Guide to Investing for Expats / Foreigners in Singapore

One of the things that really surprised me from the recent feedback was the number of non-Singaporeans reading this blog.

To all such expats or foreigners reading this, a huge, huge welcome to Singapore! As Singaporeans, we warmly welcome you to our humble island! It’s pretty small, but hey, the people are friendly and it’s sunny all year round! Even for those who are based overseas, you are always welcome to visit or invest in Singapore. 🙂

For this very unique audience though, I wanted to pen an article on investing in Singapore, the options available, and the pros and cons of each. For the other Singaporeans out there, I hope that this article will be useful for you as well, as a nice summary of the investment options available to us. A lot of the investments that appeal to a foreigner have traits such as short term stability that may also be useful for short to mid-term investing.

Basics: Investing as an Expat / Foreigner

I’ve set out a couple of recent queries received to really illustrate the different considerations a foreign investor may have (personal details have been redacted to protect their privacy):

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Hello FH, 

Great finding your blog.  Thanks for de-mystifying investing! 

My question is, what allocations would you recommend for newly-arrived foreigners who live in SG and with assets mostly in GBP and HKD?  I currently subscribe to a wealth management unit trust thinking that I’ll leave investing to the experts, not being in the industry and having been burned in the past. These investments are mostly in the Balanced spectrum.  What would be a great investment with spare cash? 

Thank you!

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Well I’m not sure if it’s relevant for your core audience, but my personal situation is I’ll be in Singapore for approx another X years (almost done X now) before moving back to Australia.  

I want to make the most of my time here in terms of capital gains and no dividend tax, but ultimately I know that I’ll have to sell up and replace when I move back, so I think short term stability is required for anything local to SG. I combat this by using 85% IWDA (which I can instantly replace like for like in Aus) and 15% A35. 

I wonder if this is still right or if a REIT would help diversify. I saw your article on Netlink which to me would look an ideal fit for relative stability in the short term.  

Obviously you wouldn’t have to focus on my specific needs, but a great angle for you would be to cater for expats in the same boat. We get a lot of the investment sales people hitting us up as soon as we land (no idea how they find us but they even call my reception at work).  

A lot are getting hit, and when I try to explain that a 2% fee is a bigger deal than it sounds they glaze over… 

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Hi FH

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If anything my requests would be around content that could differ for foreigners? For example i saw your thoughts on SRS but i had trouble relating to the product or whether it would be useful for me as someone who doesn’t have CPF and isn’t sure of whether i’ll be allowed to stay in Singpaore long term. While on the one hand it seems attractive to use it for the tax benefits and then redeploy those funds into say SSBs or robo-adviors, i’m just not sure if that makes sense given the trade off in liquidity. Also notice, you kept a cut off at 80k given the change in tax bracket, any particular reason for this cut off and not something lower for example? Would love your thoughts around this.

Also, how about investing in non-US domiciles? Would the UK market being back at ’99 levels, are there bargains to be found? If so, what are the tax and FX implications? Or how about our own backyard? Thailand/ Malaysia/ Indonesia? Economies primed for growth but a little bit of an unknown frontier.

…

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Imagine that you’re a Singaporean working in London now. You really love the country, the weather and your career trajectory. You expect yourself to work there for 3 to 5 years. Eventually though, once you have kids and start a family, you want to return to Singapore because you prefer the Singapore education system, and you want them to grow up in Asia. How then, do you invest your savings?

To me, in such a scenario, these are the qualities that I want from my investments:

• Stability for domestic investments – When you’re a foreigner investing in domestic investments, what you really want, is price stability. You never know when the company will relocate you back to your home country, or when you decide to move back for personal reasons. When this happens, you need to liquidate most of your investments in a hurry. If the investment has fallen 20% in the interim, that’s going to be horrible, and it may end up being money stuck in another country for a long time. So price stability is a really big consideration here for any investment denominated in the domestic currency.
• Highly liquid and Easily Replaceable for global investments – With global investments such as the S&P500, what you want is something that is highly liquid, and easily replaceable. Again the logic here is that if you want to move back, you can just sell all these investments, and buy them back easily when you get back to your home country.
• Decent returns – Ultimately, the goal in investing is to achieve returns that outpace inflation, and hopefully grow your wealth. So the returns have to be decent.

