[embedded content]Jordan: Hello again everyone, and welcome back to the Atlas Investor Podcast with Tiho Brkan. Thank you so much for joining us today for episode number 12.Tiho, my friend, it’s been a little while since we recorded our last podcast, and first I want to wish you a happy belated birthday. I know you were celebrating and taking some time off, some much earned and much needed time off. Tell us how that was, and which place you’ll be discussing today in episode 12. Tiho Brkan: Thank you so much for the nice wishes, Jordan. It’s good to be back. Yes, so I did a bit of a trip. I reside currently in Saigon, Vietnam, due to some economic and investment opportunities. It’s a country that’s booming and we’re going to cover it in the next few podcasts. We’re going to do an in-depth
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Jordan: Hello again everyone, and welcome back to the Atlas Investor Podcast with Tiho Brkan. Thank you so much for joining us today for episode number 12.
Tiho, my friend, it’s been a little while since we recorded our last podcast, and first I want to wish you a happy belated birthday. I know you were celebrating and taking some time off, some much earned and much needed time off. Tell us how that was, and which place you’ll be discussing today in episode 12.
Tiho Brkan: Thank you so much for the nice wishes, Jordan. It’s good to be back. Yes, so I did a bit of a trip. I reside currently in Saigon, Vietnam, due to some economic and investment opportunities. It’s a country that’s booming and we’re going to cover it in the next few podcasts. We’re going to do an in-depth view of Vietnam.
But I actually left for my birthday and I traveled to Singapore, which is a city which I absolutely love, and I have quite a lot of friends there. I think it’s worth discussion, because this is a unique city in the world, and what I’ve called a jewel in the Asia Pacific and maybe even in the whole world. It’s really a city that’s got just about everything right.
Jordan: Okay, Tiho. I know there are many things that we’re going to cover here with Singapore, but why don’t you start off by just sharing some general information?
Tiho Brkan: Yes, well, first of all, I’d like to say I’ve gotten some very nice feedback about these podcasts that we do. Somebody recently told me that it’s almost like a huge webinar. So yes, we’ll be discussing Singapore and I think this podcast is going to take it to another level, too, which is the standard that we want to aim for every time I visit a new country and discuss the opportunities, advantages, as well as disadvantages of the place.
So Singapore is a city-state and a country which is a basically a city with a small land mass. It’s located at the bottom of the Malaysian jurisdiction, and very close also to Indonesia too. So it’s right in the Asia Pacific or Southeast Asia region. It’s right on the equator, too, so it’s very hot, Jordan. If you do like cold, just come for a holiday, get a bit of a tan and then go back, because you’ll be sweating every single day.
The population of Singapore is 5.6 million. It’s predominantly Chinese, but there’s also a mix of Malays, as well as Indians and, I guess, other ethnic groups as well, including a lot of expats these days.
The Singapore economy is getting close to about half a trillion dollars in United States dollars, and the GDP per capita is $55,000. So the living standards are pretty good. But we’ll discuss a little bit about that later.
Also, Singapore is quite famous for a lot of things, Jordan. First of all, it’s a green city, it’s a tech city, it has one of the world’s biggest ports, it’s very friendly for business, it’s very friendly for taxes, it has great architecture and these days it hosts some major events. So, quite a lot of things are going on in Singapore. It’s great for food and it’s great for shopping. So it’s hardly a place that somebody could come to and say, “Well, I’m not really interested to spend too much time in Singapore, ’cause there’s nothing for me to do.”
Singapore offers plenty of things to do for tourists. And therefore I’m not surprised to see that it’s one of the most visited places on the planet with over 17 million tourist arrivals every year. So, all in all, it’s a very interesting place.
Jordan: Okay. Tiho, you said it’s great for many things there but is it still a great country for investors?
Tiho Brkan: Well, it depends on the cycle. That’s a good question. The goal of an investor is to buy low and sell high, so it isn’t, in my opinion, about what to buy, it’s about when to buy it, as my mentor always used to say. So Singapore is a pretty liquid market and it’s a pretty open market. The ease of doing business is very easy, and Singapore basically has an open currency, a stock market ETF as well as the stock market exchange locally, which is open to all investors. It has a very interesting property market, which maybe has become quite overpriced over the last 10 years. But nonetheless Singapore is very interesting to investors, Jordan, so yes.
