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It’s Time to Expand Your Investment Horizon

·6-min read
Man Looking at Horizon
Man Looking at Horizon

There’s no place like home.

While Singaporeans are known for their love of travelling, nothing feels as good as coming home to lay your head on your pillow.

Our homes always hold a special place in our hearts as our memories are inextricably tied to them.

The same happens often in investing, too, and is known as “home bias”.

Many young adults choose familiar local names when they start investing their first paycheck.

These names typically belong to blue-chip companies that their parents have talked about most of their life, such as DBS Group (SGX: D05), Keppel Corporation Limited (SGX: BN4) or Singtel (SGX: Z74).

What some may not realise is that the local bourse is just a tiny microcosm of a much larger ecosystem.

Yes, I am talking about the world outside of Singapore and what it has to offer.

By restricting our investment choices to local stocks, we miss out on valuable opportunities to capture growth and diversify our investment portfolio.

My journey of personal discovery

When I first started investing back in 2005, I was the proverbial frog in the well.

Looking up at the small slice of sky above me, it felt as though there were a myriad of companies to select from.

Real estate investment trusts (REITs) had just come to market, and I eagerly snapped up units of Suntec REIT (SGX: T82U) which I still own today.

Oil and gas services were the hot sector back then, and so I purchased shares of Ezra Holdings Limited, then a red-hot player in the offshore support services sector.

And telecommunications player StarHub Limited (SGX: CC3) had just launched its IPO in September 2004, offering investors another tantalising investment option in addition to Singtel and M1.

My thinking back then was that many local companies do have operations in other parts of the world.

Ezra Holdings leased out its offshore vessels to US-listed oil majors, while conglomerate Boustead Singapore Limited (SGX: F9D), an engineering specialist, had taken on projects in 71 countries globally back in 2006.

However, StarHub remained a local player and Suntec REIT had, at the time, only Singapore-based assets such as Suntec City Mall and Suntec City Convention Centre.

It took a while for me to venture out into other markets.

The familiarity of local names felt like a comfortable cushion that I could rely on.

Little did I know that this preference was preventing my portfolio from achieving its fullest potential.

A quick comparison

Singapore Exchange Limited (SGX: S68), or SGX, has a total of 671 listed companies with a market capitalisation of S$914.2 billion as of 31 October 2021.

While the above may sound like a large number, consider the two more liquid markets in the US – the New York Stock Exchange (NYSE) and the NASDAQ Stock Exchange.

The NYSE has over 2,300 listed companies that are worth around US$28.8 trillion in market capitalisation.

The NASDAQ has even more companies than the NYSE, with 3,700 businesses worth a total of over US$19 trillion.

When combined, these two markets have a total of 6,000 companies worth an impressive US$47.8 trillion.

That’s nearly nine times the number of companies listed on SGX, with a market capitalisation that’s more than 52 times larger.

And the amazing thing is these statistics belong to just one country alone.

If we turn our attention to Chinese stocks, the Hong Kong Stock Exchange alone has 2,205 listed companies worth a total of HK$45.1 trillion.

These examples alone illustrate just how minuscule the SGX is in the larger scheme of things.

And while the companies listed here do have overseas exposure in some form, they can’t beat the breadth of offerings that other bourses can provide.

A wider spread of businesses

In the middle of last year, I made the move to invest in overseas-listed companies for the first time.

It may seem like a belated move, but I believe that it’s never too late to start learning and pivot away from local stocks if there are more opportunities elsewhere.

Forgive the cliché, but after making my first investments in the US market, I never looked back.

There is a much wider spread of businesses available in other markets that just cannot be found on the local bourse.

Take technology, for example.

There’s social media company Meta Platforms (NASDAQ: FB) and Google parent Alphabet (NASDAQ: GOOGL), both of which tap on the internet and the cloud to offer a wide variety of services to their customers.

And let’s not forget the other elephants in the room — e-commerce behemoth Amazon (NASDAQ: AMZN) and iPhone manufacturer Apple (NASDAQ: APPL).

Nothing in Singapore quite compares to the scale of these trillion-dollar businesses.

Then there’s also the pharmaceuticals sector anchored by companies such as Pfizer (NYSE: PFE), a household name by now, and Moderna (NASDAQ: MRNA).

There are also medical device companies such as Abbott Labs (NYSE: ABT) that manufacture the antigen rapid test (ART) kits that we use to determine if we have been infected by COVID-19.

Even our northern neighbour, Malaysia, has a wider range of companies on offer that we cannot get exposure to if we are stuck to just Singapore companies.

There’s the chance to invest in an airport, Malaysia Airports (KLSE: 5014), and also a lottery business in Berjaya Sports Toto (KLSE: 1562), opening up options for the intrepid investor that they may never have thought of.

Opportunities galore

If you are more of an income-focused investor, you can also tap on dividend growth in US companies that make their Singapore counterparts look pale in comparison.

Diversified engineering components manufacturer Leggett & Platt (NYSE: LEG) has increased its annual dividend for 50 consecutive years.

Similarly, global consumer products company Procter & Gamble (NYSE: PG) has increased its dividend by an impressive 65 consecutive years.

And then there are the stalwarts such as Post-It producer 3M (NYSE: MMM) and toothpaste specialist Colgate-Palmolive (NYSE: CL).

3M has paid out uninterrupted dividends for more than a century while Colgate-Palmolive has an unbroken dividend-paying track record stretching back to 1895. 

Get Smart: The world is your oyster

When looking for investment opportunities outside of Singapore, the world is truly your oyster.

However, after all that’s been said, we should not completely neglect our home market.

I have a friend who displays a strong disdain for Singapore stocks that I feel is unjustified.

Local stocks may not have the same growth characteristics as their western counterparts, but if you look closely, there are gems to be unearthed.

Owning stocks on other bourses comes with its own set of risks such as estate duties, capital gains taxes and withholding tax (on dividends).

Singapore stocks, on the other hand, are exempt from income taxes and the government has also abolished estate duties since 2008.

Ultimately, you have to structure a portfolio that’s balanced and that you feel comfortable with.

Having a mix of Singapore and foreign stocks can thus offer you the best of both worlds.

Note: An earlier version of this article appeared in The Business Times.

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Disclaimer: Royston Yang owns shares of Meta Platforms, Alphabet, DBS Group, Singapore Exchange Limited, Apple, Suntec REIT and Boustead Singapore Limited.

The post It’s Time to Expand Your Investment Horizon appeared first on The Smart Investor.

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