As members of the Facebook Group will know, Financial Horse was in Europe for a holiday the past week, which is why there was a slowdown in “The Weekly Horse” posts. Accordingly I will take the opportunity in this article to round up all the top links since the last edition.
Are Singapore companies still competitive?
This week, I wanted to discuss the competitiveness of Singapore companies. In my trip to Europe, I flew Emirates (which I enjoyed almost as much if not more than SIA), I used a GiffGaff SIM Card (with an experience better than that with Singtel or M1), and I bought clothes from high street retail in London (where I greatly appreciated the range, quality, and price).
In particular, I was struck by how competitive global companies are these days. It used to be that Singapore companies (the likes of SIA, Singtel, DBS) were the most attractive options for Singaporeans, with competitors a mile behind. These days, it seems that the rest of the pack has caught up, and matched, or surpassed us, in many ways. Why is this so?
Why are we less competitive?
I definitely don’t think it’s a case of Singapore companies being less competitive. Rather, it seems more a case of everyone else becoming more competitive.
I’ve been doing a lot of thinking about this, and the core factor I identified, was technology.
It used to be that geography was a natural moat for Singapore companies. If you wanted to buy clothes, you had to head down to a CapitaLand mall. If you wanted to buy an air ticket, you called up SIA and placed an order. If you wanted to buy stocks, you went down to DBS to open a brokerage account.
With the rise of technology, geography has become far less of a natural moat. These days, if you want to buy clothes, you can easily order from TaoBao, Asos, Zara, or any other major fashion brand, and have them delivered to your doorstep with minimal hassle. If you wanted to buy an air ticket, you go to Skyscanner or Expedia and compare the fares for every single airline out there, and you pick the cheapest. If you wanted to buy stocks, you can open an account online with Interactive Brokers or Saxo, and complete the funding via internet banking. The point is that technology has made it easier for global competitors to complete with Singapore companies, on our shores. While a physical presence in Singapore used to be a “must have” for meaningful competition, these days it is merely a “good to have”. A strong online presence and well designed website can be better than a physical shop front in many ways, and the latter allows you to appeal to a global audience.
Another consequence of technology, is the impact it has had on traditional business practices. Ride hailing apps have revolutionized the taxi service (Grab, Uber). Ecommerce has revolutionized retail (Taobao, Amazon). Comparison sites have revolutionized travel (Expedia, Skyscanner, Booking.com). Social Media and online news site have revolutionized traditional print media (Facebook, Twitter, Instagram). Singapore companies have proven astoundingly competent in old industry. Yet none of the new world counterparts I mentioned above are Singapore companies.
Technology also has a huge impact in improving access to information. Sure, SIA may be the first to come up with an innovative new food concept. But once it goes online, the business manager at Emirates can easily copy the similar idea, greatly nullifying the first mover advantage of SIA. And when it comes to scale or financial muscle, we may not be able to compete with the biggest players out there.
What can be done?
The solution to this of course, is very simple. Singapore companies need to find a way to utilize new technologies, and adapt their existing business practices accordingly, to avoid getting disrupted.
Unfortunately, as the saying goes, the devil is in the details. This is easier said than done, and executing such an amorphous plan is by no means a sure thing.
To be fair, Singapore companies seem to be fully aware of this coming wave of change, and are actively taking measures to combat them. Comfort Delgro launched a partnership with Uber. DBS has been embracing digitization. SIA has embarked on a three year transformation program. SPH has been looking to diversify its income stream for years (into real estate, and more recently healthcare).
We all know the solution to the problem. Whether the solution can be executed, is anyone’s guess.
Implications for investors
To be 100% clear, this is not a bash Singapore post. I love Singapore. This is my home, and it will always be my home. I lived in Europe for a number of years, and I know first-hand the problems other developed economies face.
But it is exactly because I love Singapore, that this worries me. This century will be the rise of Asia. The demographics are so overwhelmingly in favour of Asia that Asia’s rise as an economic juggernaut this century is a question of when, not if. Yet so many startups all across China, Indonesia, India, are springing up looking to disrupt traditional business models. The biggest juggernauts in China are looking for a myriad of ways to compete with Singapore companies. If we sit still and rest on our laurels, no amount of balance sheet strength or branding power is going to prevent Singapore companies from being disrupted. We will, quite literally, have foreign companies that eat our lunch.
