While US stocks remain a popular choice among Singapore investors, looking towards Asia could offer different growth opportunities and help build a more diversified investment portfolio. For many Singapore investors, building an investment portfolio often starts with familiar choices like Singapore banks, REITs, and perhaps an exchange-traded fund (ETF) tracking the S&P 500.
The S&P 500 provides exposure to some of the world’s largest companies, including Apple, Microsoft and Nvidia. Investors can participate in the growth of these businesses without having to pick individual stocks. However, as more investors concentrate their investments in US equities, an important question arises: Are we overlooking opportunities in other parts of the world?
Asia, in particular, offers a range of investment opportunities across technology, manufacturing, consumer businesses and dividend-paying companies. For Singapore investors who already have significant exposure to the US market, understanding what Asia can offer may be worth considering.
Investing In The S&P 500 Doesn’t Mean Your Portfolio Is Fully Diversified
The S&P 500 is widely regarded as a benchmark for the US stock market. By investing in an ETF tracking the index, investors gain exposure to approximately 500 leading American companies across multiple industries. This provides diversification across individual businesses. However, it does not necessarily mean an investor is geographically diversified.
While many S&P 500 companies generate revenue internationally, they remain US-listed businesses whose valuations and share prices can be influenced by similar market conditions. For instance, changes in US interest rates, economic expectations or investor sentiment towards American technology companies can affect multiple stocks within the index simultaneously.
An investor who owns an S&P 500 ETF alongside individual shares of major US technology companies might also have more overlapping exposure than they realise. Paul, Regional Head of Asia Equity and Head of Investment Technology at UOB Asset Management (UOBAM), believes geographical diversification is an important consideration for investors with substantial US exposure.
Rather than viewing Asian equities as a replacement for US investments, investors can consider how different markets might complement their existing holdings. The objective is not necessarily to outperform the S&P 500 every year, but to avoid depending too heavily on a single market to drive long-term portfolio performance.
Asia Offers More Than Just Exposure To China
When discussing Asian investments, China often dominates the conversation. As one of the world’s largest economies, China is home to major businesses in technology, electric vehicles, e-commerce and manufacturing. However, concerns surrounding economic growth, regulation and geopolitical developments have also made some investors cautious.
Yet investing in Asia does not have to mean concentrating investments in China. Different Asian markets have developed strengths in different industries, creating opportunities for investors to gain exposure to businesses and economic trends beyond those represented in their existing portfolios.
South Korea and Taiwan, for example, play important roles in the global semiconductor industry. Companies such as Samsung Electronics, SK hynix and Taiwan Semiconductor Manufacturing Company (TSMC) are involved in producing the chips and components that support developments in artificial intelligence, cloud computing and consumer electronics. As demand for computing power grows, these businesses are positioned within an important part of the global technology supply chain.
Meanwhile, Southeast Asian markets offer exposure to established financial institutions, consumer businesses and other companies serving the region’s population. This diversity means that investors looking towards Asia are not necessarily making one broad bet on the region’s economic performance.
Instead, they can gain exposure to industries and businesses driven by different factors, although some of these markets and sectors may still move together during periods of global market stress.
Growth Isn’t The Only Reason To Invest In Asia
Technology and artificial intelligence may attract significant investor attention, but they represent only one aspect of Asia’s investment landscape. For investors who prioritise dividend income, Southeast Asia offers a different set of opportunities. Markets such as Singapore, Malaysia, Indonesia and Thailand are home to established businesses that distribute part of their earnings to shareholders through dividends.
These include major financial institutions such as Maybank and Siam Commercial Bank, alongside companies operating in other mature industries. Unlike businesses that reinvest most of their profits to pursue rapid expansion, established dividend-paying companies may appeal to investors seeking recurring investment income. This can be particularly relevant for Singapore investors who are already familiar with receiving dividends from local banks and REITs.
However, investing in dividend-paying companies outside Singapore introduces additional considerations. Foreign currency movements can affect the value of dividends when converted into Singapore dollars. Investors may also encounter withholding taxes, different regulatory environments and varying levels of market liquidity.
