Invest in Asia bonds to capture income and growth potential - Hedging the expensive living cost in Singapore
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Hedging the expensive living cost in Singapore: Invest in Asia bonds to capture income and growth potential
Singapore is infamous for being one of the most expensive cities to live in the world. According to the Worldwide Cost of Living Report 2020 published by the Economist Intelligent Unit, Singapore ranked the world’s fourth most expensive cities, following Zurich, Paris and Hong Kong. The average cost of living in Singapore is high. For a single person in Singapore, the average expense (excluding rent) is around SGD 1,300 per month.1 For a four-person family this is significantly higher: around SGD 4,700 a month.2 Housing, utilities, food and transport make up a large chunk of monthly expenses. Other necessity items such as education and healthcare are also among the top expenditure groups. Although household income has been on a rising trend over the past five years, median monthly household income from work fell by 2.5% in nominal terms in 20203, reflecting the impact of the Covid-19 crisis. Prices also went down amid the economic downturn caused by the pandemic, yet the decline was much smaller than that in household income. The Singapore consumer price index was down by 0.1% in 2020.4 After adjusting for inflation, median monthly household income from work dropped by 2.4% in real terms last year. Therefore, it is important for Singapore residents to look for additional sources of income to hedge the expensive cost of living in Singapore. Income generation has become one of the top priorities for all investors around the world. The benefits of income investing are multifold. It is a very beneficial means of supplementing one’s fixed monthly or annual income and is a great way of earning additional support income out of assets one owns, which can be used for daily spending needs. For retired persons, a stable stream of income, which will be paid regardless of the economic environment, is particularly important. Therefore, income strategies and products are frequently considered in retirement planning. 1 Source: https://www.numbeo.com/cost-of-living/in/Singapore, as of 30 April 2021. 2 Source: https://www.numbeo.com/cost-of-living/in/Singapore, as of 30 April 2021. 3 Source: Singapore Department of Statistics, Key Household Income Trends, 2020. Published on 8 February 2021. 4 Source: Singapore Department of Statistics.
Another major benefit of income investing is that Equities generally provide higher potential
it may help lower the overall portfolio volatility, returns than bonds. Singapore equity market, as
especially in times of uncertainty. For instance, measured by the Straits Times Index, returned
the relatively low correlation between bonds and 12% year-to-date as of 29 April 2021. Yet, it
equities brings diversification benefits as they also comes with higher volatility. The annualised
do not move in tandem. Besides, the income standard deviation of the Straits Times Index, as
received can offset losses in other investments a measure of its volatility, in the past three years
during market downturn. was 13.7%, compared to 4.1% of Singapore
10-year government bond. As a result, equities
The most common sources of income include
may not be an ideal solution for investors who
coupons from bonds at fixed or floating
are looking for stable returns and trying to avoid
rates, dividend-paying stocks, and alternative
taking up too much risks.
investments such as REITs.
Among various asset classes, Asian fixed income
However, with the persistently low-yield
may offer a nice balance of income opportunity,
environment post global financial crisis in
growth potential and risks, supported by the
2008-2009, investors have been struggling
asset class’ strong fundamentals, higher yields
in the search for yield. Traditional bonds, such
on offer and low default rates.
as US Treasuries and other developed market
government bonds, can no longer offer a return Historically, Asian investment-grade corporate
as attractive as in the past. Many of them bonds (ex-Japan) and Asian high-yield corporate
offer close-to-zero or even negative yields. bonds (ex-Japan) offered better risk-adjusted
For example, as of 29 April 2021, 10-Year US returns than most asset classes as shown below
Treasury offers a yield of 1.63%, while Germany in the 10-Year risk chart6.
