Software engineer Zhang Yiming started out producing apps for sharing jokes before focusing on news aggregation. That pivot proved lucrative.
The 35-year-old founder of Bytedance Ltd. is worth about $13 billion, according to the Bloomberg Billionaires Index, making him China’s 9th-richest person and one of the fastest in modern times to amass a mega-fortune. The business, founded in 2012, has more than 1 billion active monthly users across eight mobile apps, including a news aggregator powered by artificial intelligence and a video-sharing platform.
His rapid wealth accumulation is a sign that China hasn’t lost its knack for creating mega-rich company founders despite a slowing economy. It also helps explain why authorities seem to be taking a more tolerant stance toward a corporate structure favored by the country’s technology tycoons, most of whom have chosen to list their businesses overseas.
Zhang’s fortune is harder to calculate than the founders of Baidu Inc. and Tencent Holdings Ltd. in part because his company isn’t yet public. It’s also difficult because Bytedance is structured in the same way as the two tech behemoths — a complicated ownership system known as a variable interest entity.
Of the 44 Chinese tycoons on Bloomberg’s wealth index, eight are tech moguls with VIEs listed outside China. The billionaires’ combined net worth exceeded $150 billion as of March 21, and their stakes weren’t publicly known until the companies filed with regulators ahead of going public in New York or Hong Kong.
VIEs have never been formally endorsed by the Chinese government. But in an acknowledgment of their importance, officials will soon permit VIEs to go public in the country, allowing them to list on a new technology-focused exchange set to launch in coming months.
Bytedance is, for now, a closely held VIE with a complex structure that involves layers of holding companies.
Its main business, Jinri Toutiao, is ultimately owned by Zhang and Bytedance Senior Vice President Zhang Lidong through a Beijing-registered holding firm, according to China’s National Enterprise Credit Information Publicity System. Zhang pledged his 98.8 percent stake to another Beijing company, which in turn is owned by a Hong Kong-registered firm. That entity, where Zhang is a director, is owned by a company registered in the Cayman Islands. The principals won’t be disclosed unless there’s an IPO prospectus.
The Bloomberg Billionaires Index calculated Zhang’s net worth by pegging his stake at 65 percent and using the company’s valuation of $20 billion, a figure provided in 2017 by people with knowledge of the matter. The analysis assumes his stake has been diluted through funding rounds.
Bytedance is said to have secured a $75 billion valuation in late 2018, making it the world’s most valuable startup — though the figure isn’t used in the net worth calculation because the details haven’t been confirmed.
Yin Ai, a Bytedance spokeswoman, declined to comment on Zhang’s wealth or the ownership structure.
Zhang uses a VIE because Chinese regulations limit foreign investment across more than 30 sectors including the internet, telecommunications and education. The VIE structure — which allows offshore companies to control domestic Chinese businesses through contractual agreements — circumvents the rules and allows, for example, Baidu’s holding company to be based offshore (and list in the U.S.) while still being a dominant force in China.
Internet giant Sina Corp. pioneered the VIE model so that it could transfer income from onshore operating businesses to an offshore holding company, an arrangement that meant the Cayman Islands entity could list on the Nasdaq Stock Market in 2000.
There are risks to the structure for foreign investors, said Donald Clarke, a specialist in Chinese law at George Washington University.
“A contract entered into for an unlawful purpose is invalid under Chinese law,” he said. “Any time the government wants to pull the plug, it can.”
Still, that hasn’t stopped more than 100 companies using VIEs in offshore IPOs, according to research by Zhou Fang, a Beijing-based partner at law firm JunHe LLP, who predicts that more companies will follow.
That growth helps explain why authorities are slowly embracing VIEs. Earlier this month, China enacted a foreign-investment law that allayed investor concerns about the future of such companies, while unicorn VIEs will be able to list on the new exchange in Shanghai, known as the Tech Board.
“To some extent, it shows the government easing concerns over VIEs — but they still care about who’s the ultimate controller of the company,” said Zhang Biwang, a partner at Allbright Law Offices. As long as the controller of the company remains a Chinese citizen, “the government won’t shut their eyes and ignore reality to make the companies give up VIEs.”
— With assistance by Blake Schmidt
Best Bitcoin Exchange for Singapore
Singapore has no plans to regulate crypto currencies like the Bitcoin. If necessary, however, the city-state wants to subject individual entrepreneurial activities related to virtual money to legal regulation. This is the result of an interview with the head of the Singapore Central Bank.
