Tuesday, 10 November 2015

Is there really a need to invest in foreign companies in the name of geographical diversification?

This year, Singaporeans celebrate five decades of nation-building. Development, transformation and progress of this once fishing village into a modern city has been nothing short of an economic miracle. As we look forward to the next 50 years, how will SG100 be like? Will Singapore still prosper? Will Singapore still be relevant in the distant future? It is no secret that the Singapore market is lagging other major global indexes in recent years. The 2013 'penny stocks debacle' has somewhat dealt a crippling blow to the confidence of local retail investors. So naturally, people are starting to shift their funds towards foreign stocks which offer potentially better returns and diversification as there is no guarantee that a tiny island Singapore will still be around 50 years from now.

Well, in my opinion, blue-chips such as DBS, UOB, OCBC, SingTel, ST Engineering, SingPost and CapitaLand have already spread their businesses deep into other countries for years. In fact, some of them are not as 'local' as they seem although they have the term 'Sing' in their names. For instance, SingTel gets the bulk of its annual revenue from overseas subsidiaries like Bharti in India and Optus in Australia. Some REITs offer exposure to other countries too. For example, Mapletree Logistics Trust has a massive portfolio of logistics real estate spanning across Asia.

So do not fret. You can still achieve geographical diversification by being vested in these 'local' companies.



DK

5 comments:

  1. Hm, do you know of any Singapore listed companies that have a notable exposure to the American, European or African market. Hyflux comes to my mind with their desalination plants in Africa. Who else?

    I believe for a balanced geographical investments into broad based country ETFs is a viable avenue.

    After all investors in the Singapore market (locals and foreign) often don't differentiate and throw all companies into one basket called "Singapore market" - from their sentiment's point of view.

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    1. How much is notable? ST Engineering has about ~20% to US. UMS Holdings also has about ~20% to US. IREIT Global has 100% in Germany right now...

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    2. Hi Tacomob,

      Olam and Wilmar have significant operations in Africa.

      In fact, Olam was started in Nigeria in 1989.

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  2. I personally don't see the need of holding foreign stocks as an access to global biz

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    Replies
    1. Hi CW,

      I agree :)

      If we are planning to retire in Singapore, we should simply focus on local companies which already have revenues generated overseas.

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