In this report an attempt is made to analyse the future opportunities that can be gained by forming international fund and investing in international economy. In the report the list of objectives of investors are prepared then the rate of return will be assessed as the most important objective of all. Accordingly, in this document the investing company is looking to invest the funds of its client in attractive investment options even if that means to go international by investing in securities and shares in emerging markets (DeFusco et al. 2015). The two countries which have been selected for the invest purpose in this documents are the two Asian giants, i.e. India and Singapore. Both these countries present attractive opportunities to global investors as these are two of the most promising countries as far as the bright economies are concerned. An in-depth analysis shall be provided to outline the scope of investment opportunities in these two countries by discussing the following aspects of the two countries:
Political and economic histories:
Situated in Southeast Asia the Republic of Singapore, better known as Singapore only, is a sovereign city state and island country. The country became a separate sovereign nation in 1965 after separation from Malaysia over ideological differences. However, despite lack of natural resources the country has emerged as an Asian Tiger as far as the economy of the country is concerned and it has become possible due to a strong political leadership of the country. The country has not experienced any major political crisis in recent memory to infuse further confidence to the proposed investors around the globe (Aouni et al. 2014).
Global commercial and financial hub:
It is a global commercial, financial and transport hub with the recognition of technologically most ready country in the globe. The country is also recognized to have a city with best investment potential in the form of Singapore city and also one of the most competitive country in whole wide world. The country is also boosted off with third largest foreign exchange market and third largest oil refining and trade centre in the globe (Sahin et al. 2017). The standard of education provided in the country is recognized and ranked very highly around the globe. Healthcare facility provided in the country is also of world class and highly appreciated by the UN and the world. The life expectancy, quality of life and personal safety in the country are also of very high standards to further prove the efficiency of able political leadership of the country.
Human development index:
In the human development index the country currently ranks fifth in the whole world with recognition from the United Nations (UN) in the Human Development Index. The country’s economic prosperity can be better understood from the fact that the country currently has 3rd highest Gross Domestic Products (GDP) per capita. The economic progress and prosperity in the country is visible from the fact that almost 90% of the homes in the country are owner occupied which is by far the highest rate of owner occupied homes in any part of the world. Over the years the economic progress of the country however, has also contributed to the ever growing income inequality in the country (Kashyap 2016).
Tax heaven status of the country:
The country has also been recognized as a tax heaven as the rate of tax is almost nil in the country which is a further motivation for the investors to invest in the country. Only 38% of the total population of 5.6 million of Singapore is its permanent residents and the rest is foreign national who have all made the country their permanent home due to the desirable tax structure of the country (Ayub et al. 2015).
Figure 1: Falling unemployment rate in the country
(Source: Tradeeconomics.com, 2018)
Developed economy of the country:
A highly developed economy, Singapore is originally one of the four Asian Tiger along with Hong Kong, South Korea and Taiwan. However, with the ever developing economy Singapore has surpassed its peers in GDP per capita. The country experienced an amazing 6% growth in average over a 30 year period between the year 1965 and 1995. As a result of such prolonged growth the standard of living and population of the country were transformed for the betterment (Morecroft 2018). The economy of the country is recognized as one of the freest around the globe due to the relatively lower compliance requirements with different rules and regulations. The country has taken huge steps to establish itself as one of the most innovative countries around the globe with use of advanced and innovative technology. In fact in the year 2015 the country was ranked as the second freest country to do business according to the Ease of Doing Business Index. Despite being recognized as a tax heaven the country has consistently ranked as one of the least corrupted country in the whole world.
Figure 2: Singapore GDP
(Source: created by Author)
Other positive aspects of the economy:
The country has also got the distinction of being the single Asian country to get AAA credit rating for several years to indicate the ever growing confidence of the creditors and lenders on the ability of the country to repay its loans and debts. The skilled and qualified workforce of the country attracts large amount of foreign investments. The location of the country and the low tax rates are two other factors which attract investors from different parts of the globe to invest in the economy of the country (Guerard et al. 2015).
Figure 3: Growth rate
(Source: Morecroft 2018)
A look at the table below will help us to understand the growth and development of the country’s economy in recent past to understand the actual development and progress of the economy of the country (Najeeb et al. 2015).
|
year |
GDP |
GDP |
GDP Real |
GNI |
GNI |
Foreign |
Avg. |
|
Nominal |
Nominal |
(Billion) |
Nominal |
Nominal |
Reserves |
Exchange Rate |
|
|
(Billion) |
Per Capita |
(Billion) |
Per Capita |
(Billion) |
(1US$ to S$) |
||
|
2011 |
S$346.353 |
S$66,816 |
S$342.371 |
S$338.452 |
S$65,292 |
S$373.960 |
S$1.2573 |
|
2012 |
S$362.332 |
S$68,205 |
S$354.061 |
S$351.765 |
S$66,216 |
S$324.081 |
S$1.2498 |
|
2013 |
S$378.200 |
S$70,047 |
S$324.592 |
S$366.618 |
S$67,902 |
S$344.729 |
S$1.2513 |
|
2014 |
S$390.089 |
S$71,318 |
S$380.585 |
S$378.329 |
S$69,168 |
S$340.438 |
S$1.2671 |
Investment performance of the major classes of investments
The urge for higher return have lead many investors to turn attention to the emerging economies. In the current year the benchmark index of Singapore Strait Times index has shown a growth of 13%. The strong fiscal position and the political stability of the country are the major reasons for the attractiveness of the investment.
