10 minute read

As Singapore celebrates its 59th year of independence, it’s a better time than any to reflect on the city-state's remarkable economic journey – from modest fishing village to global financial powerhouse. But what makes this little red dot such an attractive proposition for investors?

Singapore's story is one of resilience and adaptability. In a world of economic giants, this small, open economy has not just survived but thrived, consistently punching above its weight. As we look towards the future, the question for investors isn't just about Singapore's past success, but its potential for continued growth on the global stage.

Let’s explore Singapore's growth story, delve into the diverse investment opportunities available, and examine why its long-term potential makes it a compelling addition to your investment portfolio.

Key takeaways

• Singapore's economic success stems from its adaptability as a small, open economy. Over the past six decades, it has successfully transitioned from labour-intensive industries to high-value manufacturing and services, now emerging as a leading tech hub in the region.

• The country's export-oriented focus is a cornerstone of its economy, with exports accounting for a majority of its GDP, highlighting Singapore's deep integration into global trade networks and its strategic importance as a major trading hub.

• Investors can tap into Singapore's growth story through various asset classes: equities, bonds, real estate investment trusts (REITs), and exchange-traded funds (ETFs), among others. Each offers unique exposure to different aspects of Singapore's diverse economy.

• While Singapore faces challenges such as an ageing population and external vulnerabilities, its track record of turning challenges into opportunities positions it well for long-term growth. 

• For those looking to add targeted exposure, our Singapore Investing portfolio can serve as a strategic addition to a well-diversified core portfolio. Local investors will have to keep home bias in mind – the tendency to overweight domestic assets.

The resilient red dot

Since independence, the city-state has demonstrated an ability to pivot its economic focus in response to global trends. In the 1960s, shortly after gaining independence, Singapore's economy was primarily centred around labour-intensive industries. However, as competition in the region increased, Singapore recognised the need to move up the value chain, implementing policies in the 1970s and 1980s to transition towards value-added manufacturing.

The 1990s and 2000s marked another significant transition as Singapore began to focus more intensively on knowledge-based industries and services – investing heavily in education and skills development. This period also saw Singapore emerge as a major player in global finance and logistics.

Now we’re seeing Singapore emerging as a tech hub, helped along by the government's "Smart Nation" initiative and substantial investments in ICT (Information and Communications Technology) – the sector contributed nearly a sixth of its total exports in 2021. These strategic transitions serve as an example of how a small nation can remain competitive and relevant in a rapidly changing global economy.

Why Singapore attracts foreign investment 

Singapore's status as a small, open economy is fundamental to understanding its economic success. An open economy means that Singapore actively engages in international trade and allows the free flow of goods, services, capital, and labour across its borders. This openness is key, allowing it to leverage global markets for growth, access a wider range of resources, and attract foreign investment. That’s especially important for a country with a small domestic market and limited natural resources

Exports play a pivotal role for the country, accounting for 174% of its GDP in 2022. To put this in perspective, the world average for exports as a percentage of GDP was about 29% in 2023. This exceptionally high ratio indicates Singapore's deep integration into global trade networks and  its role as a major trading hub – it’s the second-busiest port globally after Shanghai.

Singapore’s pro-business stance and relative political stability have also made it a magnet for foreign investment. The country's AAA credit rating, which it has maintained since 2004, bolsters the point. The country now hosts over 7,000 multinational corporations, with more than half using Singapore as their regional headquarters, with foreign direct investment (FDI) inflows reaching USD 141.2 billion in 2022. 

The Singapore dollar's stability is another draw for investors. Managed by the government within a band against a basket of currencies, the SGD has shown resilience over time. In fact, it's appreciated roughly 6% against the US dollar in the past decade, earning its own reputation as a safe haven currency.

How to invest in Singapore 

Singapore's investment landscape offers diverse entry points. Whether you're eyeing corporate giants, tapping into its real estate market, or seeking broader exposure, there's a vehicle to match your strategy. Keep in however, that Singapore, like any market, comes with its own set of risks and challenges – you’ll need to align your choices with your own investment goals, risk tolerance, and time horizon.

