Singapore Is Favored Route to ETF Riches
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

In 1940, Bob Hope and Bing Crosby wowed moviegoers with their first in a series of popular “road” films, “Road to Singapore.” Now, 67 years later, one expert on the Asian markets, Tony Sagami, tells me investors should travel that same road via a global exchange-traded fund, one of America’s fastest growing investment vehicles.
Thanks to far superior returns in many foreign stock markets and a sinking dollar, global ETFs — namely those that incorporate a basket of leading public-owned companies of a given country — are capturing a ballooning amount of American investment capital.
The figures tell the story. So far this year, global ETFs have snared an additional $68 billion — $7.8 billion in the past month alone — from American investors hungry for fatter returns, according to liquidity tracker TrimTabs Investment Research of Sausalito, Calif. That raises the current total of such investments in American hands to $177 billion, a 62% increase over the $109 billion held at year-end 2006.
Performance explains it all. Global ETFs show a snappy 17% annual return, more than double the 8.2% showing for American ETFs.
So the obvious question, if you’re game for a global ETF — which, like a mutual fund, is less risky than an individual foreign stock — is which country and ETF should you favor?
For some answers, I rang up Mr. Sagami, who doggedly tracks the Asian markets for Weiss Research of Jupiter, Fla. I chose Asia, rather than Europe, because Asian economies are surging, while the European economies are slowing.
I thought for sure Mr. Sagami would pick China, which boasts the world’s fastest-growing economy and hottest stock market. I was wrong. He picked Singapore, which is rapidly becoming the Switzerland and financial capital of Asia and whose economy is booming, with gross domestic product growth last year climbing an eye-opening 7.9%.
In addition to sizzling economic growth, Singapore has a lot going for it. In particular, its inflation is very low, around 0.7%; the unemployment rate of the 4.6 million population stands at an enviable 2.8%; it has the largest current account surplus in Asia as a percentage of GDP, 28.5%, and its budget surplus is equal to 6% of GDP. In addition, Singapore has a sky-high literacy rate of 95% and the highest standard of living in Asia.
Not surprisingly, its stock market — as measured by the Singapore Straits Times Index, which tracks the country’s equities — has been on a winning streak in recent years, rising 43.3% in 2003, 24.2% in 2004, 14.2% in 2005, and 48.7% in 2006. So far this year, it’s up about 40%.
To capitalize on this market wizardry and profit from the country’s economic and financial strength, Mr. Sagami strongly suggests an ETF specifically indexed to Singapore, namely the iShares MSCI Singapore Index ($15.55). This ETF, which he views as one of world’s most exciting such investment vehicles, consists of a basket of Singapore’s largest publicly traded blue chips. It is rated an equivalent of the Dow Jones Index and trades on the New York Stock Exchange under the symbol EWS. Although this ETF numbers 43 stocks, about 70% of the portfolio is concentrated in its 10 largest holdings, which are heavily weighted to financial and banking shares.
Given the recent credit crunch, investors might well wonder if a heavy financial weighting is a smart thing. In the case of Singapore, Mr. Sagami thinks it’s a very smart thing. He notes, for example, that the country’s private banks, which currently manage about $200 billion, or 5% of the world’s wealth, have been growing about 20% a year.
Mr. Sagami, who also publishes an investment newsletter, the Asian Stock Alert, and has picked a number of winning stocks in this column, figures the iShares MSCI Singapore Index, which has a 2.3% yield, could produce about a 20% return over the next 12 months. Other pluses: Singapore levies no taxes on capital gains and has very strict privacy laws.
Apparently, corporate America likes what it sees in Singapore. American Express, AIG, Cargill, ExxonMobil, Ford, General Electric, Hewlett-Packard, and Merck all have significant operations in Singapore. In addition, Credit Suisse recently moved its world banking headquarters to Singapore from Zurich.
Actress Dorothy Lamour, who also appeared as the female lead in the series of “road” films, was once asked which one was her favorite. “The Road to Singapore,” she told a magazine, “That’s where things are happening.” Those are Mr. Sagami’s sentiments exactly.
A usual word of caution: If the bubble in the rampaging Chinese stock market should burst — which is bound to happen at some point — Singapore, you can be sure, is not going to walk away unscathed.
dandordan@aol.com