Closer to home, the implication for investors is that if you investing heavily into the STI or Singapore companies, you are making a bet that Singapore companies will be able to continue to grow earnings in the years to come. Will that hold true? Your guess is as good as mine.
So while we strive to “Make Singapore Great Again”, from an pure, investment and portfolio diversification point of view, it may be wise to diversify your assets into other developed economies, such as US, Europe, or the rest of Asia. The SPDR® Straits Times Index ETF 10 year annualized return is 4.06%, the S&P500’s 10 year annualized return is 7.43%. Even after factoring in forex movements, you would still be better off with the S&P500. Will that hold true over the next 10, 20 or 30 years?
Top Weekly Links
All Financial Horse does in his free time during the week is read financial news. With this new initiative (“The Weekly Horse”), hopefully some good can come out of it. During the week, I post articles that I enjoyed on the Facebook Group (do join if you want a sneak peak), and every Sunday I will collate the links for readers. I also take the opportunity to address queries from readers, or share any thoughts that I have for the week. If you enjoyed this post, do share your thoughts in the comments below!
A reader brought up this article by DBS that I really enjoyed. I won’t spoil it too much for you, but basically they argue that REITs should not be compared to bonds, and are being unfairly punishing by rising interest rates. Definitely worth a read.
First off, apologies for the slowdown in posts as I am in Europe this week. I’ll do a bumper posting of The Weekly Horse when I am back.
In the meantime, here’s some food for thought. Risk and reward are intrinsically linked, and if index investing has reduced risk, does it also reduce reward going forward?
https://ofdollarsanddata.com/the-privilege-of-knowledge/
Even in Europe I could feel the impact of the new cooling measures. Here’s DBS’s take on it, do you agree with them? Are the cooling measures too much too soon?
https://researchwise.dbsvresearch.com/ResearchManager/DownloadResearch.aspx?E=dhffdkfdhjg
Great article shared by a reader on the Facebook Group:
It was reported that Frasers Commercial Trust’s (FCOT) recent disposal of its commercial property at 55 Market Street achieve ” an exit yield of 1.7% as possibly the lowest-ever for a Singapore office building.” This follows CapitaLand Commercial Trust’s sale of Twenty Anson on a 2.7% exit yield. The article says:- “Office REITs currently trade below book value which we believe is unjustified given that the better located Grade A office buildings owned by the REITs are being valued by the REITs using a 3.6-4.10% cap rate,” So is the Cap rate used too high? if so office Reit is in for re-rating? watch this space.
Must read article on the importance of tuning out market noise. Really enjoyed this.
https://fat-pitch.blogspot.com/2018/06/the-money-gods-price-of-achieving-high.html?m=1
I’m suspect most of the readers here are familiar with the basics of the yield curve, but I found this business times summary very helpful nonetheless.
https://www.businesstimes.com.sg/executive-money/predictor-of-recession-has-wall-st-taking-notice
A bear market always feels more painful when you have more money in it.
http://awealthofcommonsense.com/2018/06/why-the-next-bear-market-may-feel-more-painful/
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I don’t think the sti etf can ever beat a s&p 500 etf in returns tbh, not even in 10 or 20 years time
Haha… only time will tell
Is it just sg inc that is stagnating? Or a system thats stfling innovation? Why arent they many other private coy competing against the big boys even with technology…
SG stocks do have their uses … As a whole, they’re a beta or leveraged play on world trade & the Asian Century.
Use a timing mechanism overlay to capture the volatility of SG, the steadfastness of US, and avoidance of big bear markets.
E.g. https://bit.ly/2zFfXXo
The result is a vast improvement over buying & holding either of STI or S&P500 on their own.
Technically easy to implement, but the challenge is in the emotional & psychological domain of following & executing the system.
I wish there is a single-click ETF or even a no-load UT/mutual fund that implements this strategy.
Hi Sinkie, I got around to looking at this timing mechanism again, and the results are mindblowing. As you mentioned though, the challenge is to bring yourself to execute the trades. Perhaps if Stashaway or some other robo/ETF implements this strategy for a nominal fee…
I think…
Singapore big company are mostly government link company that technology change will take some time the other is Singapore don’t have core technology business competition…Like Taiwan they have advance semiconductor mfg…Etc.
Hi Philip, welcome to financial horse! Thanks for sharing your thoughts, I guess that’s another way of looking at it. 🙂
Singapore still the most competitive economy in Asia. Excellent post.
Welcome to Financial Horse! Glad that you enjoyed it.