Importantly, a high dividend yield does not automatically make a company a good investment. Dividend payments can be reduced or suspended if a company’s financial position deteriorates. Investors should therefore assess the sustainability of dividends rather than focusing solely on the yield being offered.
Could Asian Investments Help Reduce Portfolio Concentration?
One potential benefit of adding Asian equities to an existing portfolio is that different markets do not always move in the same direction or by the same magnitude. This relationship is commonly measured using correlation.
When two investments have a high positive correlation, their returns tend to move in similar directions. Investments with lower correlations may behave differently under the same market conditions. For an investor whose portfolio consists primarily of US equities, adding investments with different performance drivers could potentially reduce overall portfolio volatility.
For example, a portfolio containing US technology stocks, Asian semiconductor manufacturers and ASEAN dividend-paying businesses would have exposure to different companies and industries. However, the level of diversification depends on the actual holdings. Asian semiconductor companies may still be affected by the same global technology trends influencing US technology stocks.
Similarly, a regional equity fund that heavily favours technology companies may offer less diversification than its geographical label suggests. Investors should therefore look beyond the name of a fund and examine its underlying holdings, country allocations and sector exposure.
Diversification also does not eliminate investment risk. During periods of significant global uncertainty, equity markets across different regions can decline together. The potential benefit comes from combining investments whose returns are not perfectly aligned, rather than assuming that investing in more countries will automatically produce better results.
How Can Singapore Investors Start Building Exposure To Asia?
For investors interested in exploring Asian equities, the first step is to understand what is already in their portfolios.
Someone with substantial investments in the S&P 500, Singapore banks and local REITs may have different diversification needs from an investor whose holdings already include emerging-market or global equity funds. The latter may already have indirect exposure to Asian businesses without realising it.
Once investors understand their existing allocations, they can consider which regional investments might complement them. A broadly diversified Asia equity fund can provide exposure to companies across multiple Asian markets. This may appeal to investors who want regional exposure without having to identify individual stocks.
Investors seeking more targeted opportunities can also consider funds focused on specific markets, such as Greater China, or particular investment objectives, such as ASEAN dividend income.
For example, UOBAM offers the United Asia Fund for broader regional exposure, the United Greater China Fund for more focused exposure to Greater China, and the UOBAM Ping An FTSE ASEAN Dividend Index ETF for investors interested in dividend-paying companies across ASEAN.
These funds pursue different investment objectives and have different risk profiles. Investors should review their holdings, fees and investment strategies before deciding whether any of them are suitable. There is also no universal percentage that every investor should allocate to Asia. An appropriate allocation depends on factors such as investment objectives, time horizon, risk tolerance and existing holdings.
Younger investors investing for long-term growth may approach regional exposure differently from retirees who prioritise income and capital preservation. Rather than making a large allocation based on recent market performance, investors can consider gradually adjusting their portfolios towards their intended long-term asset allocation.
Read Also: Growth Or Income: How Singapore Investors Can Get The Best Of Both Worlds When Investing In Asia
Looking Beyond The Familiar
The popularity of the S&P 500 is understandable. It provides convenient access to many of the world’s leading businesses and can remain an important component of a long-term investment portfolio. But investing successfully is not simply about identifying which market has delivered the strongest returns. It also involves understanding where investment risks are concentrated and whether different holdings complement one another.
Asia presents opportunities across technology, manufacturing, consumer industries and dividend-paying businesses. These opportunities come with their own uncertainties, but they also give investors access to markets beyond the ones they may already be heavily invested in. For Singapore investors, the question may not be whether to choose the US or Asia. It is whether their existing portfolio is sufficiently diversified to support their long-term financial goals.
For more insights into Asia’s investment opportunities, watch the full DollarsAndSense Podcast, where we speak with Paul, Regional Head of Asia Equity and Head of Investment Technology at UOB Asset Management, and Shankar, Senior Director for Regional Business Development, about investing in China, opportunities across Asia, and how investors can approach building a diversified portfolio.
Watch the full episode of DollarsAndSense podcast.