The 10 year government bond yield of Singapore is around 2.07 on a general comparison it can be said that the bond has provided sufficient return. Therefore, it can be seen that it is profitable for the investor to make investment in the government bond as there will be growth in earnings (Rezende and Gonçalves 2017).
On analysing the year to year performance it can be said that the best performance is the SGD real estate bond. Though the return of these bonds has been relatively modest as compared to the performance of the equity market but still it is providing sufficient return to the investor.
India:
Being the seventh largest country in terms of area and second largest in terms of population, India is a country of diverse culture and tradition. Located in the South Asia the country has come to its own as far as its economy by the end of 20th century (Davis et al. 2016).
As already mentioned that the country is a diverse country with number of complexities however, the high economic growth of the country in recent past the bright forecasts of its economy have made it a hot destination in the eyes of the investors. Let us assess the political and economic histories along with current political and economic situation to assess the desirability quotient of the country as a investment destination (Kozlov and Shnyrenkov 2017).
Political and economic history:
The country was ruled by the British for more than 200 years before it finally got independence from the rule of the British in 1947 after a prolonged battle of freedom movement. At the time of its independence, i.e. in 1947 the country’s economy was dire state however with each passing year the country has got stronger. The country economy opened its door to the global market forces in the year 1991 after its general budget decided to allow foreign direct investment in the country to improve the overall economy of the country. Since 1947 the political establishments of the country has provided a solid foundation to the economy for development and progress. Barring few controversial political issues the country has more or less remained stable and the whole credit for the same goes to the political establishments of the country (Luo and Wu 2016). There has no political turmoil in the country to suggest that there is any risk of investing in the country. The country is the world largest democracy which allows people to express their freedom and take action according to their needs without any restriction. Thus, the political establishment in the country provide a suitable investing environment for the investors.
Economy of the country:
According to the information provided by the International Monetary Fund (IMF) about the economy of the country, it is the sixth largest economy in the whole wide world in terms of market exchange rate. In terms of market exchange rate the economy of the country is worth of US dollar 2.454 trillion. In terms of purchasing power parity the country is ranked as the third largest country in the whole world by US dollar 9.489 trillion (Davis et al. 2016). The country is one of the fastest growing economy in the world with 5.8% annual average rate of growth during the last two decades and in fact the growth rate increased in 2011-12 from the average growth rate of last two decade to 6.1% to further improve the credibility of the country’s economy.
Figure 4: GDP
(Source: Sánchez 2015)
Second largest work force in the globe:
As of 2016 the country has the second largest work force in the world with 513.7 million workers. However, the country ranks poor 140th and 129th in GDP per capital and GDP per capital in purchasing power parity respectively. The GDP of the country is divided in service sector, industrial sector and agriculture with service sector contributing major portion of the total GDP of the country (Sánchez 2015). In fact as on 2016 the service sector of the country contributes approximately 55.6% of the total GDP with 26.3% of the contribution coming from industrial sector and the balance 18.1% contribution from agricultural sector in the country.
Figure 5: Unemployment rate in the country.
(Source: Sánchez 2015)
Major industries in the country:
Major industries in the country include textile, chemicals, telecommunication, pharmaceuticals, biotechnology, oilseed, cotton, jute, tea, potatoes, sugarcane, machinery, software technology, mining, automobile industry, cement and food processing (Raudys et al. 2014). The investors can invest any of the above major industries to earn significant return from their investments.
External trade and its impact in the overall GDP of the country:
The share of external trade has increased significantly over the years to exceed 24% of the country’s overall GDP as of 2006. In the year 1985 the country’s external trade stood at merely 6% of the GDP of the country.
Share in world trade:
The share of world trade of the country is merely 1.68% however, the country was also recognized as the tenth largest importer in the world as per the import data of 2011. In the same year the data showed that the country was the nineteenth largest exporter in the globe (Bubeck et al. 2015).
GDP at purchasing power parity estimation:
According to a report of the PricewaterhouseCoopers the GDP of the country at purchasing power parity could overtake the GDP of the United States of America by the end of year 2045. Even at the time of global slowdown and when the most economies are contracting the expected annual average GDP growth rate of 8% has attract the attention of the investors from different parts of the globe (Betschinger 2015).
