Simon’s Letter from Singapore: The Wealth Factory

I already miss Japan. Only a little larger than New Zealand, it accommodates 127 million people. And it manages to be a pleasant place to visit.

It’s the little moments you remember. In the Lawson convenience store, the stupid Westerner (me) misses the queue sign. A Japanese lady near the front insists I take her place. On the train to the airport, a gentleman gives up his seat so our family of four can sit together.

 

Simon Angelo Singapore Universal StudiosSimon goes Universal. Source: Janet Angelo

 

We’ve just taken the kids to the Universal Studios theme park in Osaka. Yes, part of the joys of travelling with a 7- and 12-year-old. Amongst the staff, none of the weariness of their counterparts at Euro Disney. From Starbucks to McDonald’s, happy and attentive servers.

Singapore is different. More brash, fast-moving, sometimes anxious, and very loss-averse. Wealthy families used to having underpaid maids from the developing world at their beck and call. Sometimes under arrangements that resemble modern slavery.

But this is an island of prosperity and success. Generosity and hospitality. Family values. A place that has pulled itself up from an impoverished swamp into the Switzerland of Asia.

So, different from Japan. Every country has its good and bad. And we develop our soft spots, our biases for certain places.

The lessons of Singapore and Japan

Singapore has a similar population to New Zealand. But GDP is nearly 60% higher. Some of the transformation we’re starting to see in Trump’s America was evident in Singapore decades ago. Low business taxes. Light-touch regulation. Nurturing family units. A focus on building industry and export surplus.

But the most powerful lesson is the global approach. And you can replicate this in your own investment strategy.

As a global investor, from time to time, advisers raise the ‘Home Country Bias’ with me. Tipping it as an advantage. Because investors know their own country and can invest in their own currency.

This is somewhat less of an issue in large markets like the US, where the ‘Home Country’ tops 40% of global-equity markets. But in New Zealand, where our tiny market and currency is a fraction of world wealth, it may be a mistake.

Not only that, but New Zealand has a tiny domestic market. And an economy dependent on agricultural exports with a cappuccino housing market. A high-froth ratio.

Searching for productivity

Part of our much-hyped growth comes from importing consumption. We do that through some of the highest net migration rates in the OECD. With too little focus on rewarding productive business. Or reducing an overarching compliance burden on them.

So of course we have a housing crisis. When a government restricts the ability of its citizens to generate wealth. And imports it in, with each new import in need of a house, or car, or three.

But we do need some migration. To grow a skilled and expanding workforce.

Export productivity has been one of the tenets in Singapore’s success. The tiny nation specialises as an intermediary in global-supply chains. It imports basic goods, adds significant value, before exporting them to the world.

It has achieved this by building a skilled workforce and avoiding the Home Country Bias. Wealthy Singaporeans acknowledge that their country is small, and they look outward, investing worldwide.

In fact, one of our key Singapore stock picks (in our Lifetime Wealth passive income ideas) is expanding throughout fast-growing Asia.

Singapore crunch

Yet, like Japan, Singapore is now grappling with very low growth and an ageing population. A victim of its own wealth and success. GDP is hardly moving. 2019 growth projected at only 0.5%.

For the first time, the labour force is shrinking. And it could continue to do so rapidly over the next decade.

The US v. China trade war has also been terrible for Singapore. As an intermediary producer, it is a significant exporter to the Chinese manufacturing machine. And the slowdown there has bit hard.

We’re seeing a similar economic crunch to Japan. Slowing demand from China. Increasing Chinese competition.

Meanwhile, Japanese and Singaporean governments need a higher tax-take to pay for older citizens exiting the workforce. At the same time, they’re facing declining consumer spending and — in the case of Japan — maxed-out government debt (as a ratio of GDP).

Perhaps running high migration is the solution? Singapore seems open to it. Japan is still grappling with the issue.

A better solution

To me, both countries seem full to the brim.

The answer is a balance between New Zealand’s wholesale lifestyle sale and Japan’s population decline.

First, focus on the right growth environment for business. Reduce taxes on the productive. Stop the ‘healing harmers’ — those regulators that, in their promised healing, actually cripple. And grab with both hands the technological revolutions that will transform value across the globe.

Then work out where key skill shortages need to be filled.

Singapore appears to be heading in this direction. 2020 could be a better year. There are indications that the government will look to fiscal expansion, tax relief, and injecting foreign tech talent.

And there’s tailwinds coming in the semiconductor industry — a big one for Singapore, with 11% of the global-market share for semiconductors.

These tailwinds come in the form of AI, IoT, 5G, and a potential autonomous-vehicle revolution. This will fuel new semiconductor demand.

Seek global value

The lesson for investors is to diversify into growth industries and growth assets, wherever they may be on the globe.

Put aside the Home Country Bias. Use potential currency appreciation as a further return driver. And focus on value.

Great companies. Burgeoning technology. Global opportunity.

Indeed, when I interviewed for the job with Money Morning (part of Agora, Inc.) — which led us to Wealth Morning — a key requirement was a person with a global outlook. Someone who’d travelled the world. Invested in it. With an open mind.

Lessons from the theme park

Now that my children are getting older, Universal Studios Japan may be the last theme park I endure.

Don’t get me wrong. I love the rides. The movies. The creations. The innovation.

But the maths of some 50,000 people descending on 50 hectares in a single day creates its own issues. And you end up spending 100 minutes waiting in snaking queues to enjoy a 5-minute ride.

When you consider your ticket cost, overpriced lunch, overpriced hotel and transport — for the dollar-per-ride minute — you may as well flag the whole thing and go book yourself some hot laps in a Lamborghini.

You find yourself looking at those people without children (you know why those with children are there) and asking: Why?

Happiness and opportunity

I once got a surprising answer at Euro Disney, Paris.

During the end parade, there was a gentleman sitting next to me with a photo of himself and Mickey Mouse. Now, I know how much you pay for a special session with Mickey. My then-younger son had asked me for one. I’d refused, telling him I didn’t think he’d get any personal development from a one-on-one with the Mouse.

I made a furtive glance to the man’s Mickey photo. Maybe his kid was to the side? No, it was just him and Mickey. He must have been pushing 45.

Curiosity got the better of me. ‘Fan?’ I asked, gesturing to the photo.

Turned out he was from Moscow. And this was a symbol to him during the dark Soviet days of a happy American democracy.

We’re all coming from different places. Makes the world one hell of an interesting place. And certainly worth taking the time to understand and invest in its many opportunities.

So we’re tracking the best of them – including a key Singapore growth pick, Japanese tech climber, ASX and NZX opportunities, plus European and American value spots.

It’s been a very profitable ride. Minimal wait time. Managed risk. And we’re having a lot of fun in the process…

 

Regards,

Simon Angelo

Editor, WealthMorning.com

 


Simon is the editor of Wealth Morning and has been investing in the markets since he was 17. He recently spent a couple of years working in the hedge fund industry in Europe. Before this he owned an award-winning professional services business and online learning company in Auckland for 20 years. He has completed the Certificate in Discretionary Investment Management from the Personal Finance Society (UK), has written a bestselling book and manages global share portfolios.


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