Chartwell Asia ETF
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Chartwell Asia zeros in on an under the radar screen investment theme and then lays out several creative options to capitalize on it.
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Wednesday, March 15th, 2006
Singapore's Two-Fisted Punch
You can count on Singapore Inc. to always have a forward-leaning plan plus the talent and will to execute it. Looking to spur growth and reduce its dependency on cyclical industries like electronics and manufacturing, the plan is to make Singapore Asia's hub for life sciences and financial services.
To succeed in the competitive arena of life sciences and, in particular, biotech, a country needs five ingredients: talent and creativity, strong corporate partnerships, money, protection of intellectual property and top-notch facilities. Singapore is firing on all five cylinders.
It is searching the globe for talent and offering big bucks for coming to Singapore to conduct research. Alan Coleman who led the team of geneticists that cloned a sheep received a $6 million grant relocate to Singapore. Edison Liu, former head of clinical sciences at the U.S. National Cancer Institute left to head up the Genome Institute of Singapore.
The Government of Singapore is supporting life sciences with ample resources. Big Pharma such as Merck and Eli Lily is already active in Singapore and corporate partnerships such as the Singapore-based Novartis Institute for Tropical Diseases are also important for establishing credibility, leveraging resources and attracting talent. Protection of intellectual property is a high priority of companies conducting biotech research and this plays to another of Singapore's strengths. It has been ranked by the Political and Economic Consultancy (PERC) as having the best intellectual property right protection in Asia since 1997.
For facilities, one needs to look no further than Singapore's bio-medical facility Biopolis. Its first phase 2 million square foot complex was completed in 2004 has tenants such as Singapore's major bio-medical institutions, Johns Hopkins Singapore's bio-medical division and companies like GlaxoSmithKline. It a computing room that can house a petabyte of data storage as well as incubators for start ups.
All this activity has also spawned some home-grown biotech companies. Nextwave Biomedical is a privately held company that has built a prototype to analyze DNA in the field to speed up detection of diseases such as dengue and bird flu. Biosensors International Group, Ltd., (BIG), listed on Singapore'ss Main Board, is well-positioned to become a leader in drug-eluting stents as opposed to traditional therapy options such as metal-stents and open heart surgery. The company has developed drug-eluting stents made of a polymer material that is absorbed by the body. Since going public last May, Biosensors is up 57% and trades at SGD 1.10. The company manufactures in Singapore, the Netherlands and China.
It is difficult to become Asia's financial hub without a thriving well-regulated stock market. The Singapore Exchange limited (SGX) went public in 2000 and is listed on its own bourse. The World Economic Forum's Global Competitiveness survey issued in 2005 included a section on regulation in securities exchanges. Among the 104 securities exchanges covered, Singapore ranked 10th. In the Asia-Pacific region, only Australia and New Zealand had a higher score than Singapore.
SGX has made steady progress in expanding and globalizing its listings. In fiscal 2005 ending in June, it added 80 new listings including its first Indian and Israeli company. More than a quarter of all listings are foreign companies of which Greater China companies account for over 70%.
The financial numbers for SGX have also been impressive. In fiscal 2004, its return on equity was 20.8% rising to 23.1% for fiscal 2005. An investor would have been better off over the past three fiscal years investing in SGX rather than the prestigious Straits Times Index. The annualized total shareholder returns over the 2003-2005 fiscal years was 35.7% for SGX and 16.3% for the Straits Times Index.
During the first half of fiscal year ending in June 2006, after tax net profits were the highest since SGX went public in 2000 and the exchange handled 22 IPOs. SGX is a great proxy for Singapore and another option is the Singapore iShares (EWS) exchange-traded fund which was up 17.4% over the last twelve months.
While the Singapore market has had a good run, it does not seem overvalued to me. According to data from Thomson Financial, the Straights Times Index trades at 15 times earnings, far from levels in 1997 when it was overextended at 24 times earnings.
I view Singapore as the Switzerland of Asia and recommend it as a great core holding for your global portfolio. It is making progress to become Asia's life sciences and financial hub and investors can go along for the ride.
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