Jordan: Okay, so let’s discuss some of the advantages and disadvantages of Singapore before we get into more specifics about investing and doing business in Singapore.
Tiho Brkan: Of course. So we are looking from a perspective of living there. Let’s say that you were an expat willing to move to Singapore, what are some of the advantages and what are some of the disadvantages?
In my opinion, banking, taxation and the ease of setting up your business if you want to be on the private side of things. Singapore has a huge advantage there. Corporate taxes are 17%. Singapore also has a territorial tax system. I’m not sure if some of my listeners are familiar with that, but maybe we’ll get more in-depth about that in some other episode. The individual tax rate is pretty low even though the highest tax rate is 22%. It has different brackets, so the more you earn, you slowly go up the tax rate bracket, so the effective tax rate, I think, is still much lower than 20% if you’re earning something like a quarter of a million dollars a year.
Value added tax, which they call GST, similar to Australia, is 7%, but there has been talk of government movement of changing that, so that might move to 10%. So this is basically a sales tax. And Singapore doesn’t tax dividends and it taxes interest at 15%. And it also has quite a lot of tax treaties which are very useful.
When it comes to banking, Singapore has, I think, three out of the fifteen safest banks in the world, and I use Singapore banks for my work as well as my personal use. The three most famous banks in Singapore are DBS, OCBC, and UOB, and also Citibank, which is an American bank, is also quite prevalent in the area. So, quite interesting.
Also, another advantage if you’re a Singapore born and raised person, or if you end up moving there, (becoming a permanent resident and eventually you opt-in to become a Singapore national), is that their passport is now number one in the world. It’s the most powerful passport. It offers 180 visa-free and visa on arrival travel. So basically you can even go to China without a visa, United States, Australia, the whole of Eurozone including the UK and a lot of African states and the whole of Latin America. So there isn’t almost a place that you can’t travel to, including the whole Southeast Asia, which is neighbors with Singapore and has good relations with. So, from all of those aspects, Singapore offers quite a lot of advantages.
Disadvantages, I think, are the following: First of all, Singapore is suffering from its own success, because it’s become such a safe haven, both financially as well as in other ways. There’s been a large number of expats moving there. So the Singapore authorities have clamped down on that and the success rate of getting approved to get permanent residency has fallen dramatically in the last five years or so. So it’s very difficult to migrate to Singapore these days unless you are very wealthy or you have a very highly specialized skill.
Also, due to the fact that so many migrants have been moving to Singapore, in particular, those that get higher wages and salaries, this has pushed the living standards and the cost of living itself up very high. Singapore is also trying to reclaim a lot of land, because it doesn’t have a lot of space. For example, when we look at Gardens by the Bay or the Marina Bay Sands, these are the famous icons of Singapore. They’re all built on the reclaimed land. So you can imagine that if there is not enough supply of land, property prices are also quite high. So this is sort of suffering from your own success by pushing up the cost of living standards and so forth.
Jordan: Very interesting. And I was going to ask how difficult it is to obtain the passport there, but I think you answered it. You said that it’s a lot more difficult now than it was decades ago.
Tiho Brkan: Yes. And one thing that I would like to add, to some people, obtaining a Singapore passport, even though it’s now become number one in the world, is probably not desired, because Singapore doesn’t recognize dual citizenship, like for example the United States would or Canada does or, I’m an Australian, and so Australian does. And I have several passports in my name. So, if I was to become a Singapore permanent resident, live there enough and then opt to become a Singapore national, I would have to give up all of my other passports and that’s not something that’s desired, unless you are trading a very, very low-quality passport, let’s say from a neighboring country of Vietnam or so forth for a Singaporean passport. In that case, it’s perfectly desired.
Jordan: Right. Now, one last thing, ‘because I want to get into the economy there, but, well, I guess this leads into the economy, but the standard of living in Singapore as you noted, is at the highest in the world right now among major countries. I know you touched on that a little bit. Can you add some detail?
Tiho Brkan: Yeah. So, we discussed GDP per capita, which is the measurement that I like to prefer, but other economists also look at purchasing power parity. GDP per capita, so on that level in that measurement, Singapore is not at 55,000, which is what I said before, but it’s actually at 85,000.
