Singapore Bonds | A Safe Harbour in Turbulent Times - Articles & Commentaries

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04 December 2023

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Against a backdrop of heightened volatility in markets, Singapore bonds have emerged as a beacon of stability for investors looking for a predictable income source as well as an effective portfolio diversifier.

With a positive outlook fuelled by robust economic indicators and a commitment to sustainable finance, Singapore bonds offer a compelling opportunity for investors seeking a blend of yield and capital growth.

Economic Resilience & Healthy Capital Inflows
Singapore's bond market benefits from an influx of healthy capital, underpinned by the nation's resilient economic performance. Amidst robust system liquidity and heightened market confidence, the 10-Year Singapore Government Bond (SGS) experienced a notable rally of 50 bps in October, reaching 3.00%. With yields still at multi-year highs, this presents an opportune moment for investors to lock-in long-term bond yields prior to the next anticipated global monetary easing cycle.

The island-nation’s economy grew at a faster than expected pace in the 3Q’2023 with GDP +0.7% yoy boosted by tourism activities and a recovery in the manufacturing sector. While full-year growth is expected to still taper off in 2023, the Monetary Authority of Singapore (MAS) believes the economy has reached a turning point in its slowdown. The central bank expects recovery will continue to gain traction as factory output picks up and interest rates peak.

SGD Currency Strength
The strength of the Singapore Dollar (SGD) against other currencies adds an extra layer of appeal for bond investors. The stability of the currency enhances the predictability of returns, making the SGD bond market an attractive proposition.

The SGD's resilience is backed by strong fundamentals. Notably, Singapore maintains a substantial pool of foreign reserves which swelled to 67.12% of its GDP in the 2Q’2023. This acts as a safeguard against external economic uncertainties, instilling confidence among bond investors who prioritise stability and predictability of returns in their portfolios.

Robust Credit Fundamentals with AAA Rating
Singapore government bonds boasts strong credit fundamentals, standing as the sole AAA-rated country among its Asian peers. This is underpinned by its robust institutions, disciplined fiscal policies and a greater resilience to cyclical shocks.

As investors tilt their portfolios towards higher quality assets in a slower growth environment, its sterling credit profile provides a buttress to investors’ portfolio. Additionally, the yields on Singapore government bonds are some of the most attractive amongst the highest-rated sovereigns globally, further reinforcing its stature as a safe haven.

Sustainable Investing and ESG Integration

Another exciting dimension of the Singapore bond market also lies in its embrace of sustainable investing. Increasingly popular amongst SGD corporate bond issuers are ESG-labelled bonds including:-

i) Green bonds where proceeds are specifically directed to financing green projects; and
ii) Sustainability-linked bonds which incorporate sustainability key performance indicators (KPIs) within the bond structure.

This growing trend aligns seamlessly with the prevailing global movement towards sustainability in delivering better outcomes and shaping a more equitable future. For investors seeking avenues to align their portfolios towards financing assets that positively impact environmental and social causes, the Singapore bond market offers a rich landscape of opportunities.

A Defensive Stronghold
Singapore bonds stand out for their resilience in turbulent times. Historical data paints a consistent picture of stability, showcasing that Singapore bonds have delivered steadfast returns when markets faced volatility.

In the tumultuous market correction of 2015 triggered by China's renminbi devaluation, while various assets experienced sharp declines, Singapore bonds held its ground. This resilience was even more pronounced during the onset of the COVID-19 outbreak in 2020, where Singapore bonds not only weathered the storm, but outperformed with notable strength.

How to Invest
With a clear focus on quality, the AHAM ESG SGD Bond Fund (formerly known as Affin Hwang SGD Bond Fund) provides a gateway for investors to tap into the vibrant landscape of the Singapore bond universe.

As a certified Sustainable and Responsible Investment (SRI), the Fund employs a negative screening process to exclude companies that are not positioned well for the future, while integrating material ESG factors in the assessment and securities selection.

Fuelled by robust credit fundamentals, healthy capital inflows and currency strength, Singapore bonds stands tall as a defensive asset class through its lower drawdowns and its ability to generate a consistent income stream.

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