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Why Singaporeans should not limit their investments to the US

DISCLAIMER: This post is sponsored by Syfe. All views expressed in this article are the independent opinion of The Woke Salaryman based on our research.

I don’t know about you, but as a 90s kid, I grew up in a world watching shows where Hollywood took potshots at Asian people with impunity.

Asians were often villains, comedic relief, goons or sidekicks at best. And even when they took the spotlight, Asians were reduced to caricatures: nerds, sexpionage experts, kung-fu masters, or NPCs in a war zone full of white protagonists (think of your Vietnam movies).

When you view things through that lens, it’s truly at an interesting time to be alive in 2021.

China is now Hollywood’s largest market, which means directors and scriptwriters will think twice before making any jokes about slit eyes and yellow skin.

Take Disney, for example.

They tried to appeal to Mainland China with Mulan (2020), and is this year trying to reach out to Southeast Asians via Raya and the Last Dragon (2021).

Now, some of you might say that this is a result of the greater focus on diversity within the U.S. And for sure, that’s probably one of the reasons these movies with non-white protagonists are being made.

But what I believe is often a bigger motivator for businesses is profits. To grow markets, you target new audiences – especially audiences with cash to spare.

Surely, the rising economic power of Asia also has to play a part?

That brings me to the whole point of this article.

Just like Hollywood, Disney and every other major business in the world, investors cannot limit their horizons to just the United States.

 

Reason 1: The US doesn’t have a monopoly over great companies

I know what you’re thinking: Can’t we just continue investing in US companies with global reach, then? Heaps of American companies are rightfully seen as a dominating force overseas.

Well, that is true to a large extent, but also consider there are markets, where some American companies see little to no penetration, and local companies have a huge domestic market to tap on.

One example is China’s internet ecosystem, where the use of Facebook, Instagram, YouTube or Twitter are not used. There, giants such as Alibaba, Tencent, and Baidu reign instead.

Yet another possibility is simply that non-US companies make competitive or superior products. Take TikTok, which went mainstream in the US, and is one of the fastest growing brands of 2020.  Or NIO, which is shaping up to become a serious competitor to Tesla in the EV space. Or Hai Er, which purchased General Electric’s once legendary home appliance business in 2016.

While the Americans produced some amazing innovations in the past 50 years, it is folly to assume that they have a monopoly over the creation of great companies.

Reason 2: There are regions near us not to be overlooked

Can you imagine having invested in the Chinese market from the 2000s?

Putting money into a relatively untested market probably brought about uncertainty, and investors also probably got burnt due to some scams.

But those who were brave enough to invest in any of the ‘mainstream’ Chinese companies today experienced some insane growth.

The situation is similar with Southeast Asia today.

Many Singaporeans have a deep admiration for the US and Europe because they’ve historically been the economic world leaders. We tend to ignore the massive potential of our own backyard.

In the tussle between the two superpowers for global influence, Chinese and the US companies both have reasons to invest heavily in Southeast Asia, accelerating the region’s development.

Already, tech giants such as companies such as Grab, Traveloka, Gojek, and Tokopedia are aiming to go public in 2021.

Of course, there are two caveats here to make:

  • Southeast Asia is not a homogeneous region, and that doesn’t mean all investments there are guaranteed to boomz
  • GDP does not translate to stock growth – The US’s economy was in shambles last year, but we saw crazy returns in the stock market. Likewise, Southeast Asia’s impressive GDP growth might not necessarily mean the investors will win; money could go back into the hands of privately owned companies

Reason 3: It’s not wise to put all your eggs in just one market

Last year, COVID-19 helped the world realise its overreliance on China when it came to manufacturing and supply chains. Almost instantly, companies started looking elsewhere to reduce their exposure to China.

(Some, like Apple, decided way before COVID-19 that it needed to move some operations to Vietnam.)

If anything, it has shown the dangers of being over reliant on specifically one nation.

When it comes to investments most youngish Singapore investors look to the US market, which has been performing strongly for a decade (as opposed to, say, the tamer SGX).

With today’s euphoria, it is easy to forget that the US stocks have stagnated before – you only need to look back as far as from 2000 to 2010, where the S&P 500 returned negative over a 10 year period. Even if you’re taking actively managed funds, more than 88% of actively managed U.S. equity funds failed to beat their benchmark over 20 years.

Sure, some finance bros will scoff at the idea and say that diversification might mean that you make less profits. But they gotta understand that if you put all your eggs in one basket, you’ll take on more risk than what you may be willing to stomach.

After all, the goal of investing is not to make as much profit as possible.

It is to make decent profits while taking on acceptable risk. There is a difference.

None of this means that we should write off the US

A lot has been said about America’s flaws recently, but I think it’s also important to recognise America’s true superpower.

It’s not ‘freedom’, it’s not the political system (nor the healthcare system), nor the safety. Rather, what makes America great is its ability to continuously attract great talent from other countries – something that it’s closest rival does not yet possess.

To paraphrase MCU’s Odin, it’s not so much about the place, but rather more about the people.

The US can attract ambitious, creative and capable people who can make up for others who are not-so-productive. The US economy might be in shambles, but the stock market keeps reaching for all time highs.

Case in point: Elon Musk was born in South Africa, then came to the US, co-founded PayPal, then Tesla. It’s a similar story with Jeff Bezos, as well as scores of rich Chinese who’ve made their fortunes in China.

As long as the US welcomes innovative people, then it will always be a country worth investing in.

When in doubt, invest globally

If history has shown us anything, it’s that fortunes rise and fall and no one can predict the future (nor the markets) with absolute certainty.

I’d be suspicious of someone who claims to.

As recently as the 1980s, the world predicted Japan would surpass the US as the world’s superpower. Of course, that didn’t happen – Japan and its stock market went on to experience the lost decade which went on to become ‘the lost 20 years’ (1991-2011), and then ‘the lost 30 years’ (1991-2021).

Similarly, the narrative that China is an unstoppable juggernaut, or that the US will never be replaced are narratives that are accurate today, but are not set in stone.

In the era of exponential change, the simplest thing the average investor can do as a long-term investor is to invest in various economies and asset classes, while being aware of the risks.

Because if there is one thing superpowers and investing have in common, it is that there are no guarantees.

Stay Woke, Salaryman

A message from our sponsor Syfe

While it is important to diversify across different asset classes in your portfolio, it is also important to diversify your investments across different regions – and China is becoming an undeniable player that investors should take note of.

And even though dipping your toes into a new market might seem daunting, you miss 100% of the shots you don’t take.

If you prefer to actively invest, you can invest in China & SEA stocks via ETFs or individual stocks.

However, if you lack the time and expertise to delve into a new market (like us), or just want a cost-effective solution, check out Syfe Core.

They have 3 ETF portfolios (Defensive, Balanced, Growth) with significant exposure to the Chinese market via MCHI (provides broad exposure to the Chinese stock market) and KWEB (provides targeted exposure to Chinese internet companies such as Tencent, Meituan, Baidu).

With the Growth portfolio, you’ll get a 14% exposure to China while the Balanced and Defensive portfolios offer a 7% and 4% allocation respectively.

Syfe Core portfolios also offer exposure to over 3,500 different companies worldwide. This includes investments in up-and-coming markets like Thailand, Indonesia and Malaysia, as well as popular stocks such as Apple, Microsoft, Tesla, PepsiCo, Johnson & Johnson and more.

Find out more about Syfe Core portfolios here.

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