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SOURCE: Singapore Fund
The Singapore Fund Announces Fourth Quarter Earnings
JERSEY CITY, NJ--(Marketwire - December 29, 2008) - The Singapore Fund, Inc. (
For the quarter ended October 31, 2008, the Fund earned net investment income of approximately U.S. $774,000 (equivalent to income of U.S. $0.08 per share) resulting in net investment income for the year ended October 31, 2008 of approximately U.S. $2,509,000 (equivalent to income of U.S. $0.27 per share). In addition, net realized and unrealized losses from investment activities and foreign currency transactions during that same three-month period were approximately U.S. $62,263,000 (equivalent to a loss of U.S. $6.63 per share). As a result, the net realized and unrealized loss increased to approximately U.S. $119,137,000 (equivalent to a loss of U.S. $12.77 per share) for the year ended October 31, 2008.
In comparison, during the quarter ended October 31, 2007, the Fund earned net investment income of approximately U.S. $459,000 (equivalent to income of U.S. $0.05 per share), resulting in net investment income for the year of approximately U.S. $1,483,000 (equivalent to income of U.S. $0.16 per share). In addition, net realized and unrealized gains from investment activities and foreign currency transactions during that same three-month period was approximately U.S. $17,387,000 (equivalent to a gain of U.S. $1.88 per share). As a result, net realized and unrealized gain increased to approximately U.S. $79,767,000 (equivalent to a gain of U.S. $8.61 per share) for the year ended October 31, 2007.
On October 31, 2008, total net assets of the Fund were approximately U.S. $82.9 million. The net asset value ("NAV") per share on that date was U.S. $8.85, based on 9,363,114 shares outstanding. Assuming the reinvestment of the U.S. $1.15 per share dividend paid on January 18, 2008 and the U.S. $0.309 per share dividend paid on February 21, 2008, the Fund generated a negative investment return of 57.53% for the year ended October 31, 2008, when measured against the NAV per share of U.S. $22.83 on October 31, 2007, based on 9,274,172 shares outstanding at that time. For the year ended October 31, 2008, the Fund's benchmark, the Straits Times Index ("STI"), decreased by 53.37% in U.S. dollar terms.
In comparison with the same quarter-end of the previous fiscal year, total net assets on October 31, 2007 were approximately U.S. $211.7 million, equivalent to a NAV of U.S. $22.83 per share, based on 9,274,172 shares outstanding.
As of October 31, 2008, the Fund had 89.32% of its net assets invested in Singapore equity securities. The balance of the Fund's net assets were in the form of time deposits and other cash equivalents denominated in Singapore Dollars (10.13%), U.S. dollars (1.08%) and liabilities in excess of other assets of (0.53%).
As of December 26, 2008, the Fund's NAV per share was U.S. $8.23, based on net assets of approximately U.S. $77.1 million. At the same date, the Fund's shares on the New York Stock Exchange closed at U.S. $7.15, representing a trading discount to the NAV per share of 13.12%.
Singapore Market Review
From March 2008 to early May 2008, the STI rebounded from 2745 to 3270, led by better than expected results from some blue chips and growing hope that the worst of the financial turmoil had passed. S-chips rebounded strongly, partly fuelled by several measures implemented by China in a move to bolster the sagging stock market such as placing curbs on the sale of non-tradable shares coming out of lock-up periods and the cut in stamp duty on the stock market . However, the rally soon fizzled as oil hit a historical high at around US$150/bbl and the financial sector crisis in the United States spread to the rest of the world and into the credit market.
Portfolio de-leveraging and heightened risk aversion led to massive unwinding of carry trades out of the commodities and emerging markets into U.S. Treasuries. Confidence in the global financial sector was severely tested following the collapse of Freddie Mac and Fannie Mae. The financial crisis in the United States climaxed in September 2008 with the bankruptcy of Lehman Brothers, the forced sale of Merrill Lynch to Bank of America and the ultimate bail out of AIG by the Federal Reserve. Market earnings were slashed on a broad-based slowdown in business activities. The Monetary Authority of Singapore shifted its policy to a neutral stance, thus ending a policy of modest and gradual appreciation for the trade-weighted Singapore dollar that had been in place since April 2004.