Singapore Investments

I’ve split the investments into 3 tiers based on their attractiveness:

Tier 1 (Most attractive)

Singapore Savings Bonds

Singapore Savings Bonds (SSBs), are probably one of the best investments here. The qualities that make SSBs so attractive are:

• No liquidity issues + Pro Rated Interest – When you buy a normal bond (or even a US treasury), you need to hold it to maturity before the principal amount is returned to you. If you want to exit before the maturity period, you need to sell your bonds on the open market, which puts you at the mercy of capital market pricing, and liquidity issues. With SSBs, when you want to exit your bonds, you submit a notification to the government, and they you get the entire principal back by the following month. In fact, they even pay you pro-rated interest on your principal up till the redemption month. It’s the equivalent of having your cake and eating it, which is a very Singaporean investment now that I think about it. With rates at where they are now, SSBs are actually far superior to fixed deposits at a bank.
• Risk Free – Singapore Savings Bonds are guaranteed by the Singapore government, which is a AAA rated creditor. There’s no such thing as risk free in this world, but given the current political stability, strong balance sheet, favourable balance of payments and prudent fiscal policies of the Singapore government, I think the risk of a default are exceedingly low.
• Highly stable SGD currency – This point is applicable for all SGD denominated assets. When you invest in a country like Brazil or Argentina (no offence), you are taking on huge forex risk. It doesn’t matter if your domestic investments appreciate by 30%, if the domestic currency depreciates by 30%. With an SGD denominated asset, forex risk is greatly reduced, because of the stability of Singapore’s economy (see points above). When a recession comes around, investors and creditors generally appreciate the strength of Singapore’s economy, and we are less vulnerable to currency runs as compared to our South East Asian peers. We’re not invulnerable of course, but as shown in the Asian Financial Crisis and 2008 GFC, the SGD is much better off than some of its Asian peers.

The one problem with the SSB, is the low yield. The yield are set out below, and while they’ve improved significantly from just 1 year ago, they’re still not delivering the 5-6% returns you expect from equities. But hey, there’s no free lunch in this world right?

Year from issue date	1	2	3	4	5	6	7	8	9	10
Interest, %	2.01	2.14	2.25	2.35	2.45	2.53	2.62	2.70	2.79	2.90
Average return per year, %*	2.01	2.07	2.13	2.18	2.24	2.28	2.33	2.37	2.41	2.45

 

Stable dividend stocks

This next one is a bit trickier. And these are dividend stocks with a core business that operates in a highly regulated, monopoly environment.

The best one that comes to my mind, is Netlink Trust. Netlink Trust works because:

• Highly Regulated Industry – Netlink Trust owns most of the fibre network in Singapore. The prices they charge are tightly regulated by a regulatory body (IMDA), who also approves any new market entrant. While this limits the price they can set, it also sets a floor on the price.
• Monopoly – Laying fibre connections all across Singapore is a highly capital intensive business. When you couple this with a strong existing player and tightly regulated prices, I can’t imagine why any other company would want to build up their own network. It’s financial suicide.
• Pure Singapore Investment – You can say what you want about the Singapore government, but what you get, is political stability, and a very well managed economy. A pure Singapore investment, with all the qualities mentioned above, gives Netlink trust a very stable core business, and as it’s currently trading at about a 6% yield, the downside should be somewhat limited (of course, in a liquidity crunch, anything can happen, but it should theoretically be short lived).

The challenge though, is identifying other investments with similar characteristics to the above. If you guys come across any, just leave me a comment. Otherwise, I’m always on the lookout for good investments, and I’ll share them on Financial Horse once I find them (you can join the FH Stock Watch for advance notice ;).

Pure Play Singapore REITs

Singapore is the premier destination for Real Estate Investment Trusts (REITs) in Asia ex Japan. I say this with a bit of bias because I used to work very heavily on the IPOs of REITs in Singapore, but I’m sure there are many out there who will agree with me.

So while a Singapore REIT investor is spoilt for choice, if you’re looking for something with short term stability, you want a REIT with:

• A strong sponsor – The Sponsor of the REIT is the property developer that created the REIT, and which continues to hold a large stake in the REIT (typically around 30%). If there is one thing you learn from this article, it is to only pick REITs with a strong sponsor (names like CapitaLand, Mapletree, Frasers, Far East etc). A sponsor matters because they have huge control over the investment decisions. A good sponsor provides a steady pipeline of acquisition assets, access to cheap funding, and doesn’t use the REIT as a dumping ground for its own assets.
• Pure Singapore assets – Real estate in Singapore, like almost everything else on this island, is tightly regulated. The government tightly controls the supply of new land in Singapore, and they’re willing to implement cooling measure to prevent real estate prices from running away. The net effect of these, is that properties in Singapore tend to have more stable prices than those in other countries. You won’t see a 20% year on year increase in valuation, but likewise you won’t see a 20% decline. The REITs did take a dive in the 2008 Financial Crisis, but they rebounded very strongly once investors realized that the underlying assets and rents were sound, which is likely to be the case for a pure Singapore asset. A lot of the REITs learned their lessons well from 2008, so I suspect the next recession wouldn’t hurt them as badly as it did in 2008 (to be fair, 2008 was a once a lifetime kind of event).

I wrote previously on the 5 things to look out for when investing in REITs so do check it out for more information. But REITs that fit the above criteria for me, are CapitaLand Mall Trust, Mapletree Commercial Trust, and CapitaLand Commercial Trust. Do be careful with your entry price though, some of these REITs are trading at a large premium to book value now, so if you do buy them at this price, the downside risk is slightly higher.