So, at 55,000, Singapore stands similar to the United States, but on purchasing power parity, it’s at 85,000 so the standard of living is much higher than the United States, and much, much higher, more than double that of neighboring Malaysia, which Singapore gained independence from a while back.
So, yes, Singapore has probably one of the highest, if not the highest standard of living. But that also comes at a price, Jordan.
Jordan: And, in your opinion, that price would be?
Tiho Brkan: I would say, basically, the cost of living, while not as high as some of the more prominent cities around Europe and Northern America, the cost of living in Singapore has been rising dramatically, and depending on the standard of living that you’re after, particularly if you have a family with kids which go to school or university, that cost of living can be quite high.
The cost of living that we’re going to be measuring from now on during this podcast, as I continue to have adventures on the road, is by using New York City as the benchmark. That’ll always be at 100, so we can compare New York City relative to other cities. The regular listeners of the podcast, as well as the readers of the website, will know that I recently traveled through Eastern Europe. So if you’re watching the YouTube channel right now or reading the website you can actually see the comparison of previous podcasts where I was visiting; including Belgrade in Serbia, Zagreb in Croatia, Budapest in Hungary, Prague in the Czech Republic and Berlin in Germany. So the cost of living in Eastern Europe is about half of that of New York. Berlin, being Western Europe, depending on which year you pick, by the way, before the Berlin Wall fell, it was Eastern Europe and now it’s Western Europe, but that is about 74% of what the cost of living is in New York.
Now, Singapore, which is the current episode we’re doing and the city that we’re discussing, is pretty close to New York. And depending on the measurements, I think you can’t get the data perfect, but in some cases, it’s even more expensive than New York. Especially, I would say, maybe for medical and health care costs and so forth, because the prices can be quite high there. But Singapore, as I said, is suffering from its own success and the cost of living has risen dramatically in the last 10 to 15 years. So the cost of living in Singapore is about 90 to 95 percent, in my opinion, of what the cost of living in New York City is.
Jordan: Right, so just to button up that issue, basically what we’re saying here is it’s extremely hard to find value there. I mean, there’s very little value.
Tiho Brkan: Correct. But that depends on who we are talking about. If we’re discussing a lifestyle for high net worth individuals that have in excess of maybe five million of net worth or even ultra high net worth individuals of thirty million dollars or more, this is a perfect city for them to live, because Singapore offers the best of education, the best of health care, great low taxation for those individuals who don’t want to pay high taxes in the first place. And the quality of life, the standard of living, the restaurants, the bars, the weather, you can swim all year round, is excellent. The property is spectacular there, so even though it’s priced decently well as we will discuss soon, for what you get, I think the quality of life there is still better than a lot of the European cities, as well as Northern American cities.
So I think Singapore has basically adjusted to those levels because the quality of life has also caught up, if not surpassed, those cities that we regularly talk about including London or Paris or Zurich or New York or Los Angeles. For those that have visited Singapore, I’m sure they understand that it’s an extremely safe city for the family as well. To raise your kids in a place like Los Angeles relative to Singapore, well, for me it’s a no-brainer.
Jordan: Great points, Tiho, yeah. There are some important distinctions there. But be careful, I hope we don’t turn off too many of our listeners in Los Angeles. I haven’t checked, I don’t know if we have any, I’m sure we have a few.
Tiho Brkan: I’m a huge fan of surfing, so that’s not a possibility at all. Once I travel to Los Angeles and we cover that, maybe we’ll have a screenshot of me catching a few waves and getting dunked and then sucking up some water and just trying to breathe. As I get older now– you just wished me a happy birthday..it’s not as easy as when I was 18, I tell you.
Jordan: Yeah, I hear you on that. Anyway, Tiho, moving on, let’s talk about the Singapore economy. Can you let us know how it’s been performing in the last five or 10 years or so?
Tiho Brkan: Sure, well Singapore economy has done pretty well. We’ve recently had a slowdown together with the rest of Asia around 2015, 2016 period, and the growth rate in Singapore fell from about three percent down to 1-1.5%. But this year and last year its had a pretty strong recovery and is currently growing at about 3-4% on an annualized basis. Singapore has enjoyed pretty good recovery out of that. And obviously, that’s reflected in some asset classes as well as the Singapore GDP per capita, especially on purchasing power parity, as I said earlier is the highest standard of living in the world.
