Jason Pidcock: «Singapore Behaves Like a Corporation»

Gardens by the Bay, Singapore

Gardens by the Bay, Singapore

Jupiter's Fund manager Jason Pidcock avoids economies and businesses in which governments are closely involved. Singapore is the market where he breaks his own rule. Why?

By Jason Pidcock, fund manager of Jupiter Asia Pacific Income

Jason Pidcock 160Investors familiar with the Jupiter Asia Pacific Income strategy will know that I avoid economies and businesses in which governments are closely involved. Singapore is the market where I break my own rule.

Like Hong Kong, Singapore is a small territory that has benefited greatly from its colonial past. The infrastructure spending that established it as a British trading post, its respect for the rule of law and relative political autonomy have all helped lay the foundations for a modern global financial centre.

A History of Success

Moreover, in the 50 years since it gained independence from nearby Malaysia, Singapore has had arguably some of the best political management anywhere in the world. Astute governments have helped guide the economy and the fruits of their careful stewardship can be seen in its outsized economic strength and fiscal robustness today.

One of the government’s key decisions has been to identify specific industries in which Singapore could become a centre of excellence. It attracted large amounts of private investment from the world’s biggest players in these areas, offering in return a combination of tax breaks, excellent infrastructure, a business-friendly environment and a great quality of life.

The plan was a resounding success, helping make Singapore a global player in sectors like Pharmaceuticals and Technology.

An International Market

Singapore’s economic model means its imports and exports far outstrip its domestic economy, making it a very open economy that is strongly affected by the pace of global trade. When world trade slows, as it has in recent years, then economic growth in Singapore can do the same. Within that, however, some sectors continue to grow even while others are shrinking.

This means that while its GDP growth rates look relatively muted by comparison with those of faster-growing developing Asia, we are comfortable with our exposure there. Why? Because we don’t invest in Singapore in the same way as we invest in emerging countries.

A Low Growth Country For Some Time

In the Philippines for instance, we specifically want to get exposure to domestic consumption growth, because we are very optimistic about the outlook for the local economy. By contrast, Singapore could be a low growth country for some time, but that doesn’t mean that companies won’t deliver decent returns.

Most importantly, the quality of companies in Singapore is very high. Despite the limitations of available space, over 7,000 multinational businesses have operations there, including 20 of the world’s biggest.

Together with Hong Kong, Singapore is one of the leading destinations for multinational firms to base global operations, a trend I expect to continue as the balance of global economic influence moves east.

How I Invest

For me, a key attraction of Singaporean stocks is the healthy dividend yields on offer there. Companies domiciled in Singapore include many mature, well managed companies with largely global exposure, which helps make them sources of sustainable and high dividends.

And with the local and global economies growing slowly, interest rates in Singapore are very low, which makes a company with a high yield more appealing, because for local investors the differential between bond yields and what companies yield is wide. At the same time the currency is typically firm –the government is a net creditor and supports price stability by managing the currency within fairly tight limits.

In Singapore, the first real estate investment trust (Reit) was listed in 2002. Today, the stock market has been transformed by these property income payers. Listed Reits make up nearly 10 percent of the Singapore's market’s total capitalisation, and with yields of around 6 to 7 percent, they typically represent an attractive way into the thriving property sector there as well as anincome return.

Stable, Attractive and Profitable

Because it’s a city state, the government of Singaporecan plan in a way it is difficult to do in most countries. They can ensure, for instance, that the entire transport system is properly interconnected, and keep local infrastructure updated with new technology in a way that benefits the local population, as well as providing lucrative contracts for the best local investible companies.

As with the other developed markets in the region, Singapore is beginning to feel the economic and societal effects of its ageing population.While this raises issues about dependency ratios in each market, it also points to the sorts of businesses that could thrive in the coming years, such as tourism and healthcare. Robotics and further urbanisation could also offset productivity declines from ageing populations.

Passing Profits Back to Shareholders

What this adds up to is a market that combines a degree of stability and predictability unusual even for a developed market, with some of the most profitable and productive companies to be found globally, all within a strong culture of passing those profits back to shareholders as dividends.

What’s more, Singapore’s investment-friendly culture allows me to communicate with, understand, and ultimately invest in some of the best-run income stocks in the world, making it an important part of the Asian Income strategy.

Jason Pidcock graduated from Essex University, and started his career with Henderson where he was assistant fund manager between 1993 and 1996. He then joined BP. In 2004 he joined Newton Investment Management, part of BNY Mellon, where he managed the Newton Oriental, Mellon Asian Equity and Newton Asian Income funds. In May 2015 he left Newton and joined Jupiter where he runs their Asian Income Strategy. He has over 13 years of investment experience in the Asia Pacific sector.


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