Industries:
The telecommunication industry in the country has added 227 million subscriber in the period of 2010-11 to register as the fastest growing industry in the world. The automotive industry in the country is the second fastest growing industry in the world. The automotive industry has registered a 26% annual growth in the year 2009-10.
Investment performance of the major classes of assets
The golden rule of building an efficient investment portfolio is to include the fixed income product like the fixed interest bearing bond. The fixed income debt fund have certain advantages so the investor should make investment in this securities (Bubeck et al. 2015). The performance of the debt securities are provided below and to summarise the performance it can be said that the Indian bond market has shown growth. On analysis it can be seen that the bond market is dominated by the government securities so the fiscal policy plays an important role in the bond market. The equity market in the current year has shown a growth of 15% so it can be said that the investor could make investment in the equity market (Raudys et al. 2014).
Advantages and disadvantage of establishing an international fund:
The advantages that can be highlighted for establishing the international fund on the selected countries like Singapore and India are the following:
The disadvantages that can be highlighted for establishing investment fund are the following:
Conclusions:
Taking into consideration the immense prospect of the two countries and their economies these provide attractive opportunity to the investors to establish international fund to invest in the different industries, securities and stocks in India and Singapore. The opportunity however come with specific risks which have to be dealt with properly to ensure that establishment of international fund to invest in these two markets prove to be fruitful and useful for the investors. Therefore based on the above discussion it can be recommended that the company should develop appropriate measures for controlling risks and should develop funds form investment for making investment in different sectors of the economy.
References
Aouni, B., Colapinto, C. and La Torre, D., 2014. Financial portfolio management through the goal programming model: Current state-of-the-art. European Journal of Operational Research, 234(2), pp.536-545.
Ayub, U., Shah, S.Z.A. and Abbas, Q., 2015. Robust analysis for downside risk in portfolio management for a volatile stock market. Economic Modelling, 44, pp.86-96.
Betschinger, M.A., 2015. Do banks matter for the risk of a firm’s investment portfolio? Evidence from foreign direct investment programs. Strategic Management Journal, 36(8), pp.1264-1276.
Bubeck, P., Kreibich, H., Penning?Rowsell, E.C., Botzen, W.J.W., Moel, H. and Klijn, F., 2015. Explaining differences in flood management approaches in Europe and in the USA–a comparative analysis. Journal of Flood Risk Management.
Davis, S.J., Edwards, S.B., Teper, G.E., Bassett, D.G., McCarthy, M.J., Johnson, S.C., Lawton, C.R., Hoffman, M.J., Shelton, L., Henry, S.M. and Melander, D.J., 2016. Maximizing the US Army’s Future Contribution to Global Security Using the Capability Portfolio Analysis Tool (CPAT). Interfaces, 46(1), pp.91-108.
DeFusco, R.A., McLeavey, D.W., Anson, M.J., Pinto, J.E. and Runkle, D.E., 2015. Quantitative investment analysis. John Wiley & Sons.
Guerard, J.B., Markowitz, H. and Xu, G., 2015. Earnings forecasting in a global stock selection model and efficient portfolio construction and management. International Journal of Forecasting, 31(2), pp.550-560.
Kashyap, R., 2016. The Circle of Investment: Connecting the Dots of the Portfolio Management Cycle… arXiv preprint arXiv:1603.06047.
Kozlov, A. and Shnyrenkov, E., 2017. Portfolio management for investment projects in the construction industry. In MATEC Web of Conferences (Vol. 106, p. 08006). EDP Sciences.
Luo, C. and Wu, D., 2016. Environment and economic risk: An analysis of carbon emission market and portfolio management. Environmental research, 149, pp.297-301.
Morecroft, J.D.W., 2018. Management attitudes, learning and scale in successful diversification: a dynamic and behavioural resource system view. In System Dynamics (pp. 69-106). Palgrave Macmillan, London.
Najeeb, S.F., Bacha, O. and Masih, M., 2015. Does heterogeneity in investment horizons affect portfolio diversification? Some insights using M-GARCH-DCC and wavelet correlation analysis. Emerging Markets Finance and Trade, 51(1), pp.188-208.
Raudys, S., Raudys, A. and Plikynas, D., 2014, November. Multi-agent system based on oscillating agents for portfolio design. In Intelligent Systems Design and Applications (ISDA), 2014 14th International Conference on (pp. 134-139). IEEE.
Rezende, L.B.D. and Gonçalves, M.D.P., 2017. Optimisation of the decision-making process of investment in public projects through the use of practices of portfolio management. International Journal of Management and Decision Making, 16(4), pp.321-345.
Sahin, O., Stewart, R.A., Giurco, D. and Porter, M.G., 2017. Renewable hydropower generation as a co-benefit of balanced urban water portfolio management and flood risk mitigation. Renewable and Sustainable Energy Reviews, 68, pp.1076-1087.
Sánchez, M.A., 2015. Integrating sustainability issues into project management. Journal of Cleaner Production, 96, pp.319-330
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