However, it’s not a very rosy picture everywhere. Singapore doesn’t do a lot, and this is what a lot of people complain about when you’re talking about Singapore. They always say, “Well, what do we have? What do we have to export? What do we make?” Singapore does a lot. In some ways, they don’t see it, but they’re talking about the old school economy, the old economy similar to China, South Korea, Japan and so forth. And from that aspect as well, when talking about exports, Singapore exports have stalled, basically, since 2008. They had a big crash during the global financial crisis, and then they had a sharp recovery into 2010-11. From that aspect, we’ve stayed there and we haven’t really made any higher highs. We haven’t seen the growth that Singapore experienced in the early 2000s when it came to exports, where we saw more than a doubling, almost a tripling in exports.
Over the last decade or so, it’s really been a lost decade and in some ways a lost decade for asset classes such as the stock market. But, luckily enough, as we’ll discuss later, the Singapore stock market has a very high dividend yield. So on a total return basis, it continues to perform decently well. But sticking with the economy, the unemployment rate remains pretty low and it even remained pretty low during the Asian financial crisis of 1998 as well as during the global financial crisis. Asia was in quite a bit of turmoil then. So generally speaking, the Singapore economy is powering along, but not as strong as it was prior to 2007.
One of the interesting things that I’d like to talk to you about, Jordan, is foreign direct investments into Singapore.
Jordan: Yeah, Tiho, can you tell us why that’s still growing?
Tiho Brkan: Well, exactly, unlike the exports and other parts of the economy, that is growing. So Singapore is becoming a bit of a hub for quite a few things. First of all, in Asia it’s becoming an investment hub for private equity, for venture capital, for startups and unicorn developments and technological developments. Singapore is trying to, in some ways, not copy, but kind of use the formula of Silicon Valley and San Francisco, and establish itself as the leading setup place for startups in Asia. So it’s attracting a lot of money from that aspect.
It’s also attracting a lot of funds from China and in particular Chinese investors are coming in and purchasing various asset classes like private equity venture capital funds we said but in particular real estate and starting up their own businesses. And the Chinese government is also investing quite a lot of money into Singapore. And this is the Belt and Road Initiative, the OBOR, and Singapore is mainly getting the bulk of the infrastructure investment that China is so far putting out for the Belt and Road Initiative. Singapore is also the main harbor for a lot of the transportation, and the main port for a lot of the oil and refining that happens in trade around the region and world. So from that aspect, it’s a very strategic location, and China is investing a large amount of money there, too.
So those are the reasons, and finally, Singapore is becoming a bit of a gold Mecca. I’m sure you, coming from that sector of finance, Jordan, that’s very interesting for you. A lot of gold in Europe is moving towards Switzerland, it’s being melted down, refined into bars and coins and so forth and then moved from Europe towards Asia. And a lot of it’s coming to Singapore. So Singapore has very interesting gold laws for storing your gold and safekeeping your gold in safe deposit boxes. This is something that I also do in Singapore as I think every investor should have a certain part of their portfolio invested as an insurance policy. So from that aspect, Singapore is attracting a lot of funds that way.
And finally, like Switzerland and the gold safe haven, it’s also a financial hub of the world. So Singapore has a growing wealth industry, wealth management industry, and from that aspect, a lot of the capital is kept there, and a lot of capital continues to come there because banks are becoming more and more regulated. But Singapore is attracting foreign direct investment from all sides of the spectrum, Jordan.
Jordan: Okay, Tiho, now interest rates in Singapore have been very low like in many other places. How has this specifically impacted the overall Singapore economy?
Tiho Brkan: Well, sure. The long-term government bond yield in Singapore was around 5% at the beginning of the millennium; so way back in 2000 government bonds were yielding around 5%. Then it went as low as 1.3% in 2013 just before the taper tantrum, and Bernanke’s famous unwinding of the QE. And currently, Singapore government bonds on the long-term maturities are sitting lower than the United States 10-year bonds. So they’re just slightly below 2.5%. And the short-term rates are still below 1%. For the majority of the aftermath of the global financial crisis, they’ve been basically sitting at zero percent.
