Safe Haven in Singapore

12/24/2014 7:00 am EST


Few global safe havens exist these days. The US market is reaching nose-bleed valuations, Europe has sclerotic growth, and the BRICs are corrupt, cautions Martin Hutchinson in Income without Borders.

And then there's Singapore. Ranked yet again by the Economist Intelligence Unit as the world's #1 place to do business.

Singapore is one of the world's richest countries, among its least corrupt, growing rapidly, and with budget and inflation measures that are well under control.

Given the state of the world today, prudent investors, especially income-oriented ones, should own some Singapore stocks.

I have a soft spot for Singapore, having lived there for three years; the population is a vibrant mix of Chinese-origin, Malays, and south Indians.

Singapore, which has a population of 5.5 million, has a GDP per capita of $62,800, nearly 20% higher than the United States.

It makes its money primarily as one of the world's largest trading and financial entrepts (a trading post where merchandise can be imported and exported with paying duties), but also has a substantial manufacturing sector with a specialization in electronics.

It is rapidly becoming a world leader in private banking, as Switzerland is harassed by the European Union and Hong Kong falls more heavily under the direct rule of Beijing.

The Singapore market is below its 2007 level and its P/E ratio is only around 14, which is well below the US market. With the economy growing more rapidly than the US and the stock market some 30% less highly valued, that makes Singapore a bargain.

It also doesn't hurt that the ETF, iShares MSCI Singapore Fund (EWS) yields a satisfactory 3.4%. It's volatile (up 25% in 2010 and down 19% in 2011), but its 10-year average annualized return is 10.3.

Apart from EWS, there are a number of Singapore companies with attractive dividend yields that an international income investor should consider.
Singapore Telecommunications (SGAPY) provides multimedia and telecom solutions in Singapore and Australia.

It pays dividends twice yearly in the Singapore fashion (Singapore companies pay interim dividends, then and final dividends based on the year's results).
The shares currently sport a yield of 4.3%, a historic P/E of 17, and a prospective P/E of 16.

With a solid balance sheet and a decent return on equity, it provides a low-risk way of investing in the high-tech development of two of the world's most attractive economies.

Keppel Corp. (KPELY) mainly operates in the marine, real estate, and infrastructure businesses. It's named after its home in Keppel Harbour (a port facility it owns).

Keppel is trading on a lowly 9 times P/E and a 10 times forward P/E, as it is a major owner of drilling rigs worldwide, a business currently suffering a downturn.
It yields 4.4%, based on its current annual dividend rate of 42 Singapore cents, again paid in two unequal installments.

The company offers exposure to Singapore's vibrant real estate market and to Singapore's greatest competitive strength, its port operation.

Overall, with these stocks, investors will have broad exposure to one of the world's most successful economies.

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