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Diversifying Your Stocks
Portfolio Beyond Singapore
You Weiren
Senior Analyst, Stocks and ETFs Research
6 January 2018
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In This Presentation
• Why Should Investors Consider International Equities?
• Building A Diversified Stocks Portfolio
• Stock Investment Ideas
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Singaporean Investors Favour Domestic Equities
• Strong home bias: investors tend to own
more domestic stocks than the global
market-cap weighting would suggest
• Singapore equities accounted for only
0.8% of the global equity market, yet local
investors hold about 39% of their portfolio
in Singapore stocks
• Local investors consider home market
equities as likely to generate higher
returns than their counterpartsSource: Eastspring Investments, Asia Investor Behaviour Survey 2015
4.42.5 1.8 0.8 0.5
34.0
58.0
24.0
39.0
59.0
0
10
20
30
40
50
60
70
Hong Kong South Korea Taiwan Singapore Malaysia
Equity Market Home Bias By Country
Percentage of Global Market Cap (%)
Investor Holdings In Domestic Equities (%)
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Why Do Investors Have Strong Domestic Bias?
• Home ground advantage: we are more comfortable and familiar with
local companies compared to foreign companies
• Corporate governance concerns: various accounting scandals in foreign
markets have deterred local investors (e.g. Enron)
• Additional costs: higher transaction costs, custodial fees, withholding
taxes, dividend handling charges
• Currency risk: avoid the influence of exchange-rate fluctuations
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Why Should Investors Consider
International Equities?
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1. Diversification
• Economic cycles can have an impact on
stock market performance
• A portfolio that is purely focused on
Singapore stocks will be highly exposed to
the Singapore economic cycle
• As different economies are at different
phases of the economic cycle,
diversification ensures that our portfolios
are not overly dependent on the
performance of Singapore’s economySource: Bloomberg, iFAST Compilations
-10
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Economic Cycles Impact Stock Markets
Straits Times Index (LHS) Singapore GDP YoY (RHS)
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1. Diversification
• Correlation statistically measures the
degree to which two markets move
together: ranges from -1.0 to 1.0
• Markets that have a low correlation
with the Straits Times Index offer
diversification value
• Foreign equities decrease the overall
risk of a Singapore-centric portfolio,
protects portfolio from huge losses
Index 5-Year Correlation
S&P 500 Index (US) 0.263
Stoxx 600 Index (Europe) 0.444
Nikkei 225 Index (Japan) 0.475
Hang Seng Index (Hong Kong) 0.639
HSML100 Index (China H) 0.597
CSI300 Index (China A) 0.290
KOSPI Index (South Korea) 0.486
SENSEX Index (India) 0.461
KLCI Index (Malaysia) 0.487
SET Index (Thailand) 0.431
JCI Index (Indonesia) 0.452
Correlation With The Straits Times Index
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1. Diversification
MSCI AC World Index S&P 500 Index Hang Seng Index Straits Times Index
No. of Countries 47 1 1 1
Market Cap (USD bil) 56,461 23,787 2,480 438
No. of Constituents 2,490 505 51 30
% of Top 10 9.7% 20.0% 59.9% 69.5%
% of Largest Sector 18.6% (Financials) 23.9% (Info Tech) 48.4% (Financials) 59.1% (Financials)
% of Largest Stock 2.0% (Apple) 3.9% (Apple) 10.2% (HSBC) 14.6% (DBS)
Source: Bloomberg, MSCI, Blackrock, State Street Global Advisors
Data as of 27 December 2017
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2. Exposure To Overseas Growth Potential
Source: Bloomberg, iFAST Compilations
Data in SGD terms as of 27 December 2017
40.2
32.1
28.4 27.5 27.025.2
21.6
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
Vietnam China-H Hong Kong India Turkey South Korea Singapore
Total Returns In 2017 (%)
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2. Exposure To Overseas Growth Potential
An investor who focuses purely on the Singapore stock market may miss
out on promising macroeconomic themes:
1. China’s consumption story: world’s most populous nation transiting to
a consumption-driven economy
2. Vietnam’s shift to market economy: economy driven by foreign direct
investments, rising middle class
3. Japan’s economic recovery: emerging from a period of economic
stagnation and price deflation
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3. Expands Your Investment Universe
Exchange No. of Listed Companies
New York Stock Exchange 3,491
NASDAQ 3,285
Hong Kong Exchange 2,096
Singapore Exchange 752
Source: Singapore Exchange, Hong Kong Exchange, NASDAQ
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3. Expands Your Investment Universe: FAANG
Image Credit: Strong Tower Associates
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3. Expands Your Investment Universe: Alibaba
• Alibaba has been a beneficiary of
China's robust domestic consumption
• China's fast-growing e-commerce
market is projected to grow by a CAGR
of 8.6% to USD 1.12 trillion in 2021
• Alibaba is also casting its sights
overseas, with acquisitions such as
Lazada (targeting Southeast Asia) and
Snapdeal (targeting India)
Image Credit: China Internet Watch, CNBC
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3. Expands Your Investment Universe: Berkshire
• Buffett is famous for his knack of
finding multi-baggers and ingeniously-
timed investments
• Owns an empire of world-class brands
that include companies in insurance,
utilities, manufacturing and railroads
• Most direct and surest way to leverage
on Buffett's investment judgment is to
buy the Berkshire Hathaway stock
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Total Returns Over Past 30 Years
Berkshire Hathaway S&P 500 Index
Source: Bloomberg, iFAST Compilations
Performance indexed to 100, in SGD terms as of 27 Dec 2017
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Building A Diversified Stocks Portfolio
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Constructing A Diversified Portfolio
• Taking a global perspective can
help investors create a more
diversified portfolio
• Home-ground advantage: some
degree of home-country bias still
makes sense
• Right balance between domestic
and international stocksImage Credit: Freepik
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What’s The Right Balance?