So with such low interest rates, there are some advantages and also some disadvantages. The advantages were that Singaporeans had a not so high burden of maintaining and refinancing some of the debt that they had on the books. And this, by the way, goes for the households, this goes for the government and this is also relevant for corporations there. On the other hand, because interest rates have been so artificially suppressed for such a long period of time, (and this is mainly due to all the central banks around the world), we’ve seen Singapore Government take on a large amount of debt that during this cycle, which is something that’s not desirable. Also, household debt-to-GDP in Singapore has also increased dramatically.
So, now it’s kind of like a permanent thing to see Singapore Government debt-to-GDP above 100%, which, in my opinion, is not a very bullish picture. Statistics do show that whenever a government has more than 100% of debt-to-GDP, It’s actually not very favorable for long-term performance of that economy because the burden of that debt just becomes too heavy to carry.
Furthermore, Singaporeans did not carry a large amount of debt themselves, but they’ve increased it by about 50% from 2009. So we’ve had less than 40% of household debt-to-GDP, and that’s now risen above 60%. That’s an increase of 50% during a cycle. So we’ve seen quite a lot of leveraging due to these artificially suppressed interest rates. And in my opinion, it’s a bit of a worry, in particular for the property market, which we will discuss later. Whenever the interest rates decide to rise back to more normal levels that we’ve seen at the beginning of 2000 is an issue. If that was to come, it’s going to be very difficult to service the debt for the government as well as households and corporations. So it’s a bit of a worry there, Jordan. And this is one of the disadvantages of low interest rates and one of the things that I would mark as a negative or a risk for Singapore.
Jordan: Okay, Tiho. So with that being said, before we move on to discuss assets in Singapore like stocks and real estate as you noted, can you tell us if there are any other advantages to Singapore and share anything else that we didn’t already cover?
Tiho Brkan: Well, not really. I think we’ve covered quite a lot. But advantage-wise I would say not really. It’s pretty easy to visit Singapore. There is no visa requirement for the majority of all of the European, northern, southern American, Southeast Asian, and even majority of the states in South Africa. So, from that aspect and from that point, I would urge everybody to travel to this financial Mecca of the world and a haven in Southeast Asia if you haven’t already and gone and discovered yourself. Write me back an email and tell me if I’m wrong or right and what you think about Singapore.
Jordan: Okay, Tiho. Now let’s discuss asset classes investors could use to place Singapore, and please let us know how those asset classes have performed over the last couple years in the longer term.
Tiho Brkan: Well, okay. Shall we start with property first? I think we start with the property then we’ll cover the stock market.
Jordan: Yes, that sounds good.
Tiho Brkan: Okay. So Singapore, on an average price per square meter for a two bedroom 120 square meter apartment is something like 120 square meters, but that’s probably like a three bedroom apartment in Asia (because in Asia more people live in tighter spaces than in the West). But a price of that apartment would be about USD $13,750 per square meter. That is not as expensive as some of the top cities in the world, but it’s getting there.
So for my American listeners and even Singaporean listeners, they use prices per square foot, so that’s about the US $1,300 per square foot.
So how does that compare to some of the other cities? Well, let’s compare it to New York first. New York has a higher price as it’s over USD $17,000 per square meter and interestingly enough, despite the fact that New York is priced higher, it actually has a higher rental yield. Singapore’s yields are very, very low at 2.5%. And in some cases, Singapore is a lot more expensive than I just discussed, especially in the center where the price per square meter goes to about US $30,000 or even more. And the yield that you get there is about 1%. So it’s much harder to actually rent these magnificent places than it is to purchase them.
So the price, relative to rent ratio, is quite high. But I would say Singapore is still priced okay relative to some cities such as, for example, Vienna, which carries a US $15,500 per square meter price tag and has 51 times price-to-rent ratio and a rental yield for the whole city (and we’re talking about the center here, of course), below 2%. So that’s extremely expensive in my opinion, and not a good return.
Singapore has been in an interesting cycle for property recently, because unlike Hong Kong, which is its neighbor and has just been flying higher, Singapore has been correcting slowly. This is due to some of the measures that the authorities in Singapore and the policymakers have put in place. First of all, they’re not letting in as many foreigners come and buy property, the leverage that they can use has been dramatically reduced, and just the ability to get financing to buy some of these expensive properties is becoming harder and harder. All of this has pushed demand down or suppressed demand artificially. Also, as we said, Singapore is trying to build more and more reclaimed land so the supply of land is just not there. So, over the last four to five years or so we’ve seen property prices in Singapore fall slowly, and correct by about 7% or so, which is not dramatic. But interestingly enough as of the middle of 2017, the cycle seems to be turning around. So I’m not 100% sure if that’s the true bottom, but it’s interesting to see that property prices are finally starting to rise again after a prolonged correction.
