ETFs In Focus As Singapore GDP Exceeds Expectations

Singapore's GDP grew at 5.2% year over year in the third quarter of 2017, surpassing the 5.0% expectation of economists. This was the strongest reading since the fourth quarter of 2013. The latest revised figures surpassed the initial reading of 4.6% issued by the Ministry of Trade and Industry (MTI).

Singapore's economy grew 8.8% sequentially compared with 2.9% in the prior quarter. This was above the initial estimate of 6.3%.

What's Driving Growth?

Given that Singapore's economy is largely trade dependent, improvement in manufacturing sector significantly contributed to GDP growth. Moreover, trade and finance are expected to receive a significant boost from the global recovery. Global economic activity seems to be picking up as the International Monetary Fund estimates 3.6% and 3.7% growth in 2017 and 2018, respectively, compared with 3.2% in 2016.  

Singapore's manufacturing data has been strong for third-quarter 2017, driven by strong expansion in the electronics sector. On a year-over-year basis, manufacturing sector surged 18.4% in the third quarter and 8.4% in the second. Sequentially, it expanded 34.6% compared with 4.0% in the second quarter.

The ministry expects GDP to grow in the range of 3-3.5% in 2017 and 1.5-3.5% in 2018. It expects manufacturing to remain resilient and continue to contribute to the GDP.

Monetary Policy

The Monetary Authority of Singapore decides on the monetary policy by managing the trade-weighted exchange rate index. It is the only country in the developed world to not rely on short-term interest rate changes as its tool to conduct monetary policy changes.

Having eased three times since January 2015, the MAS adopted a neutral stance on the monetary policy in its latest meeting in October. Per the MAS, core inflation is expected to come in at around 1.5% for 2017 and can go upward to average around 2% in 2018.

Although GDP growth is expected to moderate in 2018, rising interest rates in the United States might create pressure on the MAS to change its monetary policy.

We will now discuss a few ETFs providing exposure to Singapore (see all the Asia Pacific ETFs here).

IShares MSCI Singapore Capped ETF EWS

This fund focuses on Singapore equities and is the most popular option for exposure to the economy.

The fund has AUM of $629.9 million and charges 48 basis points in fees per year. Financials, Real Estate and Industrials are the top three sectors of the fund, with 39.5%, 20.5% and 17.9% allocation, respectively (as of Nov 21, 2017). DBS Group Holdings Ltd, Oversea-Chinese Banking Ltd and United Overseas Bank Ltd are the top three holdings of the fund, with 14.2%, 12.0% and 10.7% allocation, respectively (as of Nov 21, 2017). The fund has returned 28.3% in a year and 32.6% year to date (as of Nov 22, 2017). EWS currently has a Zacks ETF Rank 3 (Hold) with a Low risk outlook.

We will now compare the performance of EWS to a broader South East Asian ETF, ASEA.

Global X Southeast Asia ETF ASEA

This fund provides broad exposure to the five members of the Association of Southeast Asian Nations, namely Singapore, Indonesia, Malaysia, Thailand and the Philippines. It is appropriate for investors looking for diversified exposure to South East Asia (read: Malaysia's GDP at 3-Year High: ETFs in Focus).

ASEA is less popular with AUM of $16.2 million and charges a fee of 65 basis points a year. From a geographical perspective, the fund has 30.1% exposure to Singapore, 22.2% to Malaysia, 22.1% to Thailand, 19.2% to Indonesia and 6.5% to the Philippines (as of Sep 30, 2017).  Financials, Telecommunication Services and Industrials are the top three sectors of the fund, with a 46.2%, 14.8% and 8.3% allocation, respectively (as of Sep 30, 2017). DBS Group Holdings Ltd, Oversea-Chinese Banking Ltd and United Overseas Bank Ltd are the top three holdings of the fund, with an allocation of 8.1%, 7.3% and 6.1%, respectively (as of Nov 21, 2017). The fund has returned 26.4% in a year and 28.4% year to date (as of Nov 22, 2017). ASEA currently has a Zacks Rank #3 with a Medium risk outlook (read: Philippines GDP Growth Exceeds Expectations: ETFs in Focus).

Below is a chart comparing the year-to-date performance of the two funds.

 
Source: Google Finance

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