In this turbulent time, we are consistently hearing from professionals and gurus that we have to “invest properly” in order to retire with dignity in our expensive country Singapore.
“Investing properly” is highly correlated with the diversification of our portfolio. Simply put, don’t leave all your eggs in one basket. To translate it to the investment sphere, do put your entire portfolio simply into the Straits Times Index (STI). Instead, apportion some into other indices as well.
Let us take a look at which indices can help us navigate our investment portfolio.
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Fourth: Kuala Lumpur Composite Index (KLCI)
Although we have heard that Malaysia is consistently plagued with corruption and inefficiencies, there is no doubt that the 31 million people living in Malaysia have been driving the country’s economy.
Among South East Asian nations, Malaysia has the second most skilled workers (1st is Singapore) as a percentage of its total population. Education may still require improvements in order to catch up with global standards; however, it is sufficient to maintain the balance that is required to grow its own domestic economy.
Islamic Finance has been growing rapidly and Malaysia seems to be more advanced than its Indonesian counterparts. Being the unofficial leader of Islamic Finance in Asia, we are hopeful that Malaysia will continue to prosper and hopefully attain its first world status in the future.
The KLCI has provided a return of 86.4% since Jan-2006, therefore averaging about 8.6% per year in the past 10 years. Although we do not have KLCI on SGX, we can purchase a similar index – Lyxor ETF MSCI Malaysia
Exhibit 1: Kuala Lumpur Composite Index
Source: Yahoo Finance (^KLSE)
Third: Bombay Stock Exchange Sensex (BSE Sensex)
We cannot expect less of a country that has the second largest population in the world. India’s Gross Domestic Product (GDP) is largely contributed by private consumption; this shows that external shocks are not as prevalent for India as compared to countries like Singapore and Thailand.
The Modi administration has brought about new heights to the country. Furthermore, with the installation of Raghuram Rajan, a very intelligent and talented economist who was the Chief Economist of the International Monetary Fund as well as a professor in finance in the University of Chicago Booth School of Business, the entire landscape of India appears to be transforming for a better future.
Despite inefficiencies in India, its growth has been exceptional due to its growing educated population and introduction of technology.
The BSE Sensex has provided a 155% return since Jan-2006, averaging about 15.5% per annum in the past 10 years. Similarly, we do not have an ETF that tracks BSE Sensex on SGC, but a good proxy would be (1) iShares MSCI India ETF and (2) Lyxor ETF MSCI India.
Exhibit 2: BSE Sensex Index
Note: Yahoo Finance (^BSESN)
Second: CSI 300 Index
The 300 companies that are in this index do have a certain level of recognition because the criteria are relatively stringent. The criteria are as follows (Source: China Securities Index Co. Ltd)
(1) Listing of at least three months at the Shanghai or Shenzhen Stock Exchange
(2) No signs of great volatility in the price history or suspicion of price manipulation
(3) Belonging to the TOP 300 A-shares by market capitalization
(4) Belonging to the most liquid 50% of all A-shares
Some said that China has single-handedly saved Asia from the previous Financial Crisis of 2008/2009. Being the nation with the largest population does help in the creation of demand and along with it, jobs.
The risk that has been the talk of the town has been China’s unsustainable debt levels which the central bank and government has been actively trying to manage. In ensuring a high growth, with stability and reforms put in place, China is fighting a very tough fight on its own and no one is able to help this “Dragon Warrior” in slaying its own “Dragon”.
The CSI 300 has provided a return of 273% or an annual average return of 27.3% since 10 years ago. This time, we have an ETF on the SGX that tracks this index – DB x-Trackers CSI 300 Index ETF.
Exhibit 3: CSI 300 Index
Note: Yahoo Finance (000300.SS)
First: Jakarta Composite Index (JCI)
Indonesia can be seen as the Goliath among its ASEAN peers, commanding 254 million people (2014) and producing US$889 billion worth of goods (2014). Furthermore, Indonesia is part of an elite group call the G20, which is an exclusive group comprising of the largest 20 economies in the world.
Being a net exporter due to its reliance on commodities sales, the global commodities slump has taken a toll on the country. Nonetheless, the country’s low labour cost and high technological growth is slowly but surely bringing the country out from its poverty status decades ago.
The Jakarta Composite Index has provided returns of about 292% since Jan-2006 and it has done particularly well after the Global Financial Crisis. The 10-year average return was 29.2% per annum. Again, we do not have an ETF that exactly tracks the JCI, but a good proxy would be the DB x-Tracker MSCI Indonesia TRN Index ETF available on the SGX.
Exhibit 4: Jakarta Composite Index
Note: Yahoo Finance (^JKSE)
Commonality of the top 4 best-performing index
We realized that the best performing indices are all from emerging economies. This would resonate well with the high risk- high return theory. Emerging economies are generally more volatile, plagued with more corruption and inefficiencies. Therefore, investors would generally expect more from these economies, such as achieving returns of nearly 30% per annum (in the case for Indonesia).
That being said, the past is not a good reflection of what might happen in the future. Hence, simply pouring everything into these indices without monitoring the market environment and understanding for yourself your own personal risk profile is not something that we would advocate.
Exhibit 5: Returns of Indices Indexed to 100 at Jan-2006
Note: KOSPI = Korea Composite Stock Price Index (Korea). HSI = Hang Seng Index (Hong Kong). STI = Straits Times Index (Singapore)
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