10-Year government bond recorded a negative
yield of -0.19%. Singapore 10-Year government
bond has a yield of 1.60%.5
5 Source: Bloomberg, as of 29 April 2021. https://www.bloomberg.com/markets/rates-bonds
6 Asian bonds (ex-Japan) is represented by 50% Markit iBoxx ALBI + 50% JPMorgan Asia Credit Index; Asian High Yield by JPMorgan Asian Credit
Non-Investment Grade Index; Asian equities (ex-Japan) by MSCI AC Asia Pacific ex Japan Index; EM Debt by 50% JPMorgan GBI-EM Broad
Index + 50% JPMorgan CEMBI Index; EM Equities by MSCI Emerging Market Equity Index; Euro government bonds by BofA Merrill Lynch Euro
Government Index; Global aggregate bonds by Bloomberg - Barclays Global-Aggregate Total Return Index; Global corporate bonds by BofA
Merrill Lynch Global Corporate Index; Global equities by MSCI World; Global high yield by BofA Merrill Lynch Global High Yield Index; Money
markets (cash) by BofA Merrill Lynch US Dollar 3-Month Deposit Offered Rate Average Index; Real estate by Dow Jones Composite REIT
Total Return Index; US equities by S&P 500 Index; US Treasuries by BofA Merrill Lynch US Treasury Index. Risk is measured in terms of the
standard deviation.10-Year Risk Return6
12%
US equities
10%
Real estate
Return (annualized in USD)
8%
Global equities
Asian high yield
Global high yield
6%
Asian bonds (ex-Japan)
EM Debt
4% Global
Euro government bonds
US Treasuries corporate Asian equities (ex-Japan)
Global aggregate bonds bonds
2%
EM equities
Money markets (cash)
0%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18%
Risk (annualized)
Source: Bloomberg, 31 December 2020. In US dollar terms for the period 31 December 2010 to 31 December 2020 unless otherwise noted.
Risk is measured in terms of the standard deviation.
When risk sentiment improves as vaccines roll to remain reasonably contained and idiosyncratic
out more widely globally and major economies in the first half of 2021 before an improvement in
reopen, we could see a major asset-rotation the second half. Having said that, credit selection
among bond and income investors, driven by the will remain key in Asian markets, as the recovery
ongoing search for “positive” yields, making Asian is expected to uneven across countries and
bonds stand out given their higher yields on offer sectors.
as shown below. Overall, it is expected defaultsAsian Sovereign yields in global context (%)
1Y 2Y 3Y 5Y 7Y 10Y 15Y 20Y 30Y
Germany -0.70 -0.75 -0.78 -0.75 -0.69 -0.57 -0.38 -0.36 -0.17
Switzerland -0.86 -0.81 -0.81 -0.76 -0.68 -0.55 -0.40 -0.32 -0.33
Netherlands -0.70 -0.73 -0.74 -0.70 -0.63 -0.49 -0.41 -0.24 -0.10
Denmark -0.58 -0.64 -0.66 -0.61 -0.54 -0.46 -0.35 -0.24 -0.05
France -0.64 -0.69 -0.70 -0.66 -0.55 -0.33 -0.16 0.09 0.36
Ireland -0.67 -0.68 -0.66 -0.60 -0.48 -0.27 -0.05 0.02 0.33
Sweden -0.15 -0.39 -0.37 -0.34 -0.20 -0.01 0.15 0.31
Japan -0.13 -0.13 -0.14 -0.10 -0.09 0.03 0.22 0.40 0.65
Portugal -0.58 -0.69 -0.59 -0.45 -0.25 0.03 0.40 0.42 0.75
Spain -0.59 -0.59 -0.57 -0.38 -0.23 0.08 0.39 0.65 0.89
United Kingdom -0.03 -0.03 -0.03 0.01 0.11 0.30 0.53 0.81 0.85
Italy -0.47 -0.40 -0.25 0.04 0.26 0.63 0.99 1.22 1.48
United States 0.11 0.15 0.19 0.36 0.61 0.84 1.10 1.36 1.57
Singapore 0.22 0.26 0.33 0.49 0.64 0.87 1.11 1.17 1.13
Australia 0.01 0.09 0.11 0.30 0.53 0.90 1.24 1.66 1.89
Thailand 0.49 0.52 0.59 0.76 1.24 1.31 1.62 1.80 2.05
South Korea 0.62 0.92 0.99 1.38 1.42 1.50 1.62 1.74 1.73
Malaysia 1.65 1.79 1.93 2.16 2.59 2.76 3.48 3.73 4.14
Philippines 1.68 1.93 2.07 2.72 2.79 2.84 3.37 3.90
China 2.85 2.94 3.04 3.07 3.27 3.26 3.56 3.85 3.89
Source: Bloomberg, Manulife Investment Management. As of 30 November 2020.