Outlook and Strategy
Benchmark Portfolio
(%) (%) Comments
---------------------- --------- --------- -----------------------------
Financial Institutions 32.22 22.26 Concern over asset quality,
anemic loan growth and
weakness in capital
market-related fee income to
cap re-rating of banks,
despite attractive
valuations. A sector limit of
25% is applicable, and the
Fund is prohibited from
owning DBS Group.
---------------------- --------- --------- -----------------------------
Telecommunications 15.19 13.07 Potential earnings downgrade
owing to foreign exchange
losses relating to overseas
earnings may mar its earnings
defensive quality. However,
dividends may be more
resilient owing to strong
balance sheets.
---------------------- --------- --------- -----------------------------
Conglomerates 15.03 11.26 Underweight due to Jardine
group of companies where we
have a negative view on its
earnings which are geared to
Hong Kong properties and
luxury consumer goods.
---------------------- --------- --------- -----------------------------
Transportation 5.28 10.79 Overweight due to our strong
positive view on land
transportation, given public
policies to encourage higher
usage of public
transportation.
---------------------- --------- --------- -----------------------------
Property Development 14.19 6.69 Property prices and
transactions are likely to be
impacted by credit crunch at
this point of the economic
cycle.
---------------------- --------- --------- -----------------------------
Shipyards 5.42 5.09 Strong order book visibility,
but weak economic growth may
keep oil prices low, leading
to doubts on future order
book growth.
---------------------- --------- --------- -----------------------------
Industrial 2.48 4.79 Our holdings in this sector
have resilient earnings but
trade at low range of
multi-year valuation.
---------------------- --------- --------- -----------------------------
Food, Beverage & Tobacco 4.49 4.02 Underweight due mainly to our
cautious view on palm oil
prices.
---------------------- --------- --------- -----------------------------
Communications - Media 3.70 3.54 Neutral view.
---------------------- --------- --------- -----------------------------
Technology 0.00 3.40 Our stocks in this sector
have resilient earnings but
trade at low range of
multi-year valuation.
---------------------- --------- --------- -----------------------------
Real Estate Investment 1.70 2.64 We avoid office segment REIT
Trust owing to greater supply glut.
---------------------- --------- --------- -----------------------------
Commercial Services 0.30 1.02 Our stock in this sector has
resilient earnings but trades
at low range of multi-year
valuation.
---------------------- --------- --------- -----------------------------
Oil & Gas Extraction 0.00 0.75 Our stock in this sector
trade at low range of
multi-year valuation.
While financial markets in developed economies appeared to have stabilized, the effect of de-leveraging has negatively impacted the financial systems in the emerging markets. The withdrawal of global liquidity and risk aversion exerted systemic pressure on the currencies and risk premium of Asian credits. While Singapore has a strong macro environment, it would not be immune to the fall-out, as nearly half of the stock market's earnings are derived from the region. Globally, the real economy is also expected to decelerate in the coming months.
The escalation of risk premiums in emerging economies and economic downturn are expected to keep volatility at elevated levels despite historically attractive market valuations. We see a good chance of a relief rally should credit conditions in emerging Asia improve. We are convinced that this will happen sooner rather than later, owing to the much stronger fiscal position of Asian economies today, compared to other emerging regions and also compared to the Asian currency crisis in 1998. However, a more convincing recovery for the stock market will have to wait for earnings risk to plateau. This is likely to happen only when we are nearer to the bottom of the economic downturn.
Non-oil domestic exports are likely to stay weak owing to sluggish external demand. There will be a higher rate of job loss in the months ahead as the impact of financial sector meltdown comes to the fore. Capital values and rentals of properties will fall after rising to sizzling heights last year. Despite de-leveraging in the private sector, we expect public spending to step up. Monetary conditions have been eased to stimulate economic activities. Fiscal measures are also expected to be implemented to cushion the effect of the external slowdown. Legislative change to include capital gains on Singapore's foreign reserves in its budget suggests that there will be greater flexibility for the government to boost spending without undue constraint.