The Singapore authorities, Jordan, they will tell you that when you look at the Singapore residential property price index, prices are not much higher than in 1996, which is way back just prior to the major bubble in Asia during which Singapore property basically almost halved over the next couple of years into 1998-99. But I don’t really believe that too much, because if you go through the real estate agent data and if you have a look at some of the prices in the center of Singapore in more desirable areas (around Botanical Gardens, and on Holland Road and Bukit Timah area, which is where some of my friends live and also downtown, and around Clarke Quay and so forth), prices are maybe double of what I’ve discussed and the yields are half of what I’ve discussed.
So I’m not so sure how prices could be equivalent to 1996 level. I think the Singapore Government, just like any other government publishes data that can be used mainly to understand the trends, but not to trust the actual factual data. This is similar to the United States Government, the Chinese Government or any of the Eurozone governments. I don’t really believe the inflation data or the property data. It’s hard to believe because governments like to massage those numbers so they look very good.
Jordan: Right, now, before we get into the stock market, the last question: Do you own property in Singapore and would you consider buying and if so where in Singapore?
Tiho Brkan: Well I don’t own property in Singapore right now. I know my parents would love to live there for some part of the year and so would I, mind you. I would buy property in Singapore if the price declined, and as I said to you earlier, don’t tell me what to buy tell me when to buy it. Maybe I’m dreaming here, but let’s say we had a global financial crisis repeat (and during that period, I think Singapore property fell by about 15-20%), Singapore property would be, I guess, trading or priced at a similar level to 2008. That would be almost 12 years of no progress.
So, from that aspect, as long as Singapore remained open to foreigners, I would definitely consider buying it. And the areas that I would look at, as I said, if I’m still solvent during this financial crisis that might come up, I would definitely be looking at around Bukit Timah or Botanical Gardens. But I probably would be looking for a condominium or an apartment, because house prices there are astronomically high. This is where also a lot of the embassies are, and this is where a friend of mine, Jim Rogers, also used to reside and still resides in the same area. So you have to be a multi-gazillionaire to be able to afford some kind of property there. But, yes, I would definitely consider it if the price was to decline.
Jordan: Okay, Tiho. Now let’s move on and talk about the stock market. Does Singapore have an ETF? And if so, how has it performed in recent years?
Tiho Brkan: Yes, it does. It tracks the MSCI Singapore index and the ticker name is EWS. Singapore has performed pretty well over the last few years. We had a very sound bottom and a bottoming base between 2015 and middle of 2016, just as Brexit was happening. So Singapore did pretty well following that and this ETF, obviously, in the actual index, MSCI Singapore is priced in US dollars. This ETF is trading at, just recently, at new record highs just prior to the current correction that we are experiencing in February. So Singapore has performed pretty well on that timeframe.
However, Singapore has not done so well since the 2007 peak, just like emerging markets, just like Asian equities, and any kind of equity markets outside of United States. And this is predominantly due to the pricing of the US dollar. Obviously, as the US dollar rose, international stock markets priced in US dollars did not perform as well.
Looking at the longer-term cycle of Singapore, we notice it had a dramatic crash in 1997 into 1998, which included the Asian financial crisis and the Russian default. This is when Singapore declined by 70% and some neighboring countries like Malaysia and Indonesia declined by 90%. So that was a huge bust. If you were to buy Singapore equity market at the peak of that period, just before the crash, you wouldn’t have made a lot of money in the last two decades. You basically would have doubled your money and would have endured a dramatic amount of volatility including more than three drawdowns of 60%. But if you were to buy at the bottom of the Asian financial crisis, your returns would have been fabulous.
So, the question is always, Jordan, don’t tell me what to buy, tell me when to buy it. But Singapore has done pretty well recovering out of the 1998 Asian financial crisis as well as the follow-up crisis which was the September 11 and the dot-com bust and technology crash. And from its low in March 2003, as well as March 2009, Singapore has performed pretty well. It’s an interesting equity market because it’s not on the expensive side, Jordan.
