To make their money grow, Singaporean investors should keep an eye on the headlines, but avoid knee-jerk reactions.
A recent Economist cover depicting Chinese leader Xi Jinping atop a Chinese dragon tail spinning to the ground, while trying to assure us that 'Everything's under control', sums up the mood surrounding the recent Chinese economy's woes pretty accurately1. It seems everything that is going wrong in the world – from low oil prices to slowing growth in emerging markets – is attributed at least to some degree to China's apparently uncontrolled economic slowdown.
Given the Singapore economy's exposure to global markets, these choppy conditions are forecast to hit the City State particularly hard. Already the Straits Times Index (STI) has plunged 27% since June last year2, and studies have forecast that a 1% point fall in China's economic growth could subtract 1.4% points from Singapore's3.
With this in mind, many Singaporean investors would be forgiven for locking the door, closing the blinds, and hiding under the bed for the next few months. However, while vigilance should be maintained, investors should think hard and long before making any knee-jerk, panicked decisions that could well come back to bite them by the end of the year.
The most pertinent piece of advice is: don’t panic. Any good wealth manager will tell you that investing is for the long term. Real money is made by steady long-term investing, not by trying to time the market in short-term fluctuation cycles.
Central to this is compound investing, which Albert Einstein called the '8th wonder of the world', is a critical discipline that is adhered to by the likes of Warren Buffet. 5% a year compounded for 20 years will make approximately 165% over the period, that's an additional 65% from non-compounded.
A natural reaction for many would be to reduce their exposure in Asia. Already we are seeing many reducing their allocation to Asia, yet if you look hard enough there are plenty of opportunities for the savvy Singaporean.
Take the SPDR S&P Emerging Asia Pacific ETF, for example4, while this ETF does have exposure to Chinese stocks (about 46.3%), it has much broader exposure to emerging markets in Asia including Thailand, Indonesia (stocks), Philippines (equities), Malaysia, and Taiwan. Although it decreased by 8.48% in 2015, it has a 0.49% expense ratio and yield of almost 4% (3.73%). There are other examples, but the point is, now should be the time for adding, not reducing exposure to Asia.
Another area is fixed income. There are various arguments here about the risk. For sure, the boom years post-2008 are over, and according to JP Morgan, US rate increases, lower commodity prices, and a strong dollar will conspire to limit EM fixed income growth to around 1-3%5.
However, for less aggressive investors, bonds play an important role in generating income – especially for older investors. I would not recommend a total eradication of FI from your portfolio (which many are doing) – from an asset allocation perspective this is not sensible and anyway, these asset classes often benefit in times of strife as many investors look for safer, low-risk options.
Lastly, it is worth noting that despite all this global volatility, Singapore property remains one of the top destinations for many investors. Asia-wide property investments hit USD40.2 billion in the first three quarters of last year and volumes are expected to increase further in 20166, with Singapore second most preferred investment destination in Southeast Asia according to the Global Investor Outlook for 2016 by Colliers. Prices are down in Singapore, but the trend points towards growth.
So, yes, tougher times ahead but this is not 2008. If China enacts reform programs and rebalances its economy towards services and away from manufacturing, then the longer-term prospects for Asia and Singapore are much brighter.
1The Economist, Covers, January 14, 2016. URL: http://www.economist.com/printedition/covers/2016-01-14/ap-la-na
2Bloomberg. URL: http://www.bloomberg.com/quote/FSSTI:IND
3Bloomberg, China Slowdown to Hurt Export-Heavy Singapore the Most in Southeast Asia. URL: http://www.bloomberg.com/news/articles/2016-01-10/china-slowdown-to-hurt...
4Yahoo! Finance, SPDR S&P Emerging Asia Pacific ETF (GMF). URL: https://sg.finance.yahoo.com/q?s=GMF
5CNBC, JPMorgan's 10 investment themes for emerging markets in 2016. URL: http://www.cnbc.com/2015/12/01/jpmorgans-10-investment-themes-for-emergi...
6Colliers, Global Investor Outlook Report 2016. P. 24. URL: http://www.colliers.com/-/media/Files/Global/PDF/2015/2015-GIO-Report
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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Dominic Gamble is a former private banker with Deutsche Bank and Credit Suisse, entrepreneur, and CEO, co-founding the investor matching solution findaWEALTHMANAGER.com, based in Singapore and London.