The Switzerland of Asia Shines

In many respects, Singapore is the Switzerland of Asia.

Begun in 1819 as a British trading colony, the Republic of Singapore was founded in 1965 under the leadership of the current Prime Minister’s father, Mr. Lee Kuan Yew. While it is only 1/5 the size of Rhode Island and three times the size of Washington D.C., it is perhaps the most strategically important global trading, finance and service nexus in Asia.

Here is why you should consider investing in Singapore.

While Hong Kong and Shanghai will argue, Singapore is the busiest port in Asia situated next to the vital trading channel, the Straits of Malacca.

Unlike South Korea and Taiwan, which are heavily dependent on the cyclical electronics industry, Singapore has a well-diversified economy. 70% of its GDP is attributable to finance and services.

Singapore’s accounting rules and regulations are amongst the most conservative in the world. For example, its rules on inventory accounting and the expensing of stock options are more conservative than those in the United States.

Trade Surplus

Despite only 1.6% of its land being suitable for agricultural activities and having to import almost everything including water, Singapore manages to have a trade surplus.

Singapore has a balanced budget, a stable currency and still manages to allocate 5% of GDP for defense.

It represents a multi-ethnic society with 77% Chinese, 14% Malay and 8% Indian.

Singapore has a parliamentary form of government, an English common law judiciary system and is corruption and drug free. Slowly but surely, a freer political climate is developing with a Speaker’s Corner instituted in 2000 and the ability to express one’s views freely anywhere with the exception of the sensitive topics of race and religion

Singapore’s educational performance is legendary. The fact that it has twice as many Internet users as television sets is telling.

Singapore’s New Resorts

Singapore is also changing with the times. To generate more investment, tax revenue, and add a bit of sparkle, Singapore recently approved the development of two large casino resorts. It is part of a strategy to reduce the country’s dependence on manufacturing and to position itself as a livelier tourism destination. Of course, there will be restrictions. Singaporeans will have to pay a $60 entry fee and the gambling areas will be restricted to just 5% of the resort. According to projections, the resorts will lead to $4 billion in investments, $3.5 billion in annual revenues, 35,000 jobs and $350 million per year in taxes and fees.

Singapore has also made great strides in patching up misunderstandings with its neighbor to the north, Malaysia, from whom it split in 1965. Tax issues, water supply agreements and transportation arrangements are all moving much more smoothly.

Singapore is adept at holding on to its manufacturing base even as several large semiconductor manufacturers such as National Semiconductor announced plans to move plants to China and Malaysia. For thirty years, Singapore has relied on electronics as the backbone of its manufacturing sector but is making the transition to a more service and R&D economy. Electronics is about 40% of manufacturing output but accounts for only 5% of employment. Surprisingly, some firms are moving manufacturing centers from China to Singapore due to its infrastructure, logistics and laws protecting intellectual property. Exxon Mobil, Shell and Sumitomo are expanding petrochemical facilities and Singapore added 27,000 manufacturing jobs last year by moving up the food chain.

After 8.4% GDP growth in 2004 and a weak start early this year, Singapore’s economy posted 12% plus growth in the second quarter and should be a solid performer over the next few years. Continued strong global demand for transportation, communications and logistics services, increasing IT spending, rising consumer spending and property prices and expanded tourism all point to continued growth.

An easy and smart way to invest in Singapore is through the Singapore iShare (EWS) which tracks the Singapore Straits index. It is up 26% over the past year and up 9.4% year to date. Its largest positions are in Singapore Telecom, United Overseas Bank and DBS Bank. Even better, it is tax efficient and has an annual expense ratio of only 0.59%. Trading at 14 times projected earnings, the Singapore market is still attractive. By comparison, the Switzerland market and iShare (EWL) is trading at 18 times earnings.

The epitome of quality and increasingly creative, Singapore is a great core holding for any global portfolio.

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of the Chartwell Advisor and the Asia Investor Intelligence newsletters. He served on the executive board of the Asian Development Bank and is the author of The New Global Investor (iUniverse:2005). For more information go to http://www.chartwelladvisor.com or call 877-221-1496

Inflation and Growth in Asia Pacific – The Myth of Economic Decoupling

Currently central banks around Asia Pacific region have to worry of two pronged worries; inflation which is fueled by fuel price and economic growth which is adversely affected by global slowdown.  The usual weapon employed, and recently advocated by policy makers, is tight monetary policies, which means squeezing liquidity out from the market through higher interest rate.  However, this time the freedom to use is limited by possible drop in demand both domestically and internationally.