Jordan: Yes Tiho. I want to talk about valuation. I love the charts that you produce with valuations, and just a reminder to all our listeners, you can listen to the podcast and view it on YouTube, where you can see these charts. Okay, Tiho. So talking about valuation, why don’t you discuss valuations in Singapore, your thoughts on that what the CAPE is right now and any other valuations if you’re tracking those?
Tiho Brkan: Sure. Well, as we’ve discussed, over the last two decades, Singapore hasn’t done dramatically well if you bought it in 1997 and held it until the beginning of 2018. It also hasn’t done that well since 2007 highs. It’s made a bit of progress, but nothing dramatic, because, after the 2007 peak, the price of the Singapore stock market crashed in March 2009. It went on to peak again in May 2011, and then we had the Eurozone crisis push the stock market down, and then we had another peak in early 2015 during which we had an emerging market slowdown and the Chinese stock market crash, which impacted neighboring Singapore, too. So from that aspect, Singapore has had three bear markets in the last decade. One of them was catastrophic and the other two were, not mild, but they were sizeable at more than 20%.
All of that long-term volatility has suppressed valuations because earnings and the economy continue to grow. Singapore is doing quite well, taxation is quite low and it’s attracting a lot of talent, it’s innovating a lot, and the productivity of Singaporean economy has dramatically improved since the ’90s. So, all in all, earnings for corporations have risen, and this puts the pricing of Singapore CAPE around 17. So this is, I think, pretty much half of United States’, Jordan.
So the valuations are quite interesting. And I think as of January 2016, Singapore was trading as low as, 12x, which was similar to March 2009, and similar to the Asian financial crisis, September 11 and dot-com bust. So the bottom for valuations tends to be about 11 to 12x on the CAPE ratio.
And that was a very smart time to buy. As a lot of my Singapore friends remember, that was a time when I was buying Singapore. Some of them were a bit hesitant to buy, ’cause they live in Singapore and they’re a bit more bearish than me, with all the things going on around them. I guess people taking out a large amount of debt and costs rising dramatically, made them maybe think that Singapore should have a bit of a bigger bust. But I always trusted data more than my gut feeling, and when valuations got low, it was time to buy.
Jordan: Now, just a quick follow up on that, Tiho, before we get to the currency. How does the valuation right now compare to the rest of the world? I mean, is Singapore in, would you say, like the top 20 or 30 percent as far as cheapest markets via CAPE?
Tiho Brkan: Well, yes. It’s one of the least expensive markets in the world based on both price-to-book as well as cyclically adjusted price-to-earnings. So, basically, for those YouTube watchers, I produced here a chart, which has a very cheap section and a very expensive section, and it’s a matrix of valuations between price-to-book and cyclically adjusted price-to-earnings. You can see Singapore falls into a cheap basket together with, let’s say, Brazil, Poland, Portugal, Russia, and Greece. On the very expensive side is Switzerland, the United States, and Denmark. Also expensive are Philippines, India and Sweden and Indonesia. So I would say Singapore is very attractive here.
Investors who are looking to expose themselves to Singapore should also keep in mind that the Singapore market is heavily connected to REITs. It has a lot of property, and that’s the reason why it has such a high dividend yield relative to other equity markets around the world.
So just remember the equity market is predominantly financial and REIT. So that’s what you’re buying when you expose yourself to Singapore. But it has a lot of other good companies, too. But generally speaking, it’s very cheap, Jordan. It’s very favorable and very attractive.
Jordan: Okay, Tiho. Now the last thing, let’s discuss the Singapore currency because if you’re considering traveling to Singapore or even moving there, doing business there, investing there, the currency is going to be an extremely important factor in that decision as far as your cost.
Tiho Brkan: Definitely. I mean, let’s do a couple case scenarios. The reason EWS has performed well is that despite the fact that the US dollar has been in the bull market since 2011 or even 2008 against the Euro and some other currencies, from that perspective, Singapore currency has not actually declined since 2008 and it’s only declined by a little bit since 2011. So similar to Swiss Franc, which is another financial hub in Europe, Singapore is a financial hub and a safe haven in Asia, and its currency seems to be reflecting that. So even though we have been in a prolonged period of US dollar strength, the Singapore currency has not weakened all that much. This has helped ETFs such as EWS because even if the local stock market doesn’t do amazingly well, the currency continues to hold its own, and therefore the total return including dividends continues to march higher.
