My Favorite Investment in the World's Newest "Sweet Spot"

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Having lived in Singapore as a child I've always been fond of Southeast Asia.

Fifty years later, though, I like it for a slightly different reason. It's become a place where I like to invest.

In fact, I believe the region is the world's newest "sweet spot" for investors.

Of course, you don't hear much about the economies of Southeast Asia. Given the media's penchant for bad news, that alone should tell you something.

But unlike the U.S., Europe, China, India and Japan, the region is doing just fine, which is why you should consider putting some money in places like Malaysia and Singapore.

In fact, in a moment I'm going to tell you what my favorite company in the region is.

First, though, I'd like to give you a first-hand glimpse of the ongoing economic miracle in Singapore.

Because one thing is for certain: The place is gigantically richer than it was when I lived there as a child.

Needless to say, so much has changed since the new independent government took over from British rule.

At the time, most of our neighbors in Singapore were fearful of the change, and for good reason. Independence in other countries, notably India, had brought nothing but trouble and bloodshed.

However, my father reassured us. He said the new leader, Lee Kuan-yew, was both sensible and very able, so things would be fine.

Admittedly, father was no great shakes when it came to investments, but by George he knew his stuff on geopolitics. In the 50 years since then, Singapore has been just about the most successful society on earth.

According to The Economist, Singapore is expected to grow 3.1% in 2012 and 4.3% in 2013– very decent figures for such a rich country. That is roughly 50% faster than what The Economist team expects for the U.S.

Of course, there are several poorer emerging markets in Southeast Asia. Indonesia, Thailand, Vietnam and the Philippines all have their advantages, but the one I like most is Malaysia.

Apart from a stable, mostly sensible government it has a nice economy that's well balanced between resources and manufacturing– so it does well regardless of whether commodities prices are going up or down.

Malaysia has GDP per capita of $15,600, about half that of South Korea, and is ranked 53rd on the Heritage Foundation's index, 60th on Transparency International's index and 18th on the World Bank Ease of Doing Business – the latter is a very good rating indeed for a middle-income country.

It's one of the reasons why my favorite Malaysian investment is a company called Sime Darby Berhad (PINK: SMEBF).

Sime Darby engages in plantations, property, industrial, automobile agencies, energy and healthcare businesses worldwide, although the principal focus of its activities lies in Southeast Asia.

It is, for example, the world's largest producer of palm oil, which has been climbing in price recently.

In the nine months to March 31, Sime Darby's net income was up a robust 30% over the previous year, at $1 billion.

With a historic P/E of about 13, that makes Sime Darby a bargain. With the projected growth this year, investors can pick shares of Sime Darby up at just 10 times earnings.

Another "Must-Have" in the Region

But the home of my youth is not the only place for investors in Southeast Asia.

The other "must-have" destination is South Korea. Admittedly it's a bit far north geographically, but it's Southeast Asian in spirit as well as a great place to put your money.

South Korea is also a fairly rich country. It's not as rich as Singapore but it does have decent ratings on the three global surveys. For example, it's eighth on "Ease of Doing Business."

Like Singapore, it has more or less completely avoided the twin economic madness of the last few years – central banks that print too much money and governments that spend too much.

Perhaps its greatest difference from us is its budget balance. South Korea is running a surplus of 2.7% of GDP – in an election year!

With huge strengths in manufacturing, and technology and government spending that's the lowest in the OECD club of rich nations, South Korea's well worth some of your investment dollars, especially as the market is quite cheap, on a P/E of about 12.

Yet while many Southeast Asian companies have listings outside their home country, most of them are listed on the London exchange rather than in New York. For that you can thank the Sarbanes-Oxley legislation.

As a result, the easiest way to participate in these markets is through exchange-traded funds. They include:

  • iShares MSCI Singapore index ETF (NYSE:EWS)
  • the iShares MSCI Korea Index ETF (NYSE:EWY)
  • the iShares MSCI Malaysia ETF (NYSE:EWM)

The Singapore and Korea ETFs have over $1 billion in capitalization and the Malaysian ETF carries an $870 million market cap, so they are all plenty liquid. They also have low expense ratios, in the 0.5%-0.6% range, so your money won't be frittered away in costs and fees.

Good management, dependable growth and the avoidance of the all the West's mistakes. When it comes to your investments, you really can't beat Southeast Asia!

Join the conversation. Click here to jump to comments…

  1. John Kierzkowski | June 22, 2012

    I am already a subscriber. Where do I find the silver breakout report?

  2. Larry Benton | June 22, 2012

    Martin, do you have any specific recommendations for either Singapore or South Korea?

  3. Joel welte | June 22, 2012

    Martin I put 100 ks into Brazil's pbr average price on 4 thousand shares 25.00 wish I had read your info on Columbia first, and would like more info on ec, and ETF s for singapore and malaysa?

  4. Mariacecilia E. Marambio-Hurtado | June 22, 2012

    Of course stocks in COLUMBIA are better than in Brazil because COLUMBIA is in the United States.

  5. Dirk Lenaerts | June 23, 2012

    We have a friend in Singapore. The news about that city-state is true.
    I should recommend investing in "Singapore Land".

  6. karna hang limbu | June 23, 2012

    hi
    please give us some stocks market that situated in Macau SAR, now a days casinos are booming here so i just want to know about the casino stocks profitable to trade or not?

    karna
    macau

  7. wwallace6969@aol.com | June 23, 2012

    Singapore for sure. Been there, seeing is believing Dave Schminke

  8. FLORENCIO.MENDIOLA@GMAIL.COM | June 24, 2012

    Whom can I get to invest and manage my investments for Southeast Asia?

    • Audrey Tay | June 6, 2013

      Where can I invest exchange traded funds : i shares MSCI Singapore index ETF
      NYSE:EWS. Thank-you for your reply.

  9. reber50898 | June 27, 2012

    Awhile back there was a report on silver saying it was headed for $200 oz..Any idea how long before the precious metals do a uturn?Do you think it has found its bottom? Bill

  10. JAMES STEWART | July 12, 2012

    Martin, I would also recommend AUSNET, on the Singapore exchange, symbol X04

    Best regards,jim

  11. JAMES STEWART | July 12, 2012

    Martin,On the Malaysian board I recommend OPENSYS, 0040.KL and CAPITAMALLS MALAYSIA TRUST 5180.KL
    These are both high yielding counters.
    I am a Canadian working in KL for the past 22 years.

  12. Dave Schminke, CFA | September 2, 2012

    Back again recently. What a spectacular place Singapore is. Airport makes U.S. airports look like dumps!

    • PS Tan | March 6, 2013

      Singapore should be a key investment destination. Stable government, strong currency (triple A), major financial centre. Consider REIT stocks that are listed in its stock exchange – yielding 5% to 8%.

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