The Singapore story: More than a little red dot for Asian investors

Business Times

5 days ago

[SINGAPORE] As the Republic celebrates its 60th year as an independent nation, its investment status is entering a new phase of maturity within the global financial and economic system.
Why have the merits of investing in Singapore assets started to resonate with global investors as a diversifier in wealth management portfolios?
For typical Asian investors, domestic portfolios tend towards home currency bias, coupled with portfolio allocation to global USD-denominated assets. This prevailing modus operandi is based on the premise of US exceptionalism – characterised in recent years by the strengthening of the US dollar, US equity markets and investment assets.
But of late, the Trump administration's approach towards tariffs, geopolitics and macro-prudential policies has raised questions about the risk premium of investing in US-based and USD-denominated assets. USD weakness – year to date the USD Index (DXY) has dropped 9.5 per cent – has eroded overall returns when translated into investors' home currencies, in spite of underlying bullish stock market conditions. The S&P 500 Index has forged new highs.
Besides prompting a rethink about the vulnerability of outsized allocation to USD-based investments, the recent volatility has also raised questions among investors and asset allocators (including sovereign wealth funds, pension funds, insurers and high-net-worth investors) about what constitutes safe-haven assets in the long run.
At Bank of Singapore, we highlighted in our 2025 Supertrends report that a fragmented world order of geopolitical rivalry, rising trade barriers, hostility to immigration and widening populism is rapidly replacing the US-led order of free markets, free trade and globalisation that prevailed after the end of the Cold War. Without multilateralism and globalisation as basic tenets, coalitions and alliances will be founded instead on common interests and agenda.
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Over the next decade, heightened uncertainty will result in volatility in inflationary expectations, interest rates, currencies, and strengthen the search for safe-haven assets. All around the world, fiscal burdens will rise as national security demands higher defence spending; changing demographics call for social expenditure; and infrastructure spending is required for energy security and climate resilience.
In our view, a 'robust asset allocation' approach is suited for building long-term portfolios. This analytical optimisation architecture explicitly acknowledges the inherent uncertainty of market inputs (including risk, expected returns and correlation) across a range of outcomes, making for more resilient portfolios that align with investors' long-term goals.
To reduce portfolio concentration in USD assets, investors can consider geographical diversification to include Europe, Asia and emerging markets, as well as gold and alternative asset classes like private markets. Another viable strategy is to adjust overall portfolio currency exposures to free-floating alternatives such as euro, pound sterling, Swiss franc and Japanese yen, as well as allocations into the SGD.
SGD assets in globally diversified portfolios
Here are some reasons that support an allocation into SGD assets.
1) SGD stability
As a small open economy with a sizeable financial centre, Singapore's currency exhibits traits of a long-term store of value, with parallels drawn to the Swiss franc. Following independence in 1965, Singapore's currency was first pegged against the GBP and the USD, at around S$3 per USD. When the Bretton Woods system of fixed exchange rates was dissolved in the 1970s, the SGD began to strengthen considerably to as high as S$1.20 against the USD in 2011.
It currently trades at S$1.28, which is still far above levels in the1960s. As the Monetary Authority of Singapore (MAS) targets the SGD rather than interest rates to manage inflation, the currency is managed against a basket of currencies of Singapore's main trading partners to maintain price stability.
In the latest July monetary policy review, the MAS maintained the rate of appreciation of the S$NEER policy band, with no change to its width and the level at which it is centred. The central bank assessed the monetary policy settings to be consistent with ensuring medium-term price stability based on the prevailing growth and inflation outlook. It said: 'MAS is well-positioned to respond to the evolving outlook, having already eased monetary policy in January and April this year.'
2) Economic fundamentals: adaptability and resilience
Stagflationary risks have risen with the harsh tariffs the US has levied on dozens of countries, including Mexico (25 per cent), Canada (35 per cent), Switzerland (39 per cent) and India (25 per cent plus 25 per cent secondary tariff).
Yale Budget Lab estimates the US average tariff rate now stands at 18.3 per cent, the highest since 1934. Singapore's exports to the US are subject to baseline tariffs of 10 per cent, but the country is externally exposed to the overall global economic impact of the tariff regime. The Ministry of Trade and Industry (MTI) upgraded its full-year growth forecast range on Tuesday (Aug 12) to a range of 1.5 to 2.5 per cent, from 0 to 2 per cent before.
While Singapore's relative economic stability stands out amid global geopolitical and economic uncertainties, the government proactively convened the Singapore Economic Resilience Taskforce chaired by Deputy Prime Minister Gan Kim Yong to support businesses and jobs, in anticipation of the grave challenges ahead.
Singapore's past success was due to carefully planned developments and investments to transform from a manufacturing hub in the 1960s to 1970s, to become an advanced digital nation today. Singapore sits at the confluence of capital markets – supported by intra-Asia growth, a wealth management hub benefitting from rising affluence and long-term structural trends of innovation and sustainability.
3) Fresh impetus for Singapore equities
The recent re-rating of the Singapore equity market has been attributed to foreign investor inflows, earnings resilience of listed companies and government measures to boost the local bourse.
The MAS and the Financial Sector Development Fund announced a S$5 billion Equity Market Development Programme to earmark investment into locally-listed equities to increase the market's breadth beyond large-cap stocks.
Equity market reform is underway with programmes that focus on increased shareholder engagement, market liquidity for retail and institutional investors, as well as cross-border partnerships, as announced by the Equities Market Review Group.
In our overall tactical asset allocation, we remain overweight in Singapore equities within Asia ex-Japan, on the back of this ongoing review, attractive capital return programs and healthy fundamentals in the large-cap space. Quality small- and mid-caps with defensive cashflow profile and strong growth trajectories will also come into increasing investor focus.
Defensive fund flows into Singapore and our expectation of medium-term SGD strength support the case for exposure to Singapore equities.
For yield-seeking investors, Singapore listed companies have consistently offered steady growth in dividend income, with average dividend yield of 5 per cent (based on FSSTI index stocks), according to Bank of Singapore CIO Investment Institute estimates.
Investment themes for the Singapore equity market include the banking sector which is committed to overall shareholder returns; industrials that benefit from structural tailwinds; communications services with regional footprint; and selective mid-cap stocks backed by fundamentals and valuations, despite the recent run-up.
In general, stock selection is key as a stronger SGD can be a double-edged sword for export-oriented companies or those with globally-sourced income.
For wealth management portfolios focused on long-term growth and stability, allocation to SGD-denominated assets could be an important investment decision, as a part of globally diversified multi-asset portfolios amid the shifts in international geo-economics.
The writer is global chief investment officer, Bank of Singapore