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One of the golden principles of stock investing is to never put all our eggs in one basket. In other words, we are told to diversify our investments across different instruments or asset classes. This helps spread the risk of any adverse events or poor performance in any one investment. It also allows the gains in our other investments to offset the losses in a few.
As investors, we might be attracted to investing in major stock markets like Hong Kong and the US. These markets offer access to some of the largest and most innovative companies in the biggest economies. But if we invest exclusively in these markets alone, our entire portfolio would be subjected to the same country-specific risk, regardless of the number of stocks we own. For example, the tech crackdown by the Chinese government that started in late 2020 did not only hit technology stocks but the entire Hong Kong market. The benchmark Hang Seng Index (HSI) fell over 25% from its highs.
What we could do instead is diversify our investments across different geographies, as they each have their own economic cycle and may not be highly correlated with each other. Doing so allows us to reduce our concentration risk against unfavourable market conditions such as currency fluctuations or political instability in any one market. Furthermore, when we invest in different geographical markets, we are able to leverage the unique strengths of those markets.
For Singapore investors who predominantly trade in the big markets like Hong Kong and the US, gaining exposure to smaller Asian stock markets may provide both diversification benefits and growth potential.
Singapore – A Developed Market That Offers Income-Generating Opportunities
When it comes to investing in Singapore-listed stocks, we have the “home advantage”. First, we understand the local political system, laws, and regulations. Second, we are able to directly see and use the products and services of the locally listed companies, which can be useful for carrying out on-the-ground research. Third, Singapore, which is reputed as being politically and economically stable, is not only a safe place to invest, but local brokerage firms like Maybank Securities, which was voted in 2022 as the ‘Best Broker in South East Asia’ for the 9th consecutive time, make it one of the easiest markets for anyone to get into.
Today, the Singapore Exchange (SGX) has a market capitalisation of around $824 billion (as of April 2023) with just under 650 listed securities. Investors typically track the performance of the overall market by its benchmark, the Straits Times Index (STI).
Even though the STI is made up of many sectors, such as industrials, telecommunications, consumer discretionary, and energy, a big part of it consists of financials and real estate, which have weightages of about 45% and 12%, respectively.
This should come as no surprise as Singapore is a major financial hub in Asia, with our three listed local banks—DBS (SGX Code: D05), OCBC (SGX Code: 039), and UOB (SGX Code: U11)—consistently ranking among the top 20 World’s Safest Banks. Furthermore, the Monetary Authority of Singapore (MAS) reiterated the resilience of the local banking industry, noting that Singapore banks are well-capitalised and that they conduct regular stress tests against interest rates and other risks.
Additionally, there are 42 REITs and Property Trusts listed on SGX that provide an average yield of around 7.6%, making it one of the largest REIT and property trust markets in Asia ex Japan. Collectively, the REITS in the various sub-segments like office, retail, industrial, and healthcare have an average gearing ratio of 37.7%, which is well below the regulated gearing ratio limit of 50%.
This bodes well for local investors who are keen to receive a passive income through dividend yielding stocks. Furthermore, the dividends received are not subjected to taxes like the withholding tax that we would when we invest in US-listed stocks. This allows us to keep more of our returns.
Thailand – An Emerging Industrialised Economy That Has Huge Growth Potential
Thailand might be a popular holiday destination, but its stock market, the Stock Exchange of Thailand (SET), is relatively underinvested by Singapore investors. In fact, the SET, established in 1975, is the oldest and the second-largest stock exchange in ASEAN after Singapore.
The SET has 615 listed companies with a market capitalisation of around 19 trillion baht (or S$740 billion) (as of June 2023). Investors interested in investing in the Thai stock market can use the benchmark SET50 Index, which represents the top 50 companies on SET, to get market returns.
The three largest sectors in the SET50 index consist of energy (25%), electronics (11%), and banking (11%), with other sectors like information & communication technology (ICT), transportation & logistics, commerce making up the rest.
This provides Singapore investors with greater diversification into sectors that are both different from our local market and in companies that are market leaders in the region.
Within Thailand’s SET50, the largest constituent is Delta Electronics (Thailand) (SET Code: DELTA), which has a market capitalisation of 1.1 trillion baht (or S$43 billion). As a provider of power management solutions and a manufacturer of electronic components, it was able to ride on the electric vehicle (EV) trend by supplying components for electric and hybrid vehicles in the country’s well-established automotive industry. Instead of investing in EV manufacturers, investors can consider EV parts suppliers as a play on the EV trend.
Another big name that would be familiar to Singapore investors is Airports of Thailand Public Co. Ltd (SET Code: AOT). AOT manages and develops the country’s six international airports, including two in Bangkok, Phuket and Chiang Mai. It has long been the country’s pillar of the tourism industry and could be a way to play on the improving travel demand.
Since we may not be very familiar with all the big companies in the SET and what they do, investing in its benchmark SET50 index could be a starting point for us. We can also leverage on market insights from brokerage firms like Maybank Securities that provide comprehensive research coverage and research reports on 11 markets, including Thailand and the next country on the list – Malaysia.
Malaysia – A Growing Economy That Offers A Mix Of Income-Generating And Growth Opportunity
Malaysia offers much more than simply a road trip holiday or shopping (and petrol-pumping) paradise. Among all the countries in Southeast Asia, we share the closest ties, historically, economically, as well as familial ties, with Malaysia. From that perspective, the Malaysian stock market should be no stranger to us, as we may have regularly interacted with the products or services of these companies.
The Bursa Malaysia was established in 1930 and is represented by the benchmark index, the FTSE Bursa Malaysia KLCI. It currently has a market capitalisation of around RM1,660 billion (or S$488 billion) (as of 3 May 2023) with nearly 800 listed companies on its main board. The index consists of 13 sectors, with the top 3 being financial services, consumer products & services, and industrial products & services, which account for over 50% of the share.
We can invest in familiar names listed on Bursa, like Nestlé (Malaysia) (BURSA Code: 4707), which produces local favourites such as Milo, Maggi, Nescafe, Kitkat, and many more.
Otherwise, we could also seek high dividend stocks like gaming counter, Sports Toto (BURSA Code: 1562), which operates Toto betting outlets or beverage companies like, Heineken Malaysia (BURSA Code: 3255), which has a portfolio of popular brands like Heineken, Tiger, Guinness, Anchor, and Edelweiss. Similar to Singapore, there are no taxes payable on capital gains or dividends, except on REITS, which are subject to a 10% withholding tax.
Investing Beyond The Biggest Stock Markets
Often, we are told that the bigger the market, the better the opportunities. While we should not ignore the biggest stock markets, restricting ourselves to just the US and Chinese markets may lead us to neglect opportunities that are right under our noses in smaller stock markets like Singapore, Thailand, Malaysia, and others in Southeast Asia.
If you want to invest in or receive quality research reports on listed companies in these markets, you can open a brokerage account that gives you the right access. With Maybank Securities, which won the Alpha Southeast Asia Best Economist in Singapore award by Asiamoney Brokers Poll 2022, you will not only receive in-depth research reports but will also be able to invest in up to 21 global markets with a single account. This includes regional Southeast Asian markets like Singapore, Thailand, Malaysia, Indonesia, and the Philippines, as well as popular markets like the US and Hong Kong.
When trading with Maybank Securities, you can use its online platform, where you would be solely responsible for placing your trades, or a dealer-assisted account, where the dealer would assist you with placing the trades and provide you with trading ideas.
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