Singapore ETFs In Focus On Lifted Growth Outlook

singaporeSoutheast Asian economies, once a hot-destination for foreign investors, witnessed a rough patch after the taper-talk was set in motion. Slow growth in some of the key economies and the healing U.S. economy led to a sell-off in these markets.

However, the scenario seems to be turning around with a few economies in the region regaining some of the lost momentum. It is especially true for Singapore – the business center of Southeast Asia – which barely avoided recession last year and recorded 1.3% growth.

Lifted Growth Outlook

To reflect better-than-anticipated manufacturing and service sector data as well as overall growth in Q3, Singapore raised its GDP growth forecast for 2013 to 3.5%─4.0% from the previously guided range of 2.5% to 3.5%.

Singaporean economy grew an impressive 5.8% year over year in Q3, maintaining the trend of 4.4% growth logged in Q2. The GDP data in Q3 was also above the forecasted 5.1%.

Notably, the Singaporean government upgraded the growth outlook from 1–3% to 2.5%–3.5% for this year in September, following robust second quarter results. Successive raise in growth guidance surely inspire optimism around this island nation.

Visible revival in global markets helped boost the Singaporean manufacturing data while domestic demand was also pretty strong thus giving an impetus to the service and construction sector.

Cyclical sectors like financials and retail gained the most in the third quarter. Rising exports helped Singapore to record a trade surplus of 6.69 billion SGD in October, almost double year over year (see all the Asia Pacific Developed ETFs here).

The Ministry of Trade and Industry (MTI) expects this boom to continue in the fourth quarter as well. The economy is now expected to expand 2.0─4.0% in 2014 in anticipation of a slothful U.S. and Eurozone next year.

Also, continuing structural reforms in China and fiscal consolidation in some ASEAN economies might restrict export demand in 2014, thus impelling the MTI to have a moderate view on 2014 growth.

Market Impact

Given this slow-but-steady scenario, Singapore emerges as a preferred location for investment as far as South-East Asian investing is concerned. With a current account surplus at around 18.60% of GDP (in 2012), strong growth and foreign exchange reserves at about 337 SGD billion (in October 2013), the country is poised to remain afloat even in the long run.

Both the funds covering this economy’s equity market –  iShares MSCI Singapore ETF (NYSEARCA:EWS) and iShares MSCI Singapore Small Cap Index Fund(NYSEARCA:EWSS) – have had a bad stretch so far this year falling a respective 0.66% and 6.40% (as of November 26, 2013). Both of these funds hold a Zacks ETF Rank #3 (Hold).

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