Sometimes, Singaporeans wonder why bother with Singapore stocks. Singapore stocks are less liquid, the market movement is slow, the quality of companies is low and there is small growth potential due to our size.
In fact, Singapore stock market is so small that Apple, the most valuable company in the world is single handedly more valuable than almost all of Singapore listed companies combined. Look at just how small Singapore market really is.
If all these problems that plague Singapore market is true, why then do we bother investing in Singapore stocks? Here are a few reasons to consider Singapore stocks.
1. Dividends
Singapore has financially strong companies that give good dividends. Our government linked companies usually gives good dividends, including banking stocks, telecommunication stocks and many others. For example, M1 provides around 5% yield and OCBC provides 3.5% yield. Platforms such as Stockflock provides chart comparisons of the best dividend stocks to invest in.
These companies have strong earnings quality and the dividend payout track record is good and growing over the years. Famously described by Warren Buffet, investing in these companies are like buying an expanding bond. When dividends increase over time, your dividend yield increases if the share prices continue to appreciate.
2. REITS
Singapore is home to many REITS due to tax incentives. Singapore has many solid REITS that can easily provide dividends over 5 or 6% without excessive debt. SGX also host the world’s largest Islamic REIT, Sabana REIT. For Singaporeans who do not have the capital to invest in properties, REITS provide a superb stress-free alternative without the hassle of property agents, legal documents and property tax.
3. Good tax
Singapore is tax free for dividends and does not have inheritance tax. This is a really important advantage to invest in Singapore. 30% of dividends from US stocks are withheld when you invest in US and hence, most US companies don't issue substantial dividends. Instead, they do share buybacks which is beneficial for shareholders. But if you are looking for passive cash flow, stick to Singapore.
Another important but neglected problem with investing in US is should you have more than US$60,000 worth of stocks, you are subjected to inheritance tax if you pass on. Those who are massively investing in US stocks should at least be aware of the tax regulations in US.
4. Currency risks
There is no currency risks for Singapore residents if you invest in Singapore. I wouldn’t call this a huge concern as there are many ways to hedge your currency risks, especially USD. However, for most investors who do not manage currency risks, it could lower your returns since Singapore keep a gradual appreciation policy on SGD.
5. Proxy for Asia
Singapore is a proxy for South East Asia and China. Everyone talks about going to Asia and Asia is the next big thing. We are in the centre of the region and fund flows into the region will definitely benefit Singapore in many aspects, including giving the equity market a boost.
6. Comfort zone
Finally, companies you know best. Companies in US can grow to be mammoths by just dealing in U.S. because of its sheer size, which also means many Singaporeans might have never even seen the products of these companies. For example, Under Armour which overtook Adidas as the second largest sports wear company is just entering foreign markets and many locals are not even aware of the brand yet. There is some always comfort in investing in companies you are familiar with, like our local Capitaland and Dairy Farm Group. While the returns might not be as superior, at least you can sleep soundly at night.
Wilson is co-founder of Stockflock, a financial platform on Singapore stocks to help people invest better.
