SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

NikkoAM-StraitsTrading Asia Ex Japan REIT ETF / Equity Bottom-Up

NikkoAM-StraitsTrading Asia Ex Japan REIT ETF

<figure class="editor-figure mceNonEditable"><img src="https://api2.sgx.com/sites/default/files/2021-05/Capture_28.PNG" class="editor-image img-responsive"></figure>
<div class="content-caption">SGX listed REITs ETF</div>

The&nbsp;ascent of passive investing saw assets under management (AUM) in pure Reit Exchange Traded Funds (ETFs) exceed US$40 billion globally. The combined AUM of Reit ETFs with exposure to Asia-Pacific ex-Japan was close to US$770 million as at end April 2021.
The two largest Reit ETFs across Asia-Pacific ex-Japan are listed on the Singapore Exchange (SGX) - NikkoAM-StraitsTrading Asia ex-Japan Reit ETF which tracks the FTSE EPRA Nareit Asia ex-Japan Reits 10% Capped Index and the Lion-Phillip S-Reit ETF which tracks the Morningstar Singapore Reit Yield Focus IndexSM.
SGX also lists a third Reit ETF - the Phillip SGX APAC Dividend Leaders Reit ETF which tracks the iEdge APAC ex-Japan Dividend Leaders Reit Index.
The combined AUM of the three SGX-Reit ETFs has seen a significant 41 per cent growth, from S$395 million in April 2020 to S$558 million in April 2021, making up more than half of the AUM in Reit ETFs with Asia-Pacific ex-Japan exposure globally. As of May 25, 2021, their combined AUM has risen further to S$571 million. Retail investors account for close to 40 per cent of all SGX listed Reit ETF holdings while the remaining 60 per cent are in the hands of institutional investors. Despite generating average year-to-date total returns of 2.5 per cent (as at May 25, 2021), compared to 11.6 per cent by the STI ETFs, the three Reit ETFs recorded net inflows of S$108.7 million. During the same period, the two ETFs which track the performance of the STI Index - SPDR Straits Times Index ETF and Nikko AM Singapore STI ETF - saw total net outflows of S$63 million instead, amid investor profit-taking. ETFs provide investors instant diversification across various sub-sectors and geographical regions at lower execution costs as opposed to building a similar portfolio through investing in individual Reits.
Due to its diversified nature, the best performing Reit ETF for the year was Phillip SGX APAC Dividend Leaders Reit ETF, which generated total returns of 5.8 per cent. It has more than 50 per cent geographical exposure to Australian Reits, 35 per cent to Singapore Reits, 13 per cent to Hong Kong Reits and one per cent to Thailand Reits.
The various underlying Reit markets - Hang Seng Reit Index (+9.8 per cent), ASX 200 A-Reit Index (+5.0 per cent) and iEdge SG S-Reit Index (+1.7 per cent) - saw varied total returns performance in the 2021 year-to-date.
Across the same period, the NikkoAM-StraitsTrading Asia ex-Japan Reit ETF (75 per cent in Singapore Reits and a combined 25 per cent exposure to the Hong Kong, Malaysia, India and Thailand Reit markets) and Lion-Phillip S-Reit ETF (100 per cent in Singapore Reits) generated total returns of 0.5 per cent and 1.1 per cent respectively, lagging behind the Phillip SGX APAC Dividend Leaders Reit ETF.
However, the NikkoAM-StraitsTrading Asia ex-Japan Reit ETF was the highest yielding Reit ETF among the three with 12 month gross dividend yield of 4.7 per cent compared to Lion-Phillip S-Reit ETF and Phillip SGX APAC Dividend Leaders Reit ETF at 4.2 per cent and 2.6 per cent respectively.
The NikkoAM-StraitsTrading Asia ex-Japan Reit ETF and Lion-Phillip S-Reit ETF are among the top 10 highest yielding ETFs listed on SGX. REIT Watch is a weekly column on The Business Times,&nbsp;<a href="https://www.businesstimes.com.sg/companies-markets/investors-continue-to-favour-reit-etfs" target="_blank" rel="noopener">read</a> the original version.


