This Tiger Is Roaring
06/13/2013 9:00 am EST
Singapore is an underappreciated economic success, says Nick Vardy of The Alpha Investor Letter. And now there's a new ETF for investors who want to participate in the coming gains.
While it is the large BRIC economies—Brazil, Russia, India, and China—that have grabbed the financial headlines in recent years, I believe it's tiny Singapore that is the single most underappreciated economic success story on the planet.
Singapore is arguably the most successful of the famous "Asian Tigers"—Singapore, Hong Kong, Taiwan, and South Korea. For the past 40 years, Singapore has transformed itself from an economic backwater to a cutting-edge global Asian economy. Even in the midst of the Great Recession, unemployment in Singapore never crept higher than 3.4%—a figure unimaginable in most Western economies.
In 2012, the World Economic Forum ranked Singapore as the No. 2 most-competitive country in the annual Global Competitiveness Report, just behind Switzerland. Singapore also ranks either first or second in the world in quality institutions, infrastructure, higher education and training, goods market efficiency, financial market development, and the labor market.
The country's corporate tax is a mere 17%, while personal taxes are only 20% on incomes over 300,000 Singaporean dollars (US$213,000).
The government wants to promote Singapore as a premier tourist and financial destination. Las Vegas Sands and Malaysia's Genting spent an estimated $10 billion on building two mega-casinos and a Universal Studios theme park that includes the world's largest marine park, a museum, and six hotels.
In 2012, this casino development produced $5.85 billion in gaming revenues, just short of the $6.2 billion produced by the Las Vegas Strip's more than 40 casinos. But considering Singapore launched from a standing start in 2006—and that it has only two casinos, compared to dozens in Macau and Las Vegas—Singapore's foray into gaming has been a remarkable success.
Singapore's legal system, political stability, and high living standards already have made it a financial hub for Southeast Asia. Singapore is the fastest-growing wealth center in the world.
The country's $21 billion financial services industry accounts for 11% of Singapore's GDP. And according to new research by Timetic, Singapore will overtake Switzerland as the largest global offshore private banking market by 2020.
Money is also pouring in from Indonesia, the Philippines, and Malaysia. Between 2007 and 2011, the number of high-net-worth individuals (HNWIs) in Asia increased 29% to 2.6 million, compared to a 0.3% drop globally.
Singapore now is attracting twice as many fund-management companies as Hong Kong. At the end of 2011, total assets managed by Singapore-based asset managers grew 40% to reach $1.338 trillion.
The traditional way to invest in Singapore was through the iShares MSCI Singapore Index (EWS), which invests in traditional, large-cap Singapore stocks. But I recently uncovered an even better way that combines the upside of capital appreciation with an eye-popping dividend yield of almost 20%.
The iShares MSCI Singapore Small Cap Fund (EWSS) provides exposure to Singapore's small-cap stocks. This is still a relatively "undiscovered" ETF, with only $13 million in assets under management. But it's now popping up on investors' radar screens.
Recently, EWSS recorded the largest increase in inflows of any ETF, adding 200,000 shares-a stunning 50% increase in the number of outstanding shares. As of April 4, 52.48% of its holdings were in financials, and 17.16% were in industrial shares. The remaining sectors were in single-digit percentages.
The top ten holdings confirm that it's heavily invested in the Singaporean or Southeast Asian real estate markets. This helps explain its whopping 19.85% 12-month yield.