The Straits Times Index (STI) 

The primary benchmark for Singapore's stock market is the Straits Times Index (STI), which tracks the performance of the top 30 companies listed on the Singapore Exchange (SGX). The country’s three largest banks, DBS, OCBC, and UOB, make up a significant portion of the index, reflecting Singapore's status as a financial hub. It’s also important to note that many of these companies derive their profits from operations that span the globe, further diversifying an investor’s exposure. ETFs are perhaps the simplest way to invest in the STI (more on that below).

Real estate investment trusts (REITs) 

Singapore is often referred to as a "REIT haven" due to its well-developed REIT market. REITs offer exposure to various property types, and are required to distribute at least 90% of their taxable income to unitholders, resulting in typically high dividend yields. There are over 40 REITs and property trusts listed on the SGX, with a combined market capitalisation of over SGD 100 billion. 

Singapore Government Securities (SGS) 

For more conservative investors, these government-backed instruments offer a low-risk way to invest – particularly appealing to those with a lower risk appetite or looking to balance out riskier investments.

• Singapore Government Bonds: Long-term bonds with maturities of 2 to 30 years. These bonds pay a fixed coupon semi-annually, providing a steady income stream. 
• Treasury bills (T-bills): Shorter-term securities with 6-month or 1-year maturities.
• Singapore Savings Bonds (SSB): A type of government bond that offers flexibility with monthly issuances and the option to redeem at any time with no penalty.

StashAway’s Singapore Investing portfolio

Our Singapore Investing portfolio offers a data-driven approach to investing in the country. It’s a single, expert-managed portfolio that invests in a range of Singapore-based assets, including government and corporate bonds, Singaporean equities, and REITs. It's a low-risk way to invest in Singapore's growth over the long term.Our Singapore Investing portfolio 

Our reoptimisation in April – in response to recovering growth and still-high inflation – meant a greater emphasis on equities and increased allocations to higher-yielding bonds, better positioning the portfolio to capitalise on the current economic environment.

Exchange-traded funds (ETFs) 

ETFs offer a level of diversification that would be challenging and costly to achieve through individual stock purchases. They're particularly appealing for those looking to dip their toes into Singapore's market without stock picking. Here are a few examples of Singapore-based ETFs (which also make up parts of our Singapore Investing portfolio):

• ABF Singapore Bond Index Fund: By holding a basket of bonds, the ETF provides diversification across different maturities and issuers within the Singapore bond market. This reduces the risks associated with any single bond.
• Nikko AM Singapore STI: Tracks the benchmark index, providing exposure to Singapore's 30 largest and most liquid companies. With a single purchase, you're effectively buying a slice of Singapore's economic engine, mitigating the risk of any single company or sector underperforming. It's also worth noting that the companies listed in the STI offer relatively high dividend yields, which can be attractive for income-focused investors.

The Singapore growth story 

For long-term investors, Singapore's growth story is compelling. The country’s adaptability, paired with its forward-looking policies, create a solid foundation for sustained economic growth. Singapore's stable political environment also provides a level of certainty that is particularly valuable in an increasingly uncertain global landscape.

It’s also important to note that, as with any country, Singapore faces its own challenges. By 2030, about one in four Singaporeans will be aged 65 and above. This demographic shift could impact productivity and increase healthcare costs, putting pressure on public finances. Additionally, as a small, open economy, Singapore is susceptible to external shocks and global economic fluctuations. That being said – the country does have a track record of turning challenges into opportunities.

For those looking to add targeted exposure to Singapore's economy, our Singapore Investing portfolio can serve as a strategic complement to a well-diversified core portfolio. This approach lets you capitalise on Singapore's potential while managing the risks associated with home bias – the tendency to overweight domestic assets. Try to avoid having more than 20–30% of your portfolio allocated to domestic assets, as this level starts to veer into home bias territory for most investors.

That said, the "right" allocation depends on individual circumstances. Factors like your financial goals, risk tolerance, and particular economic conditions in your home country all play a role. For example, if you have upcoming expenses in your local currency, keeping a higher allocation to domestic assets could make sense. Striking the right balance taps into the growth of this dynamic Asian tiger without sacrificing the benefits of global diversification.