The Most Unlikely Asian Tiger

05/03/2010 2:12 pm EST

Focus: ETFS

Nicholas Vardy

Editor, Oxford Wealth Accelerator

Nicholas Vardy, editor of Global Stock Investor, says tiny Singapore has become a global power, because of its innovative, competitive spirit, which has buoyed its market.

Over the past 40 years, Singapore has transformed itself from an economic backwater to an Asian Tiger success story. When this former British colony became a fully independent country in 1965, its per capita [gross domestic product] was a lowly $511. Today, that figure has risen to $53,192, making Singapore wealthier per person than the United States.

Singapore has been ranked [number one] in global innovation and competitiveness. It’s ranked first for having the most open economy for international trade and investment. And it’s the world’s easiest place to do business. And Singapore achieved all this by dint of sheer hard work.

Ironically, the secret to the success of this city-state with a population of just over 4.8 million is the diametric opposite of the individualistic, entrepreneurial-driven, quintessentially American success story of Silicon Valley. Singapore’s authorities are famously interventionist, having power to prosecute individuals who violate laws relating to “improper use of the Internet.” They once even famously banned the sale of chewing gum.

[Still,] Singapore has gotten the basics right. And Singapore’s low levels of corruption, skilled work force, stable environment, and efficient infrastructure have made it arguably the greatest economic success story among the Asian Tigers. Corporate tax is a mere 17% and personal taxes are only 20% on incomes over $300,000 Singaporean dollars ($213,000).

In the midst of the Great Recession, unemployment never hit higher than 3.4%—a figure unimaginable to most Western economists. Recently, Singapore also has become the world’s fastest-growing offshore banking center, and its strict bank secrecy laws and a favorable tax regime have put the country on track to become the 21st century’s answer to Switzerland.

Not that it’s been clear sailing for Singapore over the past decade. During the 1990s, Singapore was the world’s leading producer of disk drives. Today, like its neighbors, Singapore is facing the loss of competitiveness against China. That’s why the philosopher kings of Singapore have embarked upon a mission to promote Singapore as a premier tourist destination.

Singapore was hit hard by the global economic downturn, but has bounced back quickly. In the second and third quarters of the year, GDP rose by nearly 9% and has now made up all but 1.8% off its peak. Property values have soared, forcing the government to take steps to prevent possible asset bubbles. Singapore’s economy likely will expand at a rate of 6.5% in 2010—a rate virtually unheard of for a country already this wealthy.

While the US markets have had quite a run since last March, Singapore has outperformed the [Standard & Poor’s 500 index] over the last 12 months by almost two to one. Since the market bottomed in March of 2009, the iShares MSCI Singapore Index ETF (NYSEArca: EWS) is up an eye-popping [135%]. (It closed Friday at around $12—Editor.)

While the headlines blare about China’s and India’s economic achievements, Singapore just might be the single most under-appreciated economic success story on the planet.

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