US, 25%
Europe, 25%Singapore, 20%
Japan, 15%
China, 10%
Hong Kong, 5%
Diversified Stock Portfolio Sample
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What Are Your Options?
Country Percent ETFs Stocks
US 25 iShares Core S&P 500 ETF (NYSE) US stocks (NYSE, NASDAQ)
Europe 25 db x-trackers MSCI Europe Index UCITS ETF (SGX) ADRs (NYSE, NASDAQ)
Singapore 20 Nikko AM Singapore STI ETF (SGX) Singapore stocks (SGX)
Japan 15 db x-trackers MSCI Japan Index UCITS ETF (SGX) ADRs (NYSE, NASDAQ)
China-H
10
Hang Seng H-Share Index ETF (HKEX)
China stocks (SGX, HKEX)
ADRs (NYSE, NASDAQ)China-A iShares Core CSI 300 Index ETF (HKEX)
China (All Shares) Xtrackers MSCI All China Equity ETF (NYSE)
Hong Kong 5 Amundi Hang Seng HK 35 Index ETF Fund (HKEX) Hong Kong stocks (HKEX)
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Stock Investment Ideas
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1. Fu Shou Yuan (HKEX)
• Largest player in China’s highly
fragmented death care industry
• Robust growth over past few years
amidst China’s fast ageing population
• Scarcity of cemetery land in China
unable to cope with the rising number
of deaths: strong pricing power
• Increased demand for premium
funeral servicesSource: Bloomberg, iFAST Compilations
77
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2010 2011 2012 2013 2014 2015 2016
Strong Profit Growth And High Margins
Adjusted Net Income (RMB bil, LHS) Gross Margin (%, RHS)
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1. Fu Shou Yuan (HKEX)
• China has the largest population in the
world, but elderly population has
grown substantially over past 20 years
• Growing base of elderly people
represents future demand for death
care services: 10 million annual
deaths and more than 150 million
people over the age of 65
• Significant market potential
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China's Population Is Ageing Rapidly
65 And Above (%, LHS) Death Rate (%, RHS)
Source: Bloomberg, iFAST Compilations
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2. PT Telekomunikasi Indonesia (NYSE)
• Commonly known as Telkom Indonesia
• Largest telecommunications service
provider in Indonesia in terms of
market capitalisation and mobile
subscriber base
• Mobile business conducted through
Telkomsel (35.0% owned by Singtel)
• Also derives revenues from its internet
broadband and fixed line services
Mobile Operator Subscribers (mil)
Telkomsel 190.4
Indosat 97.0
Hutchison 3 64.8
XL Axiata 52.5
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2. PT Telekomunikasi Indonesia (NYSE)
Country Mobile Users (mil) Mobile Penetration (%) Smartphone Penetration (%)
1 China 1,365 96.9 51.7
2 India 1,128 87.0 22.4
3 US 417 127.2 69.3
4 Indonesia 386 149.1 20.7
5 Brazil 244 118.9 37.7
6 Russia 231 163.3 54.7
7 Japan 164 130.0 50.1
8 Nigeria 154 81.8 14.8
9 Pakistan 136 71.4 6.5
10 Bangladesh 126 77.9 5.2
Source: International Telecommunication Union, Newzoo
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2. PT Telekomunikasi Indonesia (NYSE)
Source: OpenSignal
Telkom Indonesia’s Mobile Coverage
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2. PT Telekomunikasi Indonesia (NYSE)
Source: OpenSignal
Indosat’s Mobile Coverage
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2. PT Telekomunikasi Indonesia (NYSE)
42.441.1
39.238.1
35.5
32.4 31.5
25.4 25.424.2
22.9
10.7 9.98.7 8.3
5.5
1.9 1.4
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30
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Fra
nce
So
uth
Ko
rea
UK
Ge
rma
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on
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US
Jap
an
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ly
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lays
ia
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Ph
ilip
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es
Ind
on
esia
Ind
ia
Fixed Broadband Penetration (%)
Source: International Telecommunication Union
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3. Guangdong Investments (HKEX)
Source: Guangdong Investment, iFAST Compilations
Data in HKD billions
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Hong Kong Water Supply Revenue
Water
Resources
62.2%
Property
Investment And
Development
10.8%
Department
Store
6.9%
Electric Power
Generation
8.1%
Road And
Bridge
6.0%
Hotel
Operations
6.1%
Revenue Breakdown By Segment (%)
Source: Bloomberg, iFAST Compilations
Based on FY2016 full-year results
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3. Guangdong Investments (HKEX)
• Strong track record of paying out
dividends: DPS has grown at
CAGR of 15.4% over past decade
• Highly cash generative: free cash
flows have been more than
sufficient to support its dividends
• Estimated dividend yield of
5.19% in 2018 Source: Guangdong Investment, iFAST Compilations
Data in HKD billions
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Strong Dividend Growth Track Record
Dividend Per Share FCFE Per Share
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Getting Started
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Open An Account With FSMOne!
Benefits of using FSMOne:
1. Competitive Fees:
• SGX: 0.12% (min SGD 10)
• HKEX: 0.12% (min HKD 50)
• US: 0.08% (min USD 8.80)
• All ETFs: 0.08% (subject to min. fees)
2. No platform fee for ETFs
3. No custodial charges
4. No charges for share transfers
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Conclusion
• Investors should consider adding foreign stocks to their portfolios
because of these reasons:
– Diversification ensures that our portfolios are not overly dependent on the
performance of Singapore’s economy
– Leverage on unique growth areas in the global economy
– Expands our investment universe to include stocks we cannot access on SGX
• Some degree of home bias makes sense, important to strike the right
balance between domestic and international stocks
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Disclaimer
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