The most important crypto currencies have increased significantly since the beginning of the year. The capitalisation of Bitcoin alone rose by more than five and a half times to currently over 100 billion US dollars. As a result, digital means of payment have come into the focus of regulatory authorities worldwide. For example, China and South Korea have banned the raising of capital by Initial Coin Offerings (ICOs). Communist Vietnam prohibits virtual currencies altogether. Russia goes a little less far. President Putin demands by decree a registration obligation for Miner and the subordination of ICOs under securities law.
Activities, not regulating crypto currencies
Singapore may not follow this trend. In an interview with Bloomberg, Ravi Menon, Managing Director of the Singapore Central Bank, says: “At the moment I don’t see any reason why crypto currencies should be regulated. Menon is aware that crypto money is often used for illegal purposes. But the risk, in his opinion, does not come from the digital currencies themselves, but from the activities surrounding them. For the central banker it is therefore clear that the legislation must deal with the risks of these activities and not with virtual money as such.
Securities law applies to ICOs with dividend promises
Menon points out that trading platforms and other crypto currency intermediaries are already subject to Singapore’s anti-money laundering and anti-terrorist financing rules. In addition, a new law is underway for payment service providers that formalizes these rules. Unlike the Russian president, Menon sees no need to subject ICOs to securities law in general. However, securities law is already being applied in Singapore today if dividend-like advantages are promised within the framework of an ICO.
The head of the central bank is not alone in his open stance towards Bitcoin and its Singapore counterparts. Already at the beginning of October, the Deputy Prime Minister of the island state denied the intention to regulate crypto currencies in his answer to a parliamentary question.
As one of the so-called tiger states, Singapore managed to make the leap from an emerging country to an industrial state or an economy primarily geared to services within just a few decades. The development of the economy began in colonial times. Already in the 19th century, when Singapore became a British colony, it was regarded as a large goods transhipment centre with its very favourable water traffic location between China and Europe. As a result, commercial and industrial areas are located mainly on the coasts. Many products are merely processed or refined in Singapore, e.g. food, oil, rubber, steel and machinery. Singapore’s trading partners are the USA, Great Britain, China, Japan, Hong Kong, Malaysia and Thailand. Despite its small size and small population, Singapore was the eleventh largest exporting nation in the world in 2016 with exports of goods and services worth 511 billion US dollars. Singapore was also one of the few nations in the world in which the value of exports exceeded that of gross domestic product, which demonstrates Singapore’s close links with world trade. In the World Economic Forum’s Global Competitiveness Index, Singapore ranks second behind the USA in 2018.
There are still disputes with Malaysia about the water supply and the billing of the costs incurred. Singapore is urgently dependent on water imports. Water is supplied by Malaysia and treated by Singapore. There are also (border) disputes over Singapore’s land reclamation, bridge construction and maritime borders. Malaysia contractually guarantees water supply until 2061.
Singapore is one of the most deregulated and privatized economies in the world. It ranked second behind Hong Kong in the Economic Freedom Index in 2017. Singapore is one of the most liberal economies in the world. A major exception is the highly regulated housing market. The state also has an influence on economic events through the holding company Temasek, which is owned by the government. Temasek invests strategically in the country’s companies. Singapore is striving to become a biotechnology center in Asia. A*STAR, the Agency for Science, Technology and Research, a government agency, supports research capacities in Singapore. The newly created Biopolis is home to private and state institutes, biotech and pharmaceutical companies. The port of Singapore is one of the most modern and largest transshipment centres in the world. The Straits Times Index is the leading stock index on the Singapore Exchange.
Singapore is particularly important as an international financial centre and in wealth management, i.e. as a tax haven. In 2017, Singapore was ranked 4th on the list of the 17 largest tax havens in the world by the organization “Global Citizens”. Following the financial crisis in 2008/09, the volume of assets managed in Singapore doubled to around 2.5 trillion Singapore dollars by 2015. Some of these funds were invested in huge shopping malls, hotels and other local investments, so that overcapacities in trade are lamented. Since 2014, the banking sector has been in a phase of consolidation. Some European banks closed their subsidiaries. Singapore ranked 4th in a ranking of the world’s most important financial centres (as of 2018).
With 11.8 million foreign visitors in 2015, Singapore was one of the most visited cities in the world. Tourism is promoted by the government through marketing campaigns and generates billions in revenue every year. Singaporeans themselves are allowed to enter 159 countries without a visa, making Singaporeans the most powerful passport in the world, as Paraguay lifted the VISA restrictions on Singapore on 24 October 2017, putting Germany in second place with 158 countries.
According to Transparency International’s Corruption Perceptions Index, Singapore was ranked 6th out of 180 countries together with Sweden in 2017, with 84 out of a maximum of 100 points. Of all Asian countries, Singapore thus had the lowest level of corruption.