SGX listed REITs ETF

The&nbsp;ascent of passive investing saw assets under management (AUM) in pure Reit Exchange Traded Funds (ETFs) exceed US$40 billion globally. The combined AUM of Reit ETFs with exposure to Asia-Pacific ex-Japan was close to US$770 million as at end April 2021.
The two largest Reit ETFs across Asia-Pacific ex-Japan are listed on the Singapore Exchange (SGX) - NikkoAM-StraitsTrading Asia ex-Japan Reit ETF which tracks the FTSE EPRA Nareit Asia ex-Japan Reits 10% Capped Index and the Lion-Phillip S-Reit ETF which tracks the Morningstar Singapore Reit Yield Focus IndexSM.
SGX also lists a third Reit ETF - the Phillip SGX APAC Dividend Leaders Reit ETF which tracks the iEdge APAC ex-Japan Dividend Leaders Reit Index.
The combined AUM of the three SGX-Reit ETFs has seen a significant 41 per cent growth, from S$395 million in April 2020 to S$558 million in April 2021, making up more than half of the AUM in Reit ETFs with Asia-Pacific ex-Japan exposure globally.  As of May 25, 2021, their combined AUM has risen further to S$571 million. Retail investors account for close to 40 per cent of all SGX listed Reit ETF holdings while the remaining 60 per cent are in the hands of institutional investors. Despite generating average year-to-date total returns of 2.5 per cent (as at May 25, 2021), compared to 11.6 per cent by the STI ETFs, the three Reit ETFs recorded net inflows of S$108.7 million.  During the same period, the two ETFs which track the performance of the STI Index - SPDR Straits Times Index ETF and Nikko AM Singapore STI ETF - saw total net outflows of S$63 million instead, amid investor profit-taking. ETFs provide investors instant diversification across various sub-sectors and geographical regions at lower execution costs as opposed to building a similar portfolio through investing in individual Reits.
Due to its diversified nature, the best performing Reit ETF for the year was Phillip SGX APAC Dividend Leaders Reit ETF, which generated total returns of 5.8 per cent. It has more than 50 per cent geographical exposure to Australian Reits, 35 per cent to Singapore Reits, 13 per cent to Hong Kong Reits and one per cent to Thailand Reits.
The various underlying Reit markets - Hang Seng Reit Index (+9.8 per cent), ASX 200 A-Reit Index (+5.0 per cent) and iEdge SG S-Reit Index (+1.7 per cent) - saw varied total returns performance in the 2021 year-to-date.
Across the same period, the NikkoAM-StraitsTrading Asia ex-Japan Reit ETF (75 per cent in Singapore Reits and a combined 25 per cent exposure to the Hong Kong, Malaysia, India and Thailand Reit markets) and Lion-Phillip S-Reit ETF (100 per cent in Singapore Reits) generated total returns of 0.5 per cent and 1.1 per cent respectively, lagging behind the Phillip SGX APAC Dividend Leaders Reit ETF.
However, the NikkoAM-StraitsTrading Asia ex-Japan Reit ETF was the highest yielding Reit ETF among the three with 12 month gross dividend yield of 4.7 per cent compared to Lion-Phillip S-Reit ETF and Phillip SGX APAC Dividend Leaders Reit ETF at 4.2 per cent and 2.6 per cent respectively.
The NikkoAM-StraitsTrading Asia ex-Japan Reit ETF and Lion-Phillip S-Reit ETF are among the top 10 highest yielding ETFs listed on SGX.  REIT Watch is a weekly column on The Business Times,&nbsp;read the original version.

REIT Watch - Investors Continue to Favour Reit ETFs

iShares China CNY Bond UCITS ETF / Equity Bottom-Up

<ul>
<li>
Over the first four months of 2021 the Xtrackers FTSE Vietnam Swap UCITS ETF, SPDR S&amp;P 500 ETF, SPDR Straits Times Index ETF, SPDR Dow Jones Industrial Average ETF and Nikko AM Singapore STI ETF were the strongest performers of SGX’s suite of 30 ETFs, averaging 13% total returns.  </li>
<li>
Of the five ETFs that were recipient to the highest net inflows over the four months, three were Fixed Income ETFs:  the ICBC CSOP FTSE Chinese Government Bond ETF, the iShares Barclays USD Asia High Yield Bond Index ETF and the ABF Singapore Bond Index Fund, which saw S$285 million of combined net inflows, 58% of the total net inflows.   </li>
<li>Combined AUM of the 30 ETFs is S$9.2 billion, up from S$5.5 billion 12 months ago. Equity and REIT ETFs have continued to represent 40% of the combined AUM. However, the share of Fixed Income ETF AUM within the total AUM has grown from 34% to 46%, while the share of Gold ETF AUM has declined from 27% to 16%. </li>
</ul>



Over the first four months of 2021 the Xtrackers FTSE Vietnam Swap UCITS ETF, SPDR S&amp;P 500 ETF, SPDR Straits Times Index ETF, SPDR Dow Jones Industrial Average ETF and Nikko AM Singapore STI ETF were the strongest performers of SGX’s suite of 30 ETFs, averaging 13% total returns.   

