Singapore
Along with Australia and Taiwan, we view Singapore as one of the most attractive developed markets within the region. Singapore provides a unique blend of developed and emerging market exposure: as well as offering developed market quality and corporate governance, it also acts as a gateway to large, growing emerging markets in the rest of Southeast Asia.
Singapore boasts the highest GDP per capita in Asia, arguably making it Asia’s most developed economy. It has a stable political system, and a progressive, well-functioning legal and regulatory framework, which is transparent and business friendly. It is home to a range of well-managed companies with strong corporate governance – many of whom are willing, and able, to pay out attractive dividends – and it is known worldwide as being a great place for expatriates to live and for businesses to operate from.
From a geopolitical point of view, Singapore is well positioned too, as it enjoys good relations with most of the world. Many multinational companies want to operate from Asia, and Singapore is increasingly becoming the preferred location for global businesses. It has been taking market share from Hong Kong, a trend that we believe is likely to continue, partly due to ongoing tensions between China, the ‘West’ and also many of its neighbours.
Singapore also functions as a gateway to Southeast Asia, offering exposure to large, growing emerging markets in the region like Indonesia, Malaysia, Thailand, the Philippines and Vietnam, while adhering to high governance and regulatory standards.
As we enter the fourth quarter of 2024, we expect to see some sharp two-way moves in markets. Despite the prospect the further loosening of monetary policy globally, many stocks seem to have priced in a lot. Though inflationary pressures appear to have eased, the next leg of this economic cycle may be tougher, and geopolitics presents a headwind. Nevertheless, we still expect to see growth in earnings and dividends coming from a good number of the companies that we hold, including the technology businesses, which are enjoying an AI boost to demand.
Technology
When looking at the opportunities in technology, we are most drawn to the developments in Artificial Intelligence (AI). Some in the market have raised concerns about AI in recent months. In the medium to long term, we believe strongly that AI will change the world, even more than it already has. The impacts of technological advances are not a one-year phenomenon that will die out in 2025, we view them as having a long-term impact.
However, we don’t need to wait until even the medium term to make the most of opportunities presented. In the shorter term, all five of the technology companies we own are already seeing increases in revenues and profits directly from AI – which is helping them increase their dividends today. We expect this trend to continue in 2025, 2026 and beyond.
Australia
There are now 1.5mn extra people in work in Australia that before Covid-19 in early 2020, an increase of c.20%. Most developed market economies are likely to see declines in their working-age populations over the coming decade, with implications for potential growth and dependency ratios. Morgan Stanley estimate that high-immigration programs like those implemented in Canada, Australia, and New Zealand over the past decade would meaningfully offset the decline expected in other high-income economies.
Furthermore, an impending wave of retirees is not a concern in Australia as it is for some other developed economies because of their significant wealth. UBS estimate that over the past year total retirement benefits paid reached a record high level of ~$160bn, +14% yoy; or equivalent to a ~11% share of annual household income. Despite this, the stock of total retirement assets still surged by ~9% yoy, to a record high level of ~$3.9tn; or equivalent to a ~147% share of annual nominal GDP. This is because the rise of contributions plus price returns is more than offsetting outflows (i.e. benefits). This is a positive structural story for the Australian consumer.
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