Internationally, export growth around the region has been supported by foreign markets, mainly developed nations. Although US may not be the biggest trade partner in terms of export for some of the countries, its thirst for goods from other nations which has been purchasing in large number from the region indirectly affects the export growth.  And high dependence on export to fuel the domestic growth adversely affects the growth prospect.  

Propelled by low interest rate before the mortgage crisis, demands in US were factored by loans and debts from around the world; China, Japan, Middle East, which hold large US government debts.  The liquidity created has been channeled to pop up demands for toys from China, Oil from Middle East and manufacturing products from India and Japan.  Some of these countries, such as China and India, and also some of the emerging countries such as Indonesia, Vietnam and Malaysia, are main players in regional trade. For example, China has been main buyer of intermediate manufacturing goods, besides producing large quantities of finished goods to be sold in the region and US.  Vietnam and Indonesia, are fast becoming investment destinations due to their low labor cost.  The network of regional trade has one common destination and hope; the large market in Europe and US.  Thus, any hiccup occurs to US economy, the whole network is affected.  

When the oil price escalated, many countries in the region have started to cut subsidies, as the burden of USD140 per barrel is unbearable. Malaysia, Indonesia, Vietnam, India and China, the saved subsidies, are said to be re-channeled for other developmental policies.  However, this unpopular move has negatively affected the low and middle income groups in the countries.  Higher portion of income is now allocated and spent on fuel and food.  The spillover can be felt in price increase in bread, rice, vegetables, milk and frequency in eating outside is cut and purchase of fuel efficient automobiles has increased.  The signs around is bleak; the domestic demand and consumer sentiment has dropped.

Against these backdrops, the stage is now set to promote higher interest rate, tighter loan expansion to lower consumption.  But at the same time, the worry that tighter loan growth and consequently lower consumption hampers economic growth which is already under stress looms.  More importantly, the tighter monetary policy could appreciate countries’ currencies and cause products to be less competitive.  Since US currency is weak now due to low interest rate and other worries of economic recession, any appreciation of regional currencies will not help the export growth which the region depends so much.  But inflation worry starts to pop up in the central banks’ radar screen, workers are now asking for higher wages to compensate the higher cost of living.  If the price wage effect spirals out of control, it may warrant intervention, provided it does not negatively affect the production sector.  

It is really a stressful period, as both inflation and economic slow down could trigger regional stagflation, or if the inflation is tackled, economic slow down.  There is never decoupling of Asian economy from US economy in this globalized world.  

No Competitor Against Singapore Airlines in Southeast Asia

Singapore Airlines runs its office from its primary hub at Changi Airport in Singapore. Being the one of the biggest airlines, Singapore airlines mainly operates in the regions of Southeast Asia having connections with the routes of the region performed by the subsidiary “SilkAir”. Airlines extends the many flights to international destinations compared to other airlines of Southeast Asia. The Airline has the membership of network airlines of Star Alliance and has the code sharing agreement with Virgin Atlantic Airways, Malaysian Airlines and SilkAir. Singapore Airline was the initial airline to run the A380 type of aircraft running the aircraft between Singapore and Sydney. The Singapore Airlines at present operates A380 aircraft to the destinations that include London and Tokyo and it has plan to increase the number of flights for London twice daily from the month of September. The Airlines runs its main popular routes from Australia which include services to the Europe via Asia for the passengers having International flight tickets.

The Singapore Airlines has three types of classes for its different flights which are Economy class, Raffles class and First class. During the flight of the Airlines, entertainment facilities for the passengers named KrisWorld having personal televisions are being arranged. In this personal televisions Nintendo games, TV shows, movie channels and music stations can be viewed. Business class and first class passengers holding International flight tickets can avail the lounges of SilverKris, while moving towards destinations like Manila, Singapore, Sydney and Osaka. Partner lounges may be available while moving for other destinations of selected nature. SkySuite seats extends the facilities for comfortable seat in the lounge for lying back in a spacious cot and ensuring for the passenger to get a homely feeling after arriving at the destination.

SpaceBed ensures type of seats where a passenger having International flight tickets may rest in position lying on his back in a special type of chair and for maintaining one’s privacy one divider with adjustable screen. For passengers of business class there is the facility of priority checking in. Seats for economy class have the facility of winged headrests and footrests for allowing passengers to become comfortable. Cuisine of world class is catered together with complimentary type of beverages. Magazines and newspapers are also made available for the passengers. The Airlines arranges flying programme frequently which contains three types of membership from different type of institutions.