Of the five ETFs that were recipient to the highest net inflows over the four months, three were Fixed Income ETFs:  the ICBC CSOP FTSE Chinese Government Bond ETF, the iShares Barclays USD Asia High Yield Bond Index ETF and the ABF Singapore Bond Index Fund, which saw S$285 million of combined net inflows, 58% of the total net inflows.    
Combined AUM of the 30 ETFs is S$9.2 billion, up from S$5.5 billion 12 months ago. Equity and REIT ETFs have continued to represent 40% of the combined AUM. However, the share of Fixed Income ETF AUM within the total AUM has grown from 34% to 46%, while the share of Gold ETF AUM has declined from 27% to 16%. 


Equity ETFs Rank as Top YTD Performers, as Bond ETFs Capture Most Inflows 

Deputy Chief Economist

Sharmila Whelan

Independent and original Asian investment research

Aletheia Capital

Aletheia Capital (HK) Ltd. (previously known as Asianomics) combines the extensive knowledge of its experienced team with technology and regulatory changes to disrupt Global Markets business in Asia. The firm is completely independent with no conflicts of interest either on Investment Banking advisory or Capital Markets execution.

Macroeconomics

Expectations are that Hong Kong will expand by 4.2% and Singapore by 5% next year according to latest consensus forecasts. Our out-of-consensus prediction is that economic activity in Hong Kong will grow faster than in Singapore in 2021

Expectations are that Hong Kong will expand by 4.2% and Singapore by 5% next year according to latest consensus forecasts. Our out-of-consensus prediction is that economic activity in Hong Kong will grow faster than in Singapore in 2021

Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

The Advance Estimate of 1Q 2020 real GDP suggested a contraction of -2.2% YoY, but this has since been revised up to -0.3% YoY, after manufacturing did much better in March 2020. Similarly, the 2Q 2020 advance estimate is based on data from April-May 2020, when the Circuit Breaker closed much of the economy down. With the reopening on 1st June 2020, that month's manufacturing AND (non-tourism-facing) Services performance are likely to be robust, and the 2Q 2020 real GDP numbers too will be revised up. As the massive fiscal stimulus (paid out to businesses and households) begins to be spent, Singapore will experience a powerful recovery in 2H 2020, generating 1.5% real GDP growth in 2020.  
Singapore's advance estimate of 2Q 2020 real GDP shows it contracting 12.6% YoY (and an eye-popping 41.2% QoQ at the seasonally-adjusted annualized rate, saar). The similar advance estimate of 1Q 2020 real GDP showed it contracting 2.2% YoY (or -10.6% QoQsaar), but the 1Q 2020 figure has now been revised to -0.3% YoY (or -3.3% QoQsaar) -- a gentle rather than violent start to the recession!
The 2Q figure is similarly based on data for April-May 2020, the height of Singapore's Circuit Breaker lockdown of the economy (which ended on 1st June 2020). Just as the details of March manufacturing and NODX resulted in a substantial upward revision of 1Q 2020 real GDP, so will June's details cause an upward revision of 2Q 2020. We continue to estimate a contraction in real GDP of no more than 10% YoY in 2Q 2020.  
Going forward, the massive fiscal stimulus (13% of full-year GDP) will begin to be spent by households and businesses as the economy reopens in June, and especially 3Q 2020 and beyond. The fiscal stimulus includes Job Support to businesses (with the government paying 25% of all companies' wage bills for the whole of 2020, 50% for food &amp; beverage companies, and 75% for those in aviation and tourism-related sectors), the SERS program for the self-employed, and substantial direct income support. The massive stimulus will more-than-replace the lost GDP from the tourism-facing sectors, ensuring YoY growth in 3Q 2020 and a strong acceleration in 4Q 2020 to about 7% YoY growth. We continue to expect Singapore's real GDP to grow 1.5%  in 2020, aided by the massive fiscal stimulus.