Another case scenario would be if you were to expose yourself to some startups or even put some of the capital into private equity or venture capital funds in Singapore. This area of the economy is really developing. In this case, you will be basically exposing yourself in Singapore dollars. So you do have to track currency.
And finally, like a lot of the Chinese that are coming in and buying property, or have been at least over the last few years, you have to keep in mind that property is also priced in local currency. If the property market was to decline by 10% but the currency was to rise, it could offset some of that, maybe against the Chinese Yuan or against the European Euro or even against the US Dollar depending on where the capital came from or was borrowed under which currency.
So, generally speaking, the Singapore currency has been pretty strong, Jordan, and it really made a strong move just recently as well. As the dollar peaked in December 2016, it peaked against a lot of the currencies and it also peaked against the Singapore Dollar. And basically, the Singapore Dollar is now trading at similar levels to where it was in some parts of 2012 and 2011 and 2010. So not yet making new record highs against the US Dollar, but it’s getting pretty close. I’m not sure if it is going to continue to go in that direction. My crystal ball is not working today, but generally speaking, we are in a consolidation triangle from what I can see, and we have support and resistance well defined. So I assume Singapore currency will be consolidating for some time before it makes a major move.
Jordan: Okay, Tiho, so let’s wrap up this episode with some concluding thoughts from you on Singapore. And also I know you visited Jim Rogers, who is your friend and he’s obviously an extremely successful investor, very well known to probably all the listeners here. So tell us how that went, what you can share and in addition to that conclusion on Singapore.
Tiho Brkan: Sure. Well, I’ll start with Jim first. I’ve been learning from Jim and listening to Jim’s wisdom, reading his books and so forth and connected to him via email and WhatsApp for quite a few years, and I visited him first in Singapore, I think, when I was a much younger man. I’m still young, but I was a much younger man then. And he’s always been kind enough to spend some time with me, in some cases for several hours at a time, talking and learning from him and having interesting conversations. It’s never a dull conversation when you talk to Jim because he is a world traveler like myself and we have a lot in common. So, just pull out an atlas or a globe in front of us, and we will be all staring at it, discussing different countries, different opportunities and what we notice on our travels there and so forth. So in some ways, Jim has been a great mentor for me. And I can’t thank him enough. He’s also been a very successful investor, so it’s great to learn from somebody like that.
I think if you’re looking at the picture in YouTube you might be wondering what’s going on there. Just because Jim is a little bit shorter than me and my brother doesn’t mean anything because he’s larger than life and he has a great character to him and a great personality, and I really enjoy spending time with him.
And it’s not a fluke that people like Jim move to Singapore. This is basically what the whole podcast has been about. He has two daughters now and he’s moved there basically for them. And when I asked him if he was my age where would he go, well, he mentioned quite a few cities, which I’m not going to mention here, because we can do them in next podcast. But basically, they are frontier markets and frontier cities that are up and coming in the world and very, very interesting.
But, basically he’s moved there for his family, for the purpose of education and health care and safety and security, and that’s what Singapore offers. So, to conclude, I think it’s a wonderful place. I’ve visited Singapore more than 20 or 30 times, I’ve even lived there one time for more than six months with some breaks and visa runs in between. It’s a wonderful place that I really enjoy coming to every time, and I hope that the Singaporean Government, with the view that Lee Kuan Yew had all those years ago, continues to march in a similar direction to what was initially pushing Singapore to this success and they don’t forget their roots and they continue to develop, innovate and reform in ways that attract capital, talent, increases productivity and continues to be this great safe haven and jewel of the world.
So, I think one of the greatest cities on the planet. If you haven’t visited it, you ought to go. Pack your bags right now and go to Singapore for a week. So, I’m sure you’re going to enjoy it.
Thank you for listening to The Atlas Investor Podcast. To be notified of future podcast episodes, sign up for a free newsletter and visit our YouTube Channel. Tiho Brkan offers his clients a wide range of services, including portfolio construction and wealth management, one on one consultations, global real estate opportunities, international tax planning, citizenship and residency planning and one on one mentoring. For a free consultation, visit theatlasinvestor.com and contact Tiho Brkan.