close to 20 years of
experience in Singapore’s building maintenance and estate upgrading
industry. They too have ventured in Myanmar and have blueprints
already in place for their expansion into Malaysia and
Indonesia.
Besides local companies with foreign businesses contributing
revenue, Singapore’s open market also attracts many foreign
companies to list here. Local investors can dip their feet in
overseas stock investment in a comfortable setting of doing it via
SGX.
Global outfits such as commodity firms Olam, Noble and Wilmar and
others including Global Logistics, Genting and many more are
well-known companies that derive the bulk of their revenue from
outside Singapore.
Singapore is also closely connected to ASEAN, and there are some
very pertinent companies from our neighbours that are listed on
SGX. These include Indonesia’s chocolatier, Delfi Limited,
Malaysia’s Top Glove, the world’s biggest producer of gloves which
has a secondary listed here, Thailand’s Thai Beverage, a leading
food and & beverage brand in the region, Philippines’ Del
Monte, another leading food & beverage brand, and Myanmar’s
Yoma Strategic, which is geared to prosper from the emerging
economies recent opening of its economy.
China is also another region that local investors should pay
attention to. Many top Chinese companies have listed on SGX in the
past, and none more prominent that Yangzijiang Shipbuilding,
China’s largest shipbuilder. Other prominent companies include
Hutchinson Port Holdings Trust, SIIC Environment Holdings and
Biosensors International.
Overseas REITs have also listed in Singapore, on the back of strong
demand from local property lovers. These primarily obtain all their
revenue from its home countries and include Japan-focused retail
REIT, Croesus Retail Trust, Indonesia-based mall operator, Lippo
malls Indonesia Retail Trust, Hong Kong’s retail and commercial
property owner Fortune REIT, Indian healthcare property owner
Religare Health Trust as well as US office property REIT, Manulife
REIT and Germany’s IREIT Global.
Always remember that you are investing in overseas businesses to
earn a more stable return rather than just speculating. You have to
follow the same principles and do proper research on the companies
you are investing in. Just because its business is in China or
Myanmar does not mean it should fly under your radar.
Another area of concern should be that companies that are exposed
to overseas market may carry greater foreign exchange, political
and credit risks. This may impact its share price and
profitability, especially if you are looking to earn stable
dividends from it.
Companies that derive a chunk of their revenues from overseas also
offer more stable or volatile businesses depending on where the
company operates in. Companies operating in matured markets tend to
be slightly more stable than companies that are operating in
emerging economies.
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