Diversifying Your Stocks Portfolio Beyond Singapore · Telkomsel (35.0% owned by Singtel) • Also...

Diversifying Your Stocks

Portfolio Beyond Singapore

You Weiren

Senior Analyst, Stocks and ETFs Research

6 January 2018

In This Presentation

• Why Should Investors Consider International Equities?

• Building A Diversified Stocks Portfolio

• Stock Investment Ideas

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

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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 (%)

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

Why Should Investors Consider

International Equities?

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

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Economic Cycles Impact Stock Markets

Straits Times Index (LHS) Singapore GDP YoY (RHS)

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

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

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

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25.0

30.0

35.0

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Vietnam China-H Hong Kong India Turkey South Korea Singapore

Total Returns In 2017 (%)

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

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

3. Expands Your Investment Universe: FAANG

Image Credit: Strong Tower Associates

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

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


Performance indexed to 100, in SGD terms as of 27 Dec 2017

Building A Diversified Stocks Portfolio

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

What’s The Right Balance?

US, 25%

Europe, 25%Singapore, 20%

Japan, 15%

China, 10%

Hong Kong, 5%

Diversified Stock Portfolio Sample

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)

Stock Investment Ideas

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

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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)

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)


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


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


Source: OpenSignal

Telkom Indonesia’s Mobile Coverage


Source: OpenSignal

Indosat’s Mobile Coverage


42.441.1

39.238.1

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Fixed Broadband Penetration (%)

Source: International Telecommunication Union

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

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Revenue Breakdown By Segment (%)


Based on FY2016 full-year results

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

Getting Started

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

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

Disclaimer

All material and content are strictly for informational purposes only and should not be considered as an offer, or solicitation, to deal in any of the funds or products found in this presentation. While iFAST Financial Pte Ltd ("IFPL") has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies and typographical errors. Any opinion or estimate contained in this presentation is made on a general basis and neither IFPL nor any of its servants or agents have given any consideration to nor have they or any of them made any investigation of the investment objective, financial situation or particular need of any user or reader, any specific person or group of persons. You should consider carefully if the products you are going to purchase are suitable for your investment objective, investment experience, risk tolerance and other personal circumstances. If you are uncertain about the suitability of the investment product, please seek advice from a financial adviser, before making a decision to purchase the investment product. Past performance is not indicative of future performance. The value of the unit trusts and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our full disclaimer in the website.

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