Earnings-based valuations are at historical lows, but with skepticism over the earnings outlook, this is unlikely to revert to mean in the near future. Book-based valuations are also near multi-year lows, despite the improving return on equities. Short-term fluctuations aside, we believe the market valuations are extremely attractive on a three-year perspective.
The Fund is tilted towards earnings-resilient domestic sectors and big-caps. After recent sell-offs in the stock market, we are starting to find deep value in other sectors as well. Our bottom-up research focuses on factors such as earnings risk and refinancing risk. We believe it is still too early to go back to mid-caps at this stage of the market.
The ten largest industry classifications of the Fund's equity investments held at October 31, 2008 were:
Percentage of
Industry Net Assets
-------------------- -------------
1. Banks 22.26%
2. Telecommunications 13.07
3. Conglomerate 8.15
4. Property Development 6.69
5. Shipyards 5.09
6. Transportation-Air 4.85
7. Industrial 4.79
8. Transportation-Land 4.26
9. Communications-Media 3.54
10. Diversified 3.11
The ten largest individual common stock holdings at the same date were:
Percentage of
Issue Net Assets
-------------------- -------------
1. Singapore Telecommunications Ltd. 13.07%
2. United Overseas Bank Ltd. 12.37
3. Oversea-Chinese Banking Corp. Ltd. 9.89
4. Jardine Matheson Holdings Ltd. 5.69
5. Singapore Airlines Ltd. 4.85
6. Singapore Technologies Engineering Ltd. 4.79
7. SMRT Corp. 4.26
8. Keppel Corp. Ltd. 4.01
9. Singapore Press Holdings Ltd. 3.54
10. Hong Kong Land Holdings, Ltd. 3.15
QUARTERLY RESULTS OF OPERATIONS
Net Realized
and Unrealized
Gains (Losses) Net Increase
on Investment (Decrease) in
For the Quarter Net and Foreign Net Assets
Ended Investment Currency Resulting
Income (Loss) Transactions From Operations
--------------- ------------------ ------------------
Total Per Total Per Total Per
(000’s) Share (000’s) Share (000’s) Share
------- ------ --------- ------- --------- -------
January 31, 2008 $ (5) $ 0.00 $ (48,499) $ (5.22) $ (48,504) $ (5.22)
April 30, 2008 849 0.09 8,338 0.89 9,187 0.98
July 31, 2008 891 0.10 (16,713) (1.81) (15,822) (1.71)
October 31, 2008 774 0.08 (62,263) (6.63) (61,489) (6.55)
------- ------ --------- ------- --------- -------
For the Year Ended
October 31, 2008 $ 2,509 $ 0.27 $(119,137) $(12.77) $(116,628) $(12.50)
======= ====== ========= ======= ========= =======
January 31, 2007 $ 59 $ 0.01 $ 27,685 $ 2.99 $ 27,744 $ 3.00
April 30, 2007 378 0.04 14,856 1.60 15,234 1.64
July 31, 2007 587 0.06 19,839 2.14 20,426 2.20
October 31, 2007 459 0.05 17,387 1.88 17,846 2.20
------- ------ --------- ------- --------- -------
For the Year Ended
October 31, 2007 $ 1,483 $ 0.16 $ 79,767 $ 8.61 $ 81,250 $ 8.77
======= ====== ========= ======= ========= =======
PER SHARE SELECTED QUARTERLY FINANCIAL DATA
For the Quarter Ended Net Asset Market Share
Value Price* Volume*
--------------- --------------- -------
High Low High Low (000)
------ ------ ------ ------ -------
January 31, 2008 $22.92 $15.66 $20.49 $14.03 1,546
April 30, 2008 17.32 14.95 15.98 12.90 1,024
July 31, 2008 17.64 15.31 15.50 13.21 1,083
October 31, 2008 15.37 7.94 13.80 7.01 1,396
January 31, 2007 17.38 14.66 16.77 13.27 1,887
April 30, 2007 19.01 16.38 19.47 15.01 3,502
July 31, 2007 21.71 18.67 19.23 16.39 1,552
October 31, 2007 22.97 17.81 20.72 14.17 1,891
*As reported on the New York Stock Exchange.