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What Lies Ahead for Singapore ETFs?

Zacks Equity Research

Singapore’s GDP grew at 4.6% year over year in the third quarter of 2017, surpassing the 3.8% expectation of analysts polled by Bloomberg. This was the strongest reading since the first quarter of 2014, when the Asian economy registered a year-over-year growth of 4.9%.


The economy grew 6.3% quarter over quarter compared with 2.4% growth in the second quarter.


What’s Driving Growth?


Given that Singapore’s economy is largely trade dependent, improvement in manufacturing sector significantly contributed to the GDP growth. Singapore’s manufacturing data has been strong for third-quarter 2017, driven by strong expansion in the electronics sector, biomedical manufacturing and precision engineering segments, per a Straits Times article.


Manufacturing sector surged 15.5% year over year in the quarter compared with 8.2% in the second quarter. On a quarter-over-quarter basis, it expanded 23.1% compared with 3.2% in the second quarter.


The services sector surged 2.6% year over year in the third quarter of 2017 compared with 2.5% in the second quarter. On a quarter-over-quarter basis, it expanded 1.5% compared with 3.3% in the second quarter.


Monetary Policy


The Monetary Authority of Singapore (MAS) decides on its monetary policy by managing the trade-weighted exchange rate index. It is the only country in the developed world to not rely on short-term interest rate changes as its tool to conduct monetary policy changes.


Having eased three times since January 2015, the MAS adopted a neutral stance on the monetary policy in its latest meeting in October. Per the MAS, core inflation is expected to come in at around 1.5% for 2017 and the broad consensus in the market is that the MAS will not resort to tightening anytime soon.


We will now discuss a few ETFs providing exposure to Singapore (see all the Asia Pacific ETFs here).


IShares MSCI Singapore Capped ETF EWS


This fund focuses on Singapore equities and is the most popular option for exposure to the economy.


The fund has AUM of $595.9 million and charges 48 basis points in fees per year. Financials, Real Estate and Industrials are the top three sectors of the fund, with 38.0%, 20.0% and 17.9% allocation, respectively (as of Oct 13, 2017). DBS Group Holdings Ltd, Oversea-Chinese Banking Ltd and United Overseas Bank Ltd are the top three holdings of the fund, with 12.9%, 11.9% and 10.4% allocation, respectively (as of Oct 13, 2017). The fund has returned 21.5% in a year and 26.6% year to date (as of Oct 13, 2017). EWS currently has a Zacks ETF Rank 3 (Hold) with a Low risk outlook.


We will now compare the performance of EWS to a broader South East Asian ETF, ASEA.


Global X Southeast Asia ETF ASEA


This fund provides broad exposure to the five members of the Association of Southeast Asian Nations, Singapore, Indonesia, Malaysia, Thailand, and the Philippines. It is appropriate for those looking for a diversified exposure to South East Asia (read: ETFs in Focus as IMF ups Global Growth Forecast).


ASEA is less popular with AUM of $14.3 million and charges a fee of 65 basis points a year. From a geographical perspective, the fund has 30.5% exposure to Singapore, 22.3% to Malaysia, 21.2% to Thailand, 19.7% to Indonesia and 6.4% to Philippines (as of Jun 30, 2017).  Financials, Telecommunication Services and Industrials are the top three sectors of the fund, with 45.9%, 14.9% and 8.1% allocation, respectively (as of Jun 30, 2017). DBS Group Holdings Ltd, Oversea-Chinese Banking Ltd and United Overseas Bank Ltd are the top three holdings of the fund, with 7.3%, 7.2% and 5.9% allocation, respectively (as of Oct 13, 2017). The fund has returned 17.9% in a year and 24.9% year to date (as of Oct 13, 2017). ASEA currently has a Zacks Rank #3 with a Medium risk outlook.


Below is a chart comparing the year-to-date performance of the two funds.


 
Source: Google Finance


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