The Little Asian Giant That Could
08/28/2007 12:00 am EST
James Jubak. senior markets editor for MSN Money, says Singapore is a “platform country” whose companies will thrive as Asia and China’s economies boom.
Looking to get some of the vroom that comes with an investment in the developing economies of Asia but fearful of the whoosh that can signal big losses from a change in government policy, out-of-control inflation or the pricking of an asset bubble?
Try investing in the stocks of a "platform" country. My favorite platform country right now? Singapore, hands down.
The best-managed, most-competitive, and most-farsighted companies have outgrown the limits of their domestic economies. Using their own economies as [platforms], they've expanded to attack opportunities in surrounding developing economies.
In the best of circumstances, the champion companies of a platform economy are better managed and more-experienced international competitors than most of the companies in the surrounding developing economies.
If you look at just the domestic part of Singapore Telecommunications (NASDAQ: SGAPY), it doesn't look like an especially interesting investment opportunity.
In the fiscal fourth quarter of 2007, which ended in March, revenue from the company's Singaporean businesses grew by just 2.8% from the year-earlier quarter, [while] operating expenses climbed.
But the company owns 21% of Thailand's Advanced Info Service, [as well as stakes in wireless providers in India, Australia, Indonesia, the Philippines, and Bangladesh). Collectively, what Singapore Telecom calls its associates saw pretax profit grow by 16% year to year. (It closed below $24 recently—Editor.)
Singapore Airlines (NASDAQ: SPAAF) is much more integrated because of the strength of its core brand name in the air-passenger market. But the company has still, like Singapore Telecom, used its home market as a platform for tapping into bigger and faster-growing markets in the region.
So, for example, wholly owned subsidiary SilkAir is a regional airline targeting secondary cities in the fast-growth markets of China, India, Thailand, Indonesia, Vietnam, Malaysia, the Philippines, and Cambodia. Revenue climbed 20% in 2006.
And Asian low-cost pioneer Tiger Airways, 49% owned by Singapore Airlines, saw passenger numbers grow by 75% in 2006.
Then there's Singapore Airlines Cargo, set up as a subsidiary, which has become the world's third-largest carrier of international freight. Recently, Singapore Airlines bought a 25% stake in Great Wall Airlines, a new airfreight carrier based in Shanghai.
And, finally, there's Singapore Airlines' international passenger operations. In fiscal 2007, operating profit in that business climbed 58%. (The ADRs closed above $12 recently—Editor.)
You don't have to go to the trouble of buying all the champions of the Singaporean platform economy one stock at a time. The iShares MSCI Singapore Index (AMEX: EWS) exchange-traded fund lets you buy a basket that includes all these names with a single trade. About 60% of the fund is invested in financial services, but Singapore Telecom and Singapore Airlines are, respectively, the ETF's second- and seventh-largest holdings. (It closed above $13 Monday—Editor.)