Although I primarily trade and invest in the U.S. stock market, recent developments have made me seriously consider adding Singapore-listed stocks to my portfolio in the future. There are several compelling reasons:
1. No Dividend Withholding Tax in Singapore
One major advantage of Singapore stocks is the lack of dividend withholding tax for local investors. In contrast, dividends received from U.S. stocks are typically subject to a 30% withholding tax for foreign investors. Over time, this tax can significantly reduce the effective yield on U.S. dividend-paying stocks, eroding potential long-term gains. For income-focused investors or those with large dividend portfolios, this tax drag becomes more noticeable and can alter investment outcomes.
2. Foreign Exchange Risks and Costs
As a Singaporean, I naturally hold most of my money in SGD. Investing in U.S. markets requires currency conversion to USD, which introduces two key issues:
-
Exchange Rate Risk: The value of currencies changes over time, and it’s hard to predict which direction it will go. Right now, the exchange rate between SGD and USD might seem good, but it could change in the future. For example, if the Singapore dollar becomes weaker against the U.S. dollar, converting USD profits back to SGD might give you more money. But if the Singapore dollar becomes stronger, you’ll get less SGD when converting back, which means your investment returns could be lower. This uncertainty adds risk when investing in foreign markets.
-
Conversion Costs: Currency exchanges often involve spreads and this may seem small but can add up, especially when moving large sums or trading frequently. These costs eat into profits and add friction to portfolio management.
3. Strong and Familiar Local Companies
Singapore’s stock market hosts many fundamentally strong and established companies. These include:
-
Banks: DBS, OCBC, and UOB – well-capitalized and regionally dominant.
DBS (D05.SI)
ocbc bank (O39.SI)
UOB (U11.SI)
-
Telecommunications: Singtel
Singtel (Z74.SI)
-
Consumer Staples: Sheng Siong – a popular local supermarket chain with stable demand.
Sheng Siong (OV8.SI)
These are businesses I’m familiar with as a consumer and resident. This familiarity can provide an edge when analyzing business performance and long-term potential. If their share prices correct to more attractive valuations, I may consider taking positions.
4. Lower Volatility and Stability
Compared to the U.S. markets, I find Singapore stocks generally less volatile. While this might imply fewer trading opportunities, it can be a benefit for risk-averse investors like myself. The relative price stability can offer peace of mind and make it easier to hold positions through uncertain periods.
5. Challenges: Valuation and Market Size
That said, one challenge I might face when looking at SG stocks is valuation. Many of the names I’m interested in currently appear expensive or fully priced. It’s difficult to find a good entry point without feeling like I'm buying at a peak. Additionally, the Singapore market is smaller in size and liquidity, which can limit opportunities compared to the U.S. market.
6. Diversification Still Matters
Despite these advantages, I have no intention of abandoning the U.S. market entirely. The U.S. remains home to many of the world’s most innovative and high-growth companies, especially in technology, healthcare, and AI. Global diversification is crucial for managing risk and capturing opportunities across geographies and sectors. My goal is to complement my U.S. holdings with SG stocks—not replace them—thereby building a more balanced and resilient portfolio.
Conclusion
With the recent earnings lift in SG stocks and the structural advantages of the local market—especially for Singapore-based investors—it makes sense to keep an eye on opportunities closer to home. If valuations normalize and more favorable entry points emerge, I might be open to adding select Singapore stocks to my investment strategy, all while maintaining a global and diversified approach.
Comments