Fundamentally, despite the notable challenges According to the Bloomberg economic survey,
of the past year, the fundamentals of Asian Asia is expected to remain the bright spot
economies remain intact. North Asian economies of the global economy, with GDP growth
contained the virus better with many expected projected to outperform the other regions in
to post positive growth in 2020 (such as China, this and next year. Economic growth in Asia
Taiwan and South Korea). With vaccine rollout ex Japan is estimated to be at 5.7% in 2021
and significant monetary and fiscal stimulus, and 5.8% in 2022.
it is expected that the region’s economies will
continue their recovery trend in 2021.GDP Growth Rates
8%
6%
4%
% Year on Year Real GDP
2%
0%
-2%
-4%
-6%
-8%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Actual GDP GDP Forecasts*
World United States Europe Asia ex-Japan Eastern Europe Latin America
Source: Bloomberg, Economic Survey, 31 March 2021. The information above contain projections or other forward-looking statements regarding
future events, targets, management discipline or other expectations, and is only as current as of the date indicated. There is no assurance that
such events will occur and may be significantly different than that shown here.
The above positive factors underpin a favourable The Fund is invested in both SGD denominated
environment for Asian fixed income in 2021 and bonds and non-SGD denominated bonds.
beyond. To tap into the opportunities, Manulife Investments in non-SGD denominated bonds are
SGD Income Fund invests in a diversified hedged back to SGD to minimize the currency
portfolio of Asian bonds, with at least 70% risk particularly for Singapore-based investors.
invested in investment grade bonds for stability,
and a maximum of 30% invested in high-yield
To find out more about the Fund,
bonds for better yields.
please visit https://income.
The Fund offers potential quarterly payout
manulifeam.com.sg/en/sgd-
targeting a yield of 4% per annum7 for distribution
share class, and a yield of 6% per annum7 for income.html/ or contact your
decumulation share class (the higher income bank relationship manager or
draws partially from the capital, with the aim to
financial advisor.
provide additional stable income while staying
invested for potential growth).
7 The intention of the Manager to make the quarterly distribution and the distribution yield for the Fund is not guaranteed, and the Manager may in
future review the distribution policy depending on prevailing market conditionsImportant Information Manager of the Fund: Manulife Investment Management (Singapore) Pte. Ltd. (“Manulife”) (Company Registration Number: 200709952G). The information provided herein does not constitute financial advice, an offer or recommendation with respect to the Fund. Opinions, forecasts and estimates on the economy, financial markets or economic trends of the markets mentioned herein are not necessarily indicative of the future or likely performance of the Fund. The Fund may use financial derivative instruments for efficient portfolio management and/or hedging. Investments in the Fund are not deposits in, guaranteed or insured by the Manager and involve risks. The value of units in the Fund and any income accruing to them may fall or rise. Past performance of the Fund is not necessarily indicative of future performance. Investors should read the prospectus, and seek advice from a financial adviser before deciding whether to purchase units in the Fund. A copy of the prospectus and the product highlights sheet can be obtained from Manulife or its distributors. In the event an investor chooses not to seek advice from a financial adviser, he should consider whether the Fund is suitable for him. Distributions are not guaranteed. Investors should refer to the prospectus for the distribution policy of the Fund. The Manager shall have the absolute discretion to determine whether a distribution is to be made in respect of the Fund as well as the rate and frequency of distributions to be made. Distributions may be made out of (a) income, or (b) net capital gains, or (c) capital of the Fund, or (d) any combination of (a), (b) and/or (c). Past distribution yields and payments are not necessarily indicative of future distribution yields and payments. Any payment of distributions by the Fund is expected to result in an immediate decrease in the net asset value per unit of the Fund. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
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