CIO’s Letter By Jeffrey Lee, MD & CIO of Phillip Capital Management

By January 9, 2019 October 29th, 2019 No Comments

Dear Investors,

Here’s wishing you a Happy & Prosperous New Year!

A few themes stand out for me amidst this challenging investment environment. First, the withdrawal of liquidity has been a prime catalyst of the market correction. Given the attractive valuations of risk assets, a reversal of these conditions in 2019 may spark a sharp relief rally. Next, as the multi-decade-long property market cycle in Asia ages, financial instruments (especially income-focused products) will increasingly complement residential investments as the key component of portfolio wealth. With concerns of peak globalisation and margins, the focus on dividends, quality, and protection of principal makes sense in this environment. Finally, investors may want to consider sustainable investing as a way to reduce risk and improve returns.


The market correction at the end of 2018 was primarily liquidity driven; the Fed’s determination to unwind its quantitative easing policies drained liquidity from markets, while the Chinese government’s attempts to reduce shadow banking and reform bank balance sheets caused a decline in lending and a reduction in overall monetary growth. Because this liquidity-induced growth slump was created by governments, the solution is also policy-driven. China’s recent move to reduce the reserve requirement ratio is a sign that its regulators have begun to loosen its monetary policy, as growth rates must be sustained to create sufficient jobs to absorb the rapidly urbanising population. The Fed is also having second thoughts about raising rates too quickly for fears of crimping the domestic economy at a time when key indicators (wage growth, manufacturing activity, auto sales, house prices) have started to slow. After a painful December, bruised investors are now excessively bearish towards markets and have fled to safe-haven assets. Any incremental improvement in economic data or a pause in the Fed’s rate hikes is likely to lead to a sharp and decisive rebound in risk assets such as equities.

Valuations of stocks, especially in Asia, are attractive suggesting favourable risk-reward. In our experience, Asian markets go through phases of extreme sentiment swings. When markets are bullish and risk-taking sentiment is high, Asia becomes the bastion of global growth, and investors pay a premium for these assets. When markets are bearish and risk-aversion is prevalent, such as today, the flaws of Asian assets are highlighted – such as poorer corporate governance, currency risks, low liquidity, high volatility. This is despite the fact that Asian companies have strong balance sheets and adequate buffers to ride out a slowdown in demand. Debt levels in Asia are half of the levels during the 1997 Asian Financial Crisis, as companies have learnt their lessons from taking on too much leverage.

Market (Index)Total Return (p.a.)P/E Ratio (2000-2009)P/E Ratio (2010-2018)
Asia-ex-Japan (MSCI AEJ)8.8%16.4512.6
US (S&P 500)5.6%19.6%17.5%
Japan (Nikkei 225)3.9%37.119.7%

Source: Bloomberg

Figure 1: Market returns from Dec-2000 to Dec-2018

As seen in Figure 1, long-run total returns (9%) have been remarkably stable in Asia and superior to the rest of the world, but negative sentiment to the region has seen its earnings multiple derate to a large discount to the US and other developed markets. Institutional investors we talk to have been adding quietly and gradually to Asian and emerging market assets to capitalise on this valuation discount.


In addition to slowing economic growth, another theme we witness in Asia, is the end of a multi-decade long housing boom. House prices have started to fall after decades of extraordinary returns, with significant corrections in Australia, Hong Kong and smaller drops in Singapore, Malaysia, China. One reason for this reduction in property prices is the aforementioned liquidity crunch, reducing available financing for investment properties. However, in our view, the main reason for house price corrections is falling demand due to declining affordability. For example, in Shenzhen, it takes the average worker 35 years of wages to purchase a property. Compared to China, Singaporeans have it relatively easy due to the availability of public housing, with an average of 5 years income required to purchase a HDB flat. We do not think this property correction will have a huge impact on financial stability, as Asian banks have been conservative with loan-to-value buffers while having ample liquidity and high deposit liquidity. The exception is Australia, given its banks’ large exposure to mortgages and high levels of leverage due to tax policies(such as negative gearing), which have encouraged excessive risk taking.

We are also less bullish on Singapore residential property. Cooling measures imposed by the Singapore government on the domestic residential sector combined with higher interest rates have negatively affected both public and private house prices. Although the strength of the Singapore dollar and the stability of our political/legal system will continue to attract global investors, fundamentally we sense that the local supply-demand balance has shifted. With declining immigration numbers and slowing population growth, demand for local property is likely to fall and we think investors will not see the same magnitude of returns in property as enjoyed in the last few decades. Investors interested in real estate may wish to consider REITs instead. Singapore REITs deliver on average a dividend yield of about 5% as compared to residential rental yield of 2-3%.


