Christmas comes early to Singapore this year. The streets around the Padang are lined with barricades.
This has been done to create a smooth flow for the Formula One (F1) drivers this weekend. Racing cars will not be the only thing that is flowing in Singapore. The privileged few that are attending the F1 events are guzzling champagne. There is conference hyperinflation in this city. These include events like the Milken Event and the Asian Family Office Summit.
There is an explosion of entertainment in the evenings. Revellers from around the world are dancing into the humid night. Nearly 300,000 will line the streets to watch the concerts.
The credit for this extravaganza lies with a man who would not be at the race. Most accounts of the F1 talk about Bernie Ecclestone, the tiny man from East London who put the F1 on the world map.
Ecclestone was not the mastermind of F1 as an entertainment spectacle. It was Chase Carey, who became the CEO of F1 in 2017. Carey was appointed after Liberty Media, a private equity fund, took over control of the sport.
Chase Carey’s arrival in F1 was transformative. The sport had been run by Ecclestone as a personal fiefdom. Carey was a Harvard MBA with a thick moustache that was fashionable in the 19th century. The moustache conceals a scar from a car crash. It has also given him gravitas and helps him get spotted among clean-shaven executives.
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Despite his old-fashioned appearance, he had a new vision for the sport. He wanted to add concerts with singers like Taylor Swift and Coldplay. Kids could also participate in virtual racing games. There are several on offer in Tanglin Mall and Great World City.
F1 is not listed on the stock market. There are other ways to ride on that track. The best proxy for the sport may be in Singapore, which is on the verge of a boom in travel and tourism. Hotel rates range between $600 and $1,000, three times the usual amount. Restaurants are packed.
In 2019, 19 million tourists arrived in Singapore. We are still below that level. There is pent-up demand for travel. Tourist arrivals next year could exceed pre-pandemic levels.
Hospitality stocks on the Singapore Exchange S68 (SGX) have not risen as much as hotel rates. Far East Hospitality Trust Q5T is still 18% below its February 2020 levels. It holds nine hotels and three serviced residences. The market is expecting its revenue to match 2019 levels this year.
OUE Commercial Trust is another that is still 30% below its pre-pandemic high in P/B terms. Its assets include the Hilton Orchard and Crowne Plaza Changi. These marquee names could surge from thronging visitors.
This year’s F1 race has been well-timed. The rate hikes that began in March 2022 may be coming to a halt. There is a prospect of a rate cut of 50 basis points this week. More cuts may follow.
SGX has benefited from rate cuts in 2007 and 2009. In fact, SGX rose higher than any other Asean market in the six months after the hikes.
At less than 13 times P/E and a dividend yield of 5%, SGX is the most attractive in the region. Singapore REITs (S-REITs) are an obvious beneficiary of a rate cut from an operational perspective. It would mean that the cost of funding would become cheaper. S-REITs could also receive a boost from an investment perspective. At an average yield of 5%, they would stand out as a source of income as rates fall.
Singapore has a slew of dividend diamonds. These are companies that pay over 30% of their profits as dividends steadily. The companies also have consistent dividend payout rates over the last decade. These include Singapore Telecommunications Z74 (Singtel), Thai Beverage Y92 and ST Engineering.
The firing shot in this year’s F1 will be on Sunday. It may not just mark the start of a race, but also a travel boom. Investing in the SGX could be more fun than the parties this weekend.
Nirgunan Tiruchelvam is head of consumer and internet at Aletheia Capital and author of Investing in the Covid Era.
