Singapore is the best market for equities in Asean

We rank Asean’s bellweather Singapore economy as the most conducive market to invest in. While private equity investors have the luxury to delist, restructure and actively manage their targets, listed equity fund managers don’t. From our evaluation of Asean markets that offer the best risk reward opportunities for listed equity fund managers, we consider Singapore’s equities market the most attractive for the current 3Q11 quarter. Our assessment of Asean’s key markets by our DBS Group Research ranks Singapore as the most favorable market for equities in Asean.

Within Asean, Singapore companies are in a sweet spot to capitalize on rising income trends in both Asean and China. Singapore companies are best positioned to exploit rising income trends in both Asean and China. We believe Singapore companies are positioned favorably to tap on rising income and consumption trends in both Asean and China markets.

As Singapore is both western and Chinese influenced, companies are able to understand any increasing westernized consumption patterns in China and Asean. Singapore companies have the ability to understand consumption trends in Asean due to proximity and familiarity.

Asean Free Trade Agreement allows companies to expand into Asean markets with ease ( i.e. zero tariffs for movement of goods within Asean region ) Predominantly Chinese population, Singapore companies should have better ability to connect with the China markets, compared to non-Chinese competitors. Conducive business environment and legal framework in Singapore allow companies to establish a strong base to facilitate their launch into Asean and China markets.

Singapore companies probably more suited culturally to exploit Asean growth. While we recognize Hong Kong has a similar profile to Singapore, we believe that Hong Kong’s proximity to China would place its companies at the forefront of the China market. However, we also believe that their understanding of Asean markets will be less comprehensive than Singapore companies as they are further away from Asean. As such we think that Hong Kong companies will be less capable of exploiting the emerging Asean trend than Singapore companies in the next phase of growth. Furthermore, valuations are not cheap either to capture China’s growth potential.

Singapore companies culturally better equipped to grow in China. Singapore is a melting pot of cultures and ethnicity. Singapore’s openness to foreign cultures allows it to bridge between Asian and Western societies. Such openness and cultural diversity allows the society to better understand consumer preferences in markets regionally. Singapore has a Chinese majority and a predominant Chinese culture.

In terms of language and understanding of the China market, Singapore companies may be better positioned to grow their operations in China compared to companies from other parts of South East Asia, in our view. Therefore, we believe Singapore companies are better positioned to penetrate emerging markets of Asean and China compared to businesses outside the Far East due to their better understanding of regional culture and markets.