Tier 2 (Decent Investments)

Tier 2 investments are what I would classify as decent investments, and can be considered if you want more diversity.

• Retail Bonds – The Retail Bond market in Singapore is horribly undeveloped. No big issuer worth their salt offers to the retail market when they can fill their books many times over by going to institutional investors. The exception here is the Temasek linked Bonds (eg. Astrea IV Bonds, Temasek Bonds), because Temasek is doing their best to open up the local retail bond market. They’re definitely worth a shot, but the liquidity on these things are really poor, so you may have issues trying to exit an investment in a hurry. Stay away from the retail bonds from the smaller players though (an easy way is to look at yield, anything above 5% is probably junk), the risk-reward ratio just isn’t worth it at that level. Bond covenants in Singapore are a joke, and as a bondholder you have close to no rights.
• STI ETF – The STI ETF is the classic index for Singapore, the Singapore version of the S&P500, only with 30 stocks instead of 500. It’s heavily weighted towards financials, and heavily weighted towards the 3 local banks, which is why I don’t really like it. It’s still a decent and easy way to get broad exposure to the Singapore economy, but if you do buy into the STI ETF, expect large volatility. It’s not going to be as stable as any of the Tier 1 Investments.
• CPF/SRS – Central Providend Fund (CPF) and Supplementary Retirement Schemes (SRS) are useful for tax planning purposes, as any contributions are tax exempt. The problem though, is that moneys in CPF or SRS are effectively locked up, and can only be released in specific situations (to buy property) or if you’re leaving Singapore for good. A full discussion on either CPF or SRS probably requires a full article on its own, but what I will say is that CPF/SRS can be highly useful if your tax liability is very high, and you plan to stay in Singapore for the mid to long term (anything above 5 years would be a good benchmark).

Tier 3 (Avoid)

What I would recommend avoiding, are:

• Penny Stock/Growth Stocks – At the risk of overgeneralization, I would say that there are no good growth stocks on the SGX. America has companies like Facebook, Amazon, Netflix. China has Tencent, Alibaba, Meituan Dianping. Singapore has… Jumbo Seafood? Okay you do get the rare gems now and then, but unless you really know what you’re doing, it’s best to stay away from this space. You don’t want to be stuck in a low liquidity counter that is down 50% from its high and wait years for it to recover to its original price.
• Risky REITs – There are good REITs, and there are bad REITs. Bad REITs usually come promising high yields, assets located in god knows where, and a sponsor that may run into cash flow/liquidity issues down the road. I won’t name names, but as a rough benchmark, anything above 7.5% trailing twelve month yield, or that uses heavy income support, should set your alarm bells ringing. Again, there are notable exceptions here (I think Keppel KBS is one of these, and I’ll write on it soon – It’s on the FH Stock Watch now).
• Actively managed Unit Trusts or Insurance Products – Not everyone is going to agree with this. But my argument is this. Look at the fund that your financial planner is trying to sell to you. Net of sales charges and management fees, does the fund outperform the S&P500 or the STI ETF? If it doesn’t, why not just buy the index and be done with it? The other tricky thing about actively managed funds is that you’re usually being peddled funds that outperformed historically, but data shows that funds that outperformed the past few years, typically underperform going forward in a classic reversion to the mean. You do get the occasional Warren Buffet, Ray Dalio, or Stan Druckenmiller though, so if you find them then do stick to them.
  The one good thing about active management, is that there is someone at the other end of the line. When you index invest and it falls 20%, you only get to scream at the market. When you invest in a fund and it falls 20%, you get to scream at the fund manager and the salesperson who sold the damn thing to you. If that helps you, then the sales charges and management fees may well be worth the price.

Global Investments

I wanted this article to focus primarily on Singapore investments, but I will list out briefly the global investments that can be considered. I discussed this in greater detail in the All-Weather Portfolio discussion, so do check that out for more information.

• US Stock indexes (NASDAQ, S&P500, Russell2000)
• US Treasuries (TLT, IEF)
• Global stock indexes (Vanguard Total World Stock ETF, IShares MSCI World ETF)

How would I do it?

So how would I do it if I were a foreigner expat living in Singapore? I would probably start with the all weather portfolio to guide my asset allocation. Stocks will be split among US (S&P500), China (Hang Seng), and Singapore stocks (Pure Play Singapore REITs) to gain broad exposure to the global economy. Bonds will go into mid and long term US treasuries, and Singapore Savings Bonds. I may also add the odd Temasek bond or Netlink Trust depending on market conditions.

So there you have it! A very brief introduction to the main investment opportunities in Singapore for foreigners/expats! If you have any thoughts, just leave a comment below!

Till next time, Financial Horse, signing out!

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