According to the Economist Intelligence Unit, Singapore will be the most expensive city in the world in 2014. In a ranking of cities according to their quality of life, Singapore ranked 25th out of 231 cities surveyed worldwide in 2018.
What is an ETF and what does it do?
An exchange traded fund (ETF) is a fund traded on a stock exchange, which seeks to copy a specific market index such as Singapore’s Straits Times Index. And there are ETFs for different asset classes – the most popular being stocks, bonds and commodities.
Because an ETF essentially seeks to copy a particular index, investor returns should be close to that for the chosen market index it follows. But it does not necessarily mean an ETF’s returns will be exactly the same as that of the underlying index. There is something called “tracking error”. To closely replicate the performances of underlying indices, these ETFs have to constantly adjust the number of shares held in specific stocks as stock prices fluctuate. Time lags between market price movements and the adjustments in the ETF’s stock holdings can cause differences between the ETF’s performance vis-à-vis the benchmark index’s performance.
Why do people invest in ETFs?
ETFs are useful investment instruments for new investors who want stock diversification from relatively small outlays. This is because buying into one ETF gives investors access to the performance of a larger portfolio of stocks or bonds. This reduces single stock/single bond concentration risk.
Also, they have lower costs. Management fees are lower because they are passively managed and do not employ fund managers for stock selection. They just buy the stocks to replicate the underlying index.
ETFs suit investors who are not trying to get better returns than the underlying index – that is, people who are happy with matching the index in returns performance.
Where do you start?
You can invest in ETFs through either trading platforms (you’ll need a trading account) or regular savings plans (RSPs). For investments via trading platforms, you can invest in lump sums, whenever you wish. For RSPs such as POSB Invest-Saver, under which a fixed amount is invested every month via GIRO, you can start with as little as S$100 a month.
Advantages of a regular monthly investment in ETFs
For starters, you don’t need substantial capital to start investing.
And it removes the difficult decision-making involved in market timing. Often novice investors delay getting started because they agonise over the timing of their investments. A RSP imposes a commitment to invest a certain amount every month. It works on the idea of averaging out the prices paid over time and relying on the idea that good stocks and bonds generally build value over time.
What ETFs can i buy in singapore?
There is a range of ETFs traded on the Singapore Stock Exchange (SGX) offering investment access to diverse markets, from stocks to bonds to commodities. The range of geographies covered is very extensive, including Singapore, China, Japan, Europe and the United States.
Under the POSB Invest-Saver RSP, two SGX-traded ETFs offered at the time of writing this article are the Nikko AM Singapore STI and the ABF Singapore Bond Index Fund.
The Nikko AM STI ETF invests in companies that make up the Straits Times Index. The STI is an index of Singapore’s top 30 companies, including well-known blue-chip stocks such as the three local banks, Singtel, Keppel Corporation and CapitaLand.
Investors in the ABF Singapore Bond Index ETF are putting money into a range of bonds, mostly issued by the Singapore Government and quasi-Government bodies.
Another ETF offering investment in Singapore stocks is the SPDR Straits Times Index ETF.
Investing beyond singapore via ETFs
If you want to go beyond investing in Singapore, you can also invest in global markets through a range of other ETFs traded on the SGX.
As indicated above, the range is extensive, including (but not limited to) ASEAN, Japan, China, Europe, and US stock index ETFs. One popular example is an ETF which tracks the S&P 500 Index – the SPDR S&P 500. The S&P 500 is an American stock market index of the top 500 companies listed on the New York Stock Exchange or NASDAQ. The companies here include names such as Apple, Microsoft, Amazon, Facebook and Warren Buffett-led Berkshire Hathaway.
There are also commodities and gold ETFs.
And it all starts with as little as a few hundred dollars
As we have outlined above, you can start with S$100 a month under a RSP.
Your CPFIS funds can be used for four of the SGX-traded ETFs (SPDR Gold Shares, SPDR Straits Times Index ETF, Nikko AM Singapore STI ETF and ABF Singapore Bond Index Fund). And the Supplementary Retirement Scheme can be used to invest in all SGX-traded ETFs.
If buying directly on the SGX (rather than through a RSP), you can work out quickly how much you need to start by asking your bank or stockbroker the minimum “board lot” size. These ETFs most commonly trade in board lots of 10 and 100.
For example, the ABS Singapore Bond ETF trades in board lots of 100. At its price at time of writing of S$1.12, you need S$112 to begin. The Nikko AM STI ETF also trades in board lots of 100 units. And at its price of S$3.31 at time of writing, you need S$331 to begin.
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Exchange Traded Funds (ETFs) have grown in popularity