Q: Where do you invest your own money?
A: I have a home bias — and I am proud of it.

Call me old-fashioned, but I have negligible crypto “assets”, save for some indirect interest with an old university mate running an Ethereum mining enterprise in an obscure corner of Sweden where real estate is cheap. The real reason is the cold weather: it costs less to cool the rigs. And (un)fortunately, I have no artistic talent to create NFTs (non-fungible tokens), nor am I a millennial to buy into this 21st-century version of, shall we say, moving money. 

The arguments against home bias in investing speak of an efficient world, where capital gravitates towards the best possible opportunities and funds the most productive projects. With no frictional boring barriers, like taxes, foreign exchange rates, fees and other costs or outright prohibitions, this perfect world will enable the capitalist mecca. Shareholders will rule, market discipline will carry out the weak, and capital will chase after the successful business in a virtuous cycle.

Unfortunately, true economists qualify all their models with ceteris paribus (all other things being equal) — which never is the case in real life.

Consider the outsized nominal returns of investing in individual overseas markets (whether developed or emerging) that happen from time to time. You could win on equity but could also surrender some returns to an extra cut on foreign exchange levied by those in the middle. 

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Over the last decade, for example, the Japanese yen has fallen from 70 to 110 per US dollar, and the US dollar has weakened versus the Singapore dollar, and so has the British pound. As an illustration, look at the divergence of Standard Chartered’s share price in GBP and when converted to SGD over the same period (see chart). Holidays in these countries have become cheaper, however.

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Given that I planned to and have retired in Singapore, I see nothing wrong in having a home bias. Of my total portfolio, I park 65% in equity, with more than 90% of that in Singapore-listed stocks. (The rest is in insurance, private equity and my home.) I have zero exposure to the US now, and just over 5% (adding now as markets fall) to China ETFs (available on the Singapore Exchange or SGX). Sure, post-Covid, I do hope to travel around a bit more for leisure, but I have yet to come across someone who invested US-dollar or euro or renminbi assets for holiday expenses there. 

Unlike closed capital markets such as China, India and some Asean countries, where foreign investing is kept from the hoi polloi with currency controls, we have all the leeway to be promiscuous in investing. We don’t have a capital gain tax (nor wealth taxes — at least for now); we also have a fully open capital market with an outsized international flavour. Of the Straits Times Index (STI) component stocks, more than half their revenues originate from outside Singapore. It’s not just REITs that allow diversification to Europe, UK, US and Asian assets, as more than 40% of companies listed on SGX are not from Singapore.  

My allocation to the Singapore stocks is already giving me exposure to panAsian growth in consumer, healthcare, deep local tech and Chinese ETFs. If I am convinced that in spite of Covid, we still need to eat (and drink), there are Indonesian, Philippine, Thai, Chinese and even Russian companies spanning from upstream to downstream. There’s an extra layer of assurance in the form of Singapore corporate governance standards applicable to these stocks.

True, as some commentators like to point out, we do not have global winners (yet) of late. However, with easy diversification and lower volatility, one can actually dollar-costaverage the STI index ETF over decades and cycles and achieve a yearly return of 6-7%. That is the kind of long-term return on equities for almost all markets, without the rock and roll of tech stocks.

Sea-change

Nevertheless, we look forward to some of our homegrown champions such as Sea doing a secondary listing on SGX. If Sea had done so, it would have been included in the STI 18 months back, as the liquidity criterion for inclusion would surely have been afforded by the legions of its customers here in “Greater Southeast Asia” and regional investors with Singapore mandates.

If Sea was included, its free float-adjusted market value would give it a weightage of 24.4% in the STI. Pro-forma, the STI would not be struggling at its 200-day moving average at 3,050 points now. It would be closer to 3,888! Imagine the index investors — including retail ETF holders — enjoying such returns amid the pandemic. Of course, we would have to get used to a more volatile STI that would have more 30- to 40-point swings every other day, instead of twice a month, if that occurred! 

For active traders, there are always opportunities to pick a few good turns if we get over the non-stop moans of perceived lack of liquidity. Challenges of sporadic liquidity for small caps such as recent flashes of hope in meme stocks in the US are the feature of every market.

Globally, purpose-driven and sustainable investing is getting fashionable. Sure, call me naïve, but I find it purposeful to have been investing successfully while still supporting local enterprises in the marketplace. Where else but at home, can one sleep peacefully at night without wondering about the gap ups and downs?

One day, I may yet succumb to buying a Tesla (the car, not the stock) when Singapore transitions to electric vehicles. I still look at my Apple watch when it wakes me up each morning. However, I have no real Fomo (fear of missing out) need to join all the stock parties elsewhere. 

If I do venture out, I will mostly take an index view through an ETF. Invariably through the cycles, the index carries on with survivorship bias, as the darlings of yesteryear fall out and get replaced. If I were to have to lose some pennies, which is inevitable, I would rather it be on the back of giving a local hero a shot at success of the business idea, even if it didn’t work out.

Chew Sutat retired from Singapore Exchange (SGX) in July this year. He was senior managing director of SGX, and member of SGX’s executive management team for 14 years. On his watch, the exchange transformed from an Asian gateway into a global multi asset exchange

Coming next in Part 2 — What a little “homeward bound” can do for the market

Photo: Bloomberg