5 Things to Consider before Opening an Account to Invest in SGX stocks

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Kory Short
5 years ago
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1 5 Things to Consider before Opening an Account to Invest in SGX stocks Hi friends, I m Ian, a Malaysian. I m not a citizen or a Permanent Resident (PR) of the Republic of Singapore. I don t possess a Singapore Employment Pass either. So, what got me into investing in Singapore? Here s a couple of reasons. a. Familiarity I admit that I ve cheated a fair bit. My mom is a Singaporean. I ve been in and out of Singapore enough to be reasonably familiar with it. But, please don t compare me with people in JB as some of them are in and out of Singapore nearly every single day. Salute to them as I dislike crossing the border. b. Protection Regrettably, the Ringgit is not a strong currency. It s not just about 1MDB and political scandals that we are witnessing today. For years, Malaysia has reported years of budget deficits and rising national debt. This, to me, is a fundamental issue. It s similar to a stock that has reported a string of operating losses. Thus, I needed protection against the potential decrease in value of my Ringgit. Initially, I started with gold and silver. They have served their purposes as hedges. Alternatively, I considered the SGD as Singapore has reported years of budget surpluses. To me, holding SGD is like having a stock that is profitable, thus, giving it its value over the long-term.

2 c. Passive Income But, it s not good enough to hold onto SGD. As a Malaysian, I can t open a bank account in Singapore unless I m working in Singapore. Even if I can, FD accounts are not an option as theirs pay under 1% in interest income. Instead, I thought it to be a better idea to receive my some passive income in SGD from my investment. Since 2014, I ve started to compile data and information on stocks listed on the SGX. My focus was on Singapore-based REITs for the REIT market is more well-developed than what we have in Malaysia. However, it was only in 2016 that I started to open a global share trading account to invest in them. Why 2016? Why not earlier? This is because most of these REITs has experienced a drop in stock prices despite maintaining growth in profits and income distribution to their shareholders. Some decline were as much as 15% - 30%. It s a shopping spree compared to levels in 2014 and After all, value investing is about buying good quality stocks at reasonably low prices (undervalued). So, I suppose, it was a good moment to enter the market. Thankfully, I was rewarded. But, along the way, I ve learnt a few things and gained some valuable experiences. Here, I would like to share five things to consider before opening an account to invest in SGX stocks. They include: #1: Trust Account I use Maybank IB as my broker. Most of the materials below are written in the context of a customer of Maybank IB. If I buy a stock listed on Bursa Malaysia, the shares bought are credited into my Central Depository System (CDS) account.

3 Instead, if I buy a stock listed on the SGX, the shares bought are placed under my Trust Account. It s different from having shares in my CDS account. The major difference to me is that I can t personally attend AGMs and EGMs to cast my vote. But, that s okay with me for I rarely attend AGMs and EGMs for my own stocks which are listed on Bursa Malaysia. #2: Placing Orders Maybank IB allows us to buy or sell SGX stocks via its online platform. The orders are placed online. For the first time, I had estimated the amount of investment for my first transaction. I needed to bank-in a figure slightly more than the amount before placing an order. This is because the orders are made in SGD. The final contract note will be delivered to you via which will state the exact amount of investment in Ringgit. This was after taking into consideration of the daily exchange rate between SGD:MYR and the relevant transaction fees which I ll elaborate shortly.. Today, I don t need to deposit an amount before placing an order. Here s what I usually do. I placed an order. I wait for my contract note. I deposit the exact amount. Then, I called the stockbroker to inform him that I ve made the deposits. Once he is informed, the transaction is completed. #3: Transaction Fees The transaction fees that I ve paid so far includes brokerage fees, foreign agent fees, and GST charges. As I made below RM 20,000 per transaction (subject to calculation), the total fees I ve paid was S$ or RM Isn t quite hefty? This is why it only made sense if I buy stocks that pay regular dividends. You must factor in these costs when calculating your net dividend yields. I think, it is not a good idea if you are looking to trade for short-term gains. The transaction costs will eat up your earnings pretty quickly and there s no real method to recoup your transaction fees.

4 #4: The 1% Rule Here, I ll share a trick to minimize your cost per transaction on a single stock. It s known as the 1% rule. This means, the total transaction costs should be capped at 1% of the gross investment value. Let me elaborate further. For instance, I intend to buy a stock at S$ 1 a share. If I intend to buy 500 shares, my gross investment is S$ 500. With an additional S$ 32.71, my total investment is S$ The transaction fees is 6.54% of my gross investment value. This means, I need to make, at least, 6.54% to recoup my transaction costs for buying the stock. Obviously, we have not considered the transaction costs for selling the stock. Instead, if I buy 5,000 shares, my gross investment is S$ 5,000. With an additional S$ 32.71, my total investment is S$ 5, The transaction fees is 0.654% of my gross investment value. This makes better sense as it fits into the 1% rule. If you buy any Singapore listed REITs, you should aim to recoup back your transaction costs within the first dividend payout to you (within 3 to 6 months). But, I have breached the 1% rule with my first purchase. Is there a way to rectify this? Fortunately, it is a Yes. Here s what I did. Fortunately, I have the opportunity to buy back shares of the same stock with greater quantity at a good price. It has dramatically lowered my cost per transaction on a single stock. Here s how. From the above example of 6.54%, let s say, I have the opportunity to buy the stock at S$ 1 a share. This time, I buy 4,500 shares. Thus, my gross investment is S$ 4,500. My total investment is S$ 4, If I add the two transactions, I would own 5,000 shares at S$ 5, The transaction fees have been effectively lowered to 1.31% instead of 6.54%. So, it is advisable to not buy in bulk and as well as to buy back the same stock.

5 #5: Dividend Handling Fees For Maybank IB, I was charged S$ 1.73 in fixed dividend handling fees for every distribution received. This means, if I buy a stock that pays dividends once a year, my handling fees is S$ However, if I buy a stock that pays quarterly distributions, I would incur S$ 6.92 in fixed dividend handling fees. This should be considered when calculating net dividend yields from investing in Singapore listed REITs. If you have been following my case studies, you would find the calculation. If not, please stay tune for my case studies in the future. Conclusion: In short, is investing in Singapore for you? It is a good option if you intend to: a. Invest in a good quality stock for the long-term. b. Receive Dividends in SGD c. Move some of your money away from Malaysia It is a bad option if you intend to: a. Trade b. Invest with RM 1,000 per transaction (Like me, sometimes, I didn t follow the 1% rule. But, at least, I suppose 2% - 3% is still somewhat acceptable. The ideal minimum amount per transaction is RM 3,500 and above) c. Invest only for capital gains without dividend yields I think, I ve covered quite a lot of ground. I hope that they are helpful to you to decide whether investing in Singapore is suitable for you.

6 Regards Ian Tai Creator of Disclaimer: The strategies outlined in this article / report / written material is intended for education & illustration purposes. It is strictly not intended to be an investment advice & must not be relied upon as personal financial advice. If you need specific investment advices, please consult the relevant professional investment advices. No warranty is made with respect to the accuracy, adequacy, reliability, suitability, applicability, or completeness of the information contained. The author disclaims any reward or responsibility for any gains or losses arising from direct and indirect use & application of any contents of the article / report / written material.

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