The new year will begin with a bang for Singapore equities, which look to be in focus early in 2010 after the latest round of data gave conflicting indications on the health of the market recovery there. A decline in manufacturing activity caused Singapore’s economy to contract at a quicker-than-expected pace in the fourth quarter. But full year GDP for the island nation declined much less than analysts had predicted, giving hope that a turnaround is already well underway. GDP declined 6.8% from the third quarter in seasonally adjusted, annualized terms, although the economy grew 3.5% from the same period a year ago. For all of 2009, GDP contracted by 2.1%, compared to a median forecast of 2.2%. While the Ministry of Trade and Industry provided no forward-looking estimates to accompany the results, Prime Minister Lee Hsien Loong indicated in a New Year address that GDP should increase between 3% and 5% in 2010.
While Singapore’s economy was certainly impacted by the recent global economic downturn, the results were far better than initially feared, due in part to an efficient stimulus response. With an export-driven economy, Singapore should have been vulnerable to declines in demand for its goods and services from around the world. But quick recoveries in emerging markets such as China lessened the blow. The country’s unemployment rate surged in 2009, but at less than 3.5%, remains only a fraction of the joblessness level in the U.S.
Singapore remains a hub of business activity in Southeast Asia, and with good reason. The GDP per capita of Singapore is $51,600, putting it in the top ten worldwide. In addition to its low tax rates (which encourage international investment), Singapore City was rated as having the best total infrastructure out of any major city. So it is no surprise then that the country is also a shipping leader: as of 2007, it had the busiest port in the world. Although the country features a relatively small market and few natural resources, it has made itself an attractive investment option through low tax rates and generally pro-business policies.
Singapore ETF In Focus
For investors looking to gain exposure to Singapore stock markets, the iShares MSCI Singapore Index Fund (EWS) is one of the most efficient options. Reflecting the country’s status as one of the financial capitals of Asia, EWS is tilted heavily towards the financial sector, with about 51% of the fund allocated to this industry. Other big weightings include industrials, telecom, and consumer products.
EWS was one of the top-performing equity ETFs of 2009, gaining about 60% on the year. The fund has an expense ratio of 0.55%. For more looks at how breaking news could impact ETFs, sign up for our free ETF newsletter.
Disclosure: No positions at time of writing.