The Advance Estimate of 1Q 2020 real GDP suggested a contraction of -2.2% YoY, but this has since been revised up to -0.3% YoY, after manufacturing did much better in March 2020. Similarly, the 2Q 2020 advance estimate is based on data from April-May 2020, when the Circuit Breaker closed much of the economy down. With the reopening on 1st June 2020, that month's manufacturing AND (non-tourism-facing) Services performance are likely to be robust, and the 2Q 2020 real GDP numbers too will be revised up. As the massive fiscal stimulus (paid out to businesses and households) begins to be spent, Singapore will experience a powerful recovery in 2H 2020, generating 1.5% real GDP growth in 2020.  
Singapore's advance estimate of 2Q 2020 real GDP shows it contracting 12.6% YoY (and an eye-popping 41.2% QoQ at the seasonally-adjusted annualized rate, saar). The similar advance estimate of 1Q 2020 real GDP showed it contracting 2.2% YoY (or -10.6% QoQsaar), but the 1Q 2020 figure has now been revised to -0.3% YoY (or -3.3% QoQsaar) -- a gentle rather than violent start to the recession!
The 2Q figure is similarly based on data for April-May 2020, the height of Singapore's Circuit Breaker lockdown of the economy (which ended on 1st June 2020). Just as the details of March manufacturing and NODX resulted in a substantial upward revision of 1Q 2020 real GDP, so will June's details cause an upward revision of 2Q 2020. We continue to estimate a contraction in real GDP of no more than 10% YoY in 2Q 2020.  
Going forward, the massive fiscal stimulus (13% of full-year GDP) will begin to be spent by households and businesses as the economy reopens in June, and especially 3Q 2020 and beyond. The fiscal stimulus includes Job Support to businesses (with the government paying 25% of all companies' wage bills for the whole of 2020, 50% for food &amp; beverage companies, and 75% for those in aviation and tourism-related sectors), the SERS program for the self-employed, and substantial direct income support. The massive stimulus will more-than-replace the lost GDP from the tourism-facing sectors, ensuring YoY growth in 3Q 2020 and a strong acceleration in 4Q 2020 to about 7% YoY growth. We continue to expect Singapore's real GDP to grow 1.5%  in 2020, aided by the massive fiscal stimulus. 

2Q 2020 Advance Estimate Will Be Revised Up, Just as 1Q Was; Recovery Ahead

Singapore is the only country in the world to have run a current account surplus exceeding 11% of GDP consistently for each of the past 26 years; the average annual CA surplus over the last 32 years was 16.6% of GDP (cumulatively, 531% of annual GDP). In 2019, Singapore had not only a current account surplus of 17% of GDP, it also was a net recipient of FDI worth 19.5% of GDP -- so 36.5% of GDP needed to be "recycled" via portfolio outflows, mainly by purchases of foreign assets by GIC. We estimate that merely recycling the current account surpluses of the past would give GIC assets of over S$1 trillion, generating substantial investment income annually; these and land sales proceeds aren't included in official estimates of government revenue. But using IMF definitions, the General Government fiscal surplus for FY2017 (the latest year available) was 7.5% of GDP, and the average surpluses for the previous 7 years were of similar size. There is a strong case for rethinking the way Singapore accumulates these gigantic surpluses. 
Singapore is an exceptional success story in terms of economic growth, but less so in terms of income distribution. The GST (being a regressive consumption tax) tends to boost the national savings rate, especially in a country like Singapore, which already has high household savings (via the obligatory CPF contributions aggregating 31.6% of earned income) and very high government savings. Given the extraordinary twin surpluses, Singapore could easily abolish the GST. This would reduce the exceptionally high national savings rate, boost private consumption, reduce income inequality, and lower the extravagantly large current account surplus. 
Since Singapore is also a recipient of massive FDI inflows -- foreign savings that supplement the already-high national savings rate -- there is a strong case for the interest paid on CPF savings to be linked to the annual (and cumulative) investment income being generated by GIC and Temasek. Currently the size of GIC's total assets is an official secret; apart from a very small amount of "net investment income contribution" used in recent years' budgets, most of the investment income of GIC and Temasek is reinvested by them, and the large "current account+FDI" surplus is also invested abroad mainly by GIC. In theory, the ultimate owners of GIC and Temasek are Singapore's citizens, but they earn no dividends from them.
A legitimate question likely to be asked in the next parliament is whether it still makes sense for Singapore to keep running these massive twin surpluses -- which take agency away from private citizens to make their own choices with regard to consumption, and the way in which to deploy their savings. Instead, there is scope to invest more in education (particularly to foster creativity and critical thinking), allow greater consumption and a less skewed income distribution, and perhaps even to tie "foreign-worker levies" to the welfare of foreign workers. What is clear is that more such questions and debates will boost the overall welfare of Singapore during the term of the next parliament, perhaps also altering the nature of Singapore's capital market ambitions, especially as Hong Kong succumbs to autocratic communist-Chinese interventions that fundamentally undermine the key rival Asian financial centre. We are bullish on Singapore.