While the US-China trade war dominates today’s news, watchful observers would have noticed major shifts in the political climate over the past few years, evident from events such as Brexit and the Trump presidency. Experts call this phenomenon “peak globalisation”, as citizens subjected to globalisation’s pernicious consequences are reducing their support for free trade and embracing isolationism. This will cause labour costs to rise, and coupled with higher financing costs from rates rise, will crimp profit margins of companies around the globe. In this late-cycle environment, investors must safeguard their portfolios by focusing on dividends and quality. A stream of dividends will be a steady component of portfolio returns even as capital returns remain volatile, providing a buffer during downturns while supplying income. Dividend stocks do well in bad markets: our dividend-focused Phillip SGX APAC Dividend Leaders REIT ETF and Lion-Phillip S-REIT ETF were resilient despite the sharp market correction in October 2018. High quality companies that have low debt and sustainable earnings also outperform during a risk-off, flight-to-safety mentality. Combining these concepts of dividends and quality, our recently launched Phillip SING Income ETF – comprising familiar names that provide essential products and services such as supermarkets, healthcare, banking and telecommunication services – was well-received by investors  looking for yield as well as downside protection.


The expected risk-adjusted returns from cash has improved considerably as compared to that of equities. The spread between S&P 500’s earnings yield and the yield of three-month T-bills has declined from a peak of 7.5% in 2009 to the current spread of 3.3%. As the spread may tighten further following potential rate hikes, holding cash provide attractive risk-adjusted returns for conservative investors. Switching to liquid assets such as the Phillip Money Market Funds which have comparable returns have increasingly been an attractive proposition amid the current market volatility.


In response to client requests, we are also exploring products that provide income as well as a tilt towards towards quality companies that score high on environmental, social and governance (ESG). We see growing demand for sustainable investing in Asia. Globally, both institutional managers and individual investors are trying to affect change in the world by aligning their investment dollars with their values. The foundation of sustainable investing is simple: it is about risk management. A company’s approach towards climate change, gender diversity and labour practices has a material impact on the business risks it faces and subsequently, the long-term growth trajectory of the firm. With studies which have shown that sustainable investments deliver better risk-adjusted returns in mind, we urge our investors to consider environmental, social and governance factors in their investments.

We wish you all the best for 2019.

The stormy markets will pass but our focus on quality, dividends and sustainability will not.


Important Information

This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM. An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details. Investments are subject to investment risks including the possible loss of the principal amount invested, and are not obligations of, deposits in, guaranteed or insured by PCM or any of its subsidiaries, associates, affiliates or PDs. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved. Any use of financial derivative instruments will be for hedging and/or for efficient portfolio management. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products. The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <> for more information in relation to the dividend distributions. The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice. The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. This advertisement has not been reviewed by the Monetary Authority of Singapore.


With effect from 1st July 2014, this FATCA Notice (the “Notice”) forms part of the terms and conditions of our products and services (the “Terms and Conditions”) governing your relationship (“you”, “your”, “yours” referred to herein include joint-account holders and beneficiary holders of an entity who are a natural person) with Phillip Capital Management (S) Ltd and its related corporations (collectively referred to herein as “PCM”, “us”, “we” or “our”) and should be read in conjunction with those Terms and Conditions, including those under our Personal Data Protection Notice.The existing terms and conditions of any contractual agreement entered into between PCM a nd you (the “Existing Terms and Conditions”) remain in full force and effect. In the event of any conflict or inconsistency between the provisions of this Notice and those of the Existing Terms and Conditions, the provisions of this Notice shall prevail.

We may from time to time update the Terms and Conditions listed here to ensure their consistency with our future developments,industry trends and/or any changes in legal or regulatory requirements. Such updates will be published at .

On March 18, 2010, the United States of America’s (“U.S.”) Hiring Incentives to Restore Employment Act of 2010 (Pub.L.111-147H.R.2847)) (the “Act”) was enacted into law. Section 501(a) of the Act added a new chapter 4 (sections 1471-1474) to Subtitle A of the U.S.’s Internal Revenue Code (Code).Chapter 4 expands the information reporting requirements imposed on foreign financial institutions (as defined in section 1471(d)(4)) (FFIs) with respect to certain U.S. accounts (as defined in section 1471(d)(1)) of specified U.S. person, and imposes withholding, documentation, and reporting requirements with respect to certain payments made to certain foreign entities.

PCM will be obliged to comply with the provisions of FATCA under the terms of the inter-governmental agreement (“IGA”) Model I between the U.S. and Singapore and under the terms of Singapore’s subsidiary legislation which will be issued pursuant to Singapore's Income Tax Act (Cap. 134) to implement the IGA. “FATCA” or “Foreign Account Tax Compliance Act” means Chapter 4 (sections 1471 to 1474) to Subtitle A of the U.S. Internal Revenue Code.

