All-in-One Guide to Investing in SG Listed ETFs September 9, 2024
Singapore is a global financial hub known for its political stability, robust economy, and strategic geographical location in Asia. As a gateway to both developed market privileges and the vibrant economies of Southeast Asia, it offers investors a unique combination of developed market attributes and exposure to fast-growing Southeast Asian economies. This guide explores the distinct advantages of the Singapore market, helping you make well-informed investment decisions.
Why invest in Singapore?
- Stable Economic Environment: Singapore boasts a stable political system and a strong regulatory framework, making it an attractive destination for investors.
- Diverse Economy: The economy is diversified across various sectors including finance, technology, and manufacturing, which helps mitigate risks.
- Growing Digital Economy: The digital economy in Singapore is expanding rapidly, contributing significantly to GDP growth and creating opportunities in tech-related investments.
Key Economic Insights
- GDP Growth: As of the second quarter of 2024, Singapore’s GDP grew by 2.9% year-on-year, with an average growth of 3.0% for the first half of the year. The growth was primarily driven by sectors like wholesale trade and finance, despite challenges in manufacturing.
- Consumer Spending: While consumer-facing sectors such as retail and food services faced a contraction, overall consumer spending is expected to rebound as domestic demand improves.
- Industrial Output:The manufacturing sector showed mixed results, with a contraction in biomedical manufacturing but growth in electronics, particularly in AI-related technologies.
- Technological Innovations: The digital economy accounted for approximately 17.3% of Singapore’s GDP in 2022, reflecting strong growth in sectors like e-commerce and online services.
Investment Merits
- Strong Regulatory Framework: Singapore boasts one of the most transparent and investor-friendly regulatory environments globally, providing a safe and secure platform for investments.
- Strategic Location: Being a major logistics and trade hub in Asia, Singapore provides exposure to regional growth while offering the safety of a developed market.
- Diversified Economy: Singapore’s economy is well-diversified across finance, manufacturing, trade, and technology sectors, reducing the risks associated with market volatility.
Investment Risks
- Global Trade Dependence: Singapore’s economy is highly dependent on global trade, making it vulnerable to international economic fluctuations and trade tensions.
- Small Domestic Market: The small size of the domestic market means that economic growth is largely driven by external factors, which can introduce higher risk during global downturns.
- Sectoral Concentration: Certain sectors like financial services and electronics dominate the economy, which could be a risk if these industries face downturns.
- Diversification: ETFs provide exposure to a basket of stocks, reducing the risk associated with single-stock investments.
- Low Costs:ETFs typically have lower management fees compared to actively managed funds.
- Liquidity: Like individual stocks, ETFs can be traded throughout the trading day, providing flexibility and timely investment opportunities.
To mitigate concentration risk in SG market with banks and REITs as its core sectors, it’s prudent to consider diversification across different countries and asset classes.
Top 5 SGX-listed ETFs by Trading Volume
- LION-OCBC Securities HS Tech (HST):This ETF offers the opportunity to capture the growth potential of China’s top 30 technology companies, presenting a high-growth sector within the Asian market.
- SPDR Straits Times Index ETF (ES3)Gain direct exposure to Singapore’s 30 largest and most influential stocks by market capitalisation.
- Lion-Phillip S-REIT ETF (CLR)This ETF allows investment in a diversified portfolio of top-tier REITs listed on SGX, providing investors with stable returns derived from real estate investments.
- Nikko AM-STC Asia Ex-Japan REIT ETF (CFA):Access a diversified collection of REITs across the Asia-Pacific region, excluding Japan.
- Nikko AM Singapore STI ETF (G3B):Another robust option for those looking to invest in Singapore’s biggest 30 listed companies.
7 Noteworthy SGX-listed ETFs to consider for a Diversified Portfolio
- Phillip-China Universal MSCI China A50 Connect ETF (MCN):Focus on China’s onshore giants, aligning with national policies for consistent growth.
- Amundi MSCI India ETF Acc USD (G1N):Dive into India’s large growth stocks, which have demonstrated strong performance over the last 15 years.
- iShares MSCI India Climate Transition ETF (I98):Target Indian companies with high ESG ratings, combining growth with sustainability.
- CSOP CGS-CIMB FTSE Asia Pacific Low Carbon Index ETF (ICU):Invest in ESG-conscious companies across the Asia-Pacific, known for their strict standards and potential for quality returns.
- Lion-OCBC Securities APAC Financials Dividend Plus ETF (YLD):Gain stable dividend, growth potential and access to the top 30 financial institutions in the Asia-Pacific region.
- Nikko AM SGD Investment Grade Corporate Bond ETF (MBH):Explore a less-accessed bond market, including reputable names like Temasek, NTUC Income, LTA, and HDB.
- ABF Singapore Bond Index (A35):Offers exposure to Singapore dollar-denominated bonds issued or guaranteed by Singapore and other Asian governments, providing a stable, income-generating investment.
Depending on your investment goals, time horizon and risk profile, consider incorporating these ETFs into your portfolio to achieve your financial goals.
Who Should Consider ETFs, and Who Should Not?
Ideal For:
- Long-Term Investors: Perfect for those seeking exposure to a stable, growing economy with a diversified portfolio that can weather market fluctuations over time.
- New Investors: An excellent option for individuals looking to start investing in Singapore’s market with a low-cost, low-maintenance approach.
- Experienced Traders: Ideal for investors who want to capitalize on Singapore’s economic strengths without the need to select individual stocks, offering a strategic way to leverage market opportunities.
Not Ideal For:
- Short-Term Speculators: If you’re looking for quick profits, ETFs might not be the best choice as they tend to move more slowly compared to individual stocks.
- High-Growth Seekers: Investors in search of rapid growth might prefer emerging markets in regions like Southeast Asia or Latin America over Singapore, which typically offers more steady growth.
- Dividend Hunters: Those focused on securing the highest dividend yields might find better opportunities in markets like Hong Kong, where payouts are generally higher.
How to Start: Active Trading vs. Passive Dollar-Cost Averaging (DCA)
For most investors, utilising Dollar-Cost Averaging (DCA) to invest regularly in these ETFs is a smart way to reduce volatility while benefiting from portfolio’s growth. This strategy helps build positions over time without worrying about market timing.
Active traders, on the other hand, can use these ETFs for short-term tactical moves based on market trends but need to be mindful of the risks involved in active trading.
By adopting these strategies, investors can make well-informed decisions that are in line with their financial goals and risk tolerance, enabling confident navigation through the stock markets.
We also offer free webinars and seminars to support your investment journey. Check them out here
References:
- https://www.singstat.gov.sg/-/media/files/news/gdp2q2024.ashx
- https://www.sc.com/sg/wealth/insights/etf-investing-and-what-you-need-to-know/
- https://www.moneysense.gov.sg/guide-to-etfs-understanding-exchange-traded-funds/
- https://www.imda.gov.sg/-/media/imda/files/infocomm-media-landscape/research-and-statistics/sgde-report/singapore-digital-economy-report-2023.pdf
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About the author
MuMing Yong
ETF Specialist
Phillip Securities Pte Ltd
Mu Ming traded and invested for more than 8 years in various instruments including ETFs, Equities, Unit Trusts, Options, DLC, CFD, and ILP from the US, SG and HK market. He's a believer of personal finance, macroeconomics, and, technical analysis - so much so that he found himself analysing his social media engagement using trend lines and patterns.
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