Singapore is the only country in the world to have run a current account surplus exceeding 11% of GDP consistently for each of the past 26 years; the average annual CA surplus over the last 32 years was 16.6% of GDP (cumulatively, 531% of annual GDP). In 2019, Singapore had not only a current account surplus of 17% of GDP, it also was a net recipient of FDI worth 19.5% of GDP -- so 36.5% of GDP needed to be "recycled" via portfolio outflows, mainly by purchases of foreign assets by GIC. We estimate that merely recycling the current account surpluses of the past would give GIC assets of over S$1 trillion, generating substantial investment income annually; these and land sales proceeds aren't included in official estimates of government revenue. But using IMF definitions, the General Government fiscal surplus for FY2017 (the latest year available) was 7.5% of GDP, and the average surpluses for the previous 7 years were of similar size. There is a strong case for rethinking the way Singapore accumulates these gigantic surpluses. 
Singapore is an exceptional success story in terms of economic growth, but less so in terms of income distribution. The GST (being a regressive consumption tax) tends to boost the national savings rate, especially in a country like Singapore, which already has high household savings (via the obligatory CPF contributions aggregating 31.6% of earned income) and very high government savings. Given the extraordinary twin surpluses, Singapore could easily abolish the GST. This would reduce the exceptionally high national savings rate, boost private consumption, reduce income inequality, and lower the extravagantly large current account surplus. 
Since Singapore is also a recipient of massive FDI inflows -- foreign savings that supplement the already-high national savings rate -- there is a strong case for the interest paid on CPF savings to be linked to the annual (and cumulative) investment income being generated by GIC and Temasek. Currently the size of GIC's total assets is an official secret; apart from a very small amount of "net investment income contribution" used in recent years' budgets, most of the investment income of GIC and Temasek is reinvested by them, and the large "current account+FDI" surplus is also invested abroad mainly by GIC. In theory, the ultimate owners of GIC and Temasek are Singapore's citizens, but they earn no dividends from them.
A legitimate question likely to be asked in the next parliament is whether it still makes sense for Singapore to keep running these massive twin surpluses -- which take agency away from private citizens to make their own choices with regard to consumption, and the way in which to deploy their savings. Instead, there is scope to invest more in education (particularly to foster creativity and critical thinking), allow greater consumption and a less skewed income distribution, and perhaps even to tie "foreign-worker levies" to the welfare of foreign workers. What is clear is that more such questions and debates will boost the overall welfare of Singapore during the term of the next parliament, perhaps also altering the nature of Singapore's capital market ambitions, especially as Hong Kong succumbs to autocratic communist-Chinese interventions that fundamentally undermine the key rival Asian financial centre. We are bullish on Singapore.     

Singapore's Twin Surpluses: How Much Is Too Much?

Singapore

Lion-Phillip S-REIT ETF is an exchange-traded fund established in Singapore. The Fund's investment objective is to replicate as closely as possible, before expenses, the performance of Morningstar Singapore REIT Yield Index PR SGD . The Fund invests all its assets in the underlying Index Securities through Full or Representative Sampling Strategy.

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Lion-Phillip S-Reit ETF (SREITS SP)

REIT Watch - Investors Continue to Favour Reit ETFs

The ascent of passive investing saw assets under management (AUM) in pure Reit Exchange Traded Funds (ETFs) exceed US$40 billion globally. The...

Singapore Exchange Ltd (SGX)

Equity ETFs Rank as Top YTD Performers, as Bond ETFs Capture Most Inflows

Over the first four months of 2021 the Xtrackers FTSE Vietnam Swap UCITS ETF, SPDR S&P 500 ETF, SPDR Straits Times Index ETF, SPDR Dow Jones...

Singapore Exchange Ltd (SGX)

HK-Singapore - Our Money Is On HK

Expectations are that Hong Kong will expand by 4.2% and Singapore by 5% next year. Our out-of-consensus prediction is that economic activity in...

Sharmila Whelan

2Q 2020 Advance Estimate Will Be Revised Up, Just as 1Q Was; Recovery Ahead

The Advance Estimate of 1Q 2020 real GDP suggested a contraction of -2.2% YoY, but this has since been revised up to -0.3% YoY, after manufacturing...

Prasenjit K. Basu

Singapore's Twin Surpluses: How Much Is Too Much?

Singapore is the only country in the world to have run a current account surplus exceeding 11% of GDP consistently for each of the past 26 years;...

Prasenjit K. Basu

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