“FATCA” or “Foreign Account Tax Compliance Act” means Chapter 4 (sections 1471 to 1474) to Subtitle A of the U.S.Internal Revenue Code.

“U.S. person” means a U.S. citizen or resident individual, a partnership or corporation organised in the U.S. or under the laws of the U.S. or any state of the U.S. thereof, a trust if: (i) a court within the U.S.would have authority under the applicable law to render orders or judgments concerning substantially all issues regarding the administration of the trust; and (ii) one or more U.S. persons have the authority to control all substantial decisions of the trust, or an estate of a decedent that is a citizen or resident of the U.S..This definition shall be interpreted in accordance with the provisions of the U.S. Internal Revenue Code.

  • You shall provide all required documentation or information, including but not limited to your date of birth, countries of citizenship, countries of permanent residence, countries of tax residency and associated taxpayer identification numbers, which may be required to enable PCM to ascertain your U.S. tax status and share information and /or documents relating to you and/or your account(s) with domestic and international authorities for the purpose of complying with all the requirements of FATCA, the IGA between Singapore and U.S or other countries,any applicable Singapore or international laws or regulations.
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  • You shall notify PCM in writing immediately in the event of any change that affects your tax status for the purpose of complying with the requirements of FATCA, the IGA between Singapore and U.S or other countries,any applicable Singapore or international laws or regulations. Such change that affects your tax status may include any change of the country or territory of your domicile or residence or any change of your nationality or obtaining of any new nationality. In these instances, you shall provide all information and/or documents as required or requested by PCM.
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  • It is the existing policy of PCM that investment products and investment accounts managed by PCM (“PCM Products and Services”) are not being offered or sold to U.S. Persons and that subsequent transfer of PCM Products and/or Services to a U.S.Persons are prohibited.
  • If investment accounts or products managed by PCM are beneficially owned by a U.S. Person or if PCM deemed you as a recalcitrant and/or a reportable person,PCM may compulsorily cancel your pending subscription order or capital injection,terminate the contractual relationship with you and withhold an amount for transferring to the relevant tax authorities as required under the FATCA, the IGA between Singapore and U.S or other countries, any applicable Singapore or international laws or regulations. PCM shall have no liability for losses,fees, costs, expense, damages, liabilities of any kind which you may have suffered in connection with such cancellation, termination, withholding amount and/or as a result of our complying with the requirements of FATCA, the IGA between Singapore and U.S or othercountries,any applicable Singapore or international laws or regulations,even if we make an incorrect assessment and decision.



With effect from 1st July 2014, this Personal Data Protection Notice (the “Notice”) forms part of the terms and conditions of our products and services (the “Terms and Conditions”) governing your relationship (“you”, “your”, “yours” referred to herein include joint-account holders and beneficiary holders of an entity who are a natural person) with Phillip Capital Management (S) Ltd and its related corporations (collectively referred to herein as “PCM”, “us”, “we” or “our”). Without prejudice to the existing terms and conditions of any contractual agreement entered into between PCM and you (the “Existing Terms and Conditions”), which remain in full force and effect, this Notice shall be read in conjunction with the Existing Terms and Conditions. In the event of any conflict or inconsistency between the provisions of this Notice and those of the Existing Terms and Conditions, the provisions of this Notice shall prevail.

We are required under the Personal Data Protection Act (“PDPA”) to put in place the necessary arrangements to protect personal data and comply with the PDPA. Personal data includes any data and information, whether true or not, about an individual (a natural person) who can be identified from that data or information, such as your name, NRIC, passport or other identification number, telephone numbers, address, email address and any other information relating to individuals which you or your authorized representative have provided to us or we are likely to have access to (“Personal Data”).

This Notice outlines the purposes for the collection, use and/or disclosure of your Personal Data by PCM, how we protect your Personal Data and your rights with respect to the collection, use and/or disclosure of your Personal Data. This Notice supplements but does not supersede nor replace any other consents which you may have previously provided to us in respect of your Personal Data, and your consents herein are additional to any rights which we may have at law to collect, use and/or disclose your Personal Data. We may from time to time update the Terms and Conditions listed here to ensure their consistency with our future developments, industry trends and/or any changes in legal or regulatory requirements. Such updates will be published at

1. PCM may collect, use and/or disclose your personal data for any of the following purposes listed below (collectively “Permitted Purposes”):-

i) carrying out activities, duties and obligations in connection with our products and services which you have applied for, including evaluating your eligibility and credit profile, verifying the identity or authority of your representatives, administration of your account and/or managing our overall relationship with you (including but not limited to the outsourcing of any of our functions to service providers or vendors, due diligence checks, accounting and portfolio valuation, billing and collections, business continuity and print management);

(ii) developing new services and/or products;

(iii) providing you with marketing, advertising and promotional information, materials and/or documents related to financial products and/or services that we may be selling, marketing, offering or promoting, whether such financial products or services exist now or are created in the future;

(iv) marketing and promotional events, including but not limited to images, photographs or videos of you during the events;

(v) meeting or complying with PCM’s internal policies and procedures and any applicable rules, law, regulations, codes of practice or guidelines, orders or requests issued by any court, legal or regulatory bodies (both national and international) (including but not limited to disclosures to regulatory authorities or financial industry self-regulatory bodies; conducting audit checks (internal/external), surveillance and investigation; handling of customer feedback or complaint; dispute resolutions; recording of telephone conversations and/or electronic communications with you; conducting checks or investigations for prevention and/or detection of financial crimes such as money-laundering, financing of terrorism, fraud and/or bribery etc.);

(vi) legal purposes, including but not limited to obtaining legal advice and enforcing or defending our legal and/or contractual rights against you;

(vii) risk management, statistical and trend analysis;

(viii) processing and/or storing data and/or information related to your relationship with PCM.

2. PCM, in order to facilitate the discharge of its duties and obligations to you, may be required to disclose your Personal Data for the Permitted Purposes and/or for processing of the Permitted Purposes on a need-to-know basis, to any of the following entities and the directors, officers, staff, employees and agents of any such entities, whether located within or outside Singapore (“Relevant Persons”):-

(i) any associate or related company of PCM and the directors, officers, staff, employees and agents of any such person;

(ii) any actual or proposed assignee or transferee of any of PCM’s rights and obligations or any actual or proposed delegate of any of PCM’s functions and duties under its contractual relationship with you;

(iii) any relevant governmental, supervisory or regulatory authority or court of law, including the Monetary Authority of Singapore, to which PCM is or may be subject;

(ix) any person in order to give effect to any instruction from you or any person acting or purporting to be acting on behalf of you;

(x) any person as PCM may consider necessary in order to comply with any order, directive or policy of any court or governmental or regulatory authority in any jurisdiction;

(xi) any person when required to do so in accordance with the laws of any applicable jurisdiction or rules of any professional self-regulatory bodies or securities exchanges;

(xii) any agent, contractor or third party service provider who provides their services in connection with the operation of PCM’s fund management business, including but not limited to the custodians, trustees, fund administrators, registrars, banks, legal firms, accounting and auditing firms, printing firms, IT service providers, credit reference agencies, credit bureaus, data screening entities for the purpose of due diligence checks and the prevention and detection of financial crimes.

3. PCM’s related companies and third party service providers shall be bound by the same provisions as set out in this Notice and we will require them to ensure that your Personal Data are kept confidential and secure.

4. You represent and warrant that your Personal Data provided to us is accurate and complete for us to make a decision that affects you or to disclose your Personal Data to the above-mentioned Relevant Persons on a need-to-know basis. Where applicable, when you provided Personal Data relating to another individual (e.g. your dependent, spouse, children and/or parents) to us, you represent and warrant that such Personal Data is accurate and complete and the consent of that individual has been obtained for the collection, use and disclosure of his/her Personal Data in accordance with the provisions listed in this Notice.

5. We will retain your Personal Data to the extent that one or more of the Purposes for which your Personal Data was collected, used and/or disclosed is/are still valid and for legal, regulatory reporting or regulatory investigations purposes for which retention may be necessary.

6. PCM may terminate any contractual relationship which you may have with us, if any information provided to us is insufficient, misleading or erroneous or if any information that is required to be disclosed to any regulatory authority for compliance with any law or regulation is not provided by you.

7. You may request access to or make corrections to your Personal Data records. Depending on the information requested PCM may charge a small fee when you request access to your Personal Data. Upon your request and subject to the provisions under the PDPA, PCM will respond accordingly within reasonably possible time. Please submit your request to our Data Protection Officer via

8. You may withdraw your consent to any use or disclosure of your Personal Data for any or all of the Purposes as set out in this Notice by giving written notice to us. If you withdraw your consent(s), depending on the nature of your request, we may not be in a position to continue to provide our products or services to you or administer any contractual relationship in place. Such withdrawal may be considered a termination by you of any agreement you may have with us. Where there is any breach of your contractual obligations or undertakings, PCM’s legal rights and remedies are expressly reserved in such event.