An island nation, hidden in the very heart of Asia, Singapore represents a strong and sustainable economy with well-deserved credit for quality, integrity, reliability, productivity, the rule of law and enforcement of intellectual property rights.
Singapore, with its robust economy, pro-business climate, excellent connectivity and highly-educated workforce, attracts foreign investors by their thousands annually. They believe it could provide a favourable environment to invest with confidence.
Singapore stock market outlook: why invest in Singapore?
According to the IMD World Competitiveness Rankings 2019, Singapore has been ranked as the world’s most competitive economy for the first time since 2010. This year it climbed up from the 3rd place to the top and switched places with the USA.
Singapore’s success was driven by the availability of skilled professionals, advanced technological infrastructure and favourable tax and immigration policies.
The international investment community keeps a close eye on Singapore mainly for its trade and financial sectors. According to the CLSA forecast, by 2025 the country may outperform Switzerland and overtake almost a third of the world’s agri-commodity trade.
Singapore’s success in international trade is mainly driven by the following factors:
lack of corruption
low tax rates
These distinctive features have already attracted around 7,000 international businesses from Europe, the US and Japan, as well as an additional 3,000 companies from China and India.
Singapore stock exchange
The Singapore stock market starts with the Singapore Exchange Limited, or the Singapore stock exchange. Commonly referred to as the SGX exchange, SGX Singapore is one of the 30 constituents of the Straits Times Index (STI).
Singapore stock exchange is considered the largest in southeast Asia and serves as home to more than 700 companies. Being the one-and-only stock exchange in the city-state, SGX Singapore is a monopolist, covering the entire Singapore stock market.
Ticker symbol: SGX
Market cap: $7.8 billion
The Singapore stock exchange (SGX) operates through 3 major business segments including: equities and fixed Income, derivatives and market data and connectivity. The equities and fixed income segment is further subdivided into securities trading and clearing, issuer services, and post-trade services.
Image source: investorrelations.sgs.com
The SGX exchange's clearing house business gains revenue from every transaction performed on the Singapore stock market. It means that the exchange earns a particular percent as a transaction fee each time a purchase is made.
SGX is also the only listing venue in Singapore. It means every time a company goes public in Singapore, the SGX exchange takes its fee.
The derivatives market also brings a significant portion of revenue. Around 40 million derivatives are traded on the Singapore stock exchange every quarter. In 2018, all the segments in total brought SGX a revenue of $845 million.
MSCI Singapore 25 index
One of the fastest and easiest ways to invest in the Singapore stock market is to invest in its benchmark index – MSCI Singapore 25 – covering approximately 85% of the market capitalisation of the entire Singapore equity market.
Moreover, you can do it through CFDs, or contracts for difference, which makes it possible to trade directly with your CFD broker without going through traditional stock exchanges.
The MSCI Singapore free stock index (SiMSCI), also known as Singapore 25, tracks the performance of medium and large-sized companies that are listed and traded on the Singapore stock exchange (SGX). The index belongs to the large family of MSCI indices, usually tracked by relevant financial institutions and banks.
The SiMSCI is highly correlated with another top Singapore index – STI – which has some common constituent stocks. The top Singapore 25 index components are: United Overseas Bank, DBS Group Holdings, Singapore Telecom, OCBC Bank, Keppel Corp, Genting Singapore PLC, CapitaLand, Ascendas REIT, Singapore Airlines and the Singapore Exchange.
Benefits and risks of investing in Singapore
Having one of the world’s richest populations and a constantly growing economy, Singapore has a reputation as an attractive investment market. However, investors should note that Singaporean focus on trade makes it dependent on the global trade market’s performance.
Therefore, the key benefits of investing in Singapore are:
Favourable demographics. Singapore enjoys the 3rd highest income per capita rates in the world. The state with one of the lowest unemployment rates, Singapore is a place which concentrates millionaires and highly-skilled professionals.
Open and free economy. Fairly considered one of the easiest places in the world to conduct business, Singapore offers favourable tax rates, advanced technological infrastructure and low corruption.
The risks of investing in Singapore are:
Dependence on foreign trade. The economy of Singapore is closely related to foreign trade, which caused a severe contraction during the 2001 bubble and the 2008 financial crisis. However, the country was rather quick to rebound.
Reliance on China. Deeply interconnected with the economy of China, Singapore is also affected by slowdown in China’s economy, aggravated by the US-China trade war.
In the end
Looking beyond your domestic market to trade, Singapore could become your gateway to the emerging markets of Asia. Despite the lack of natural resources, Singapore has managed to build an outstanding business-friendly environment and positions itself as an ideal destination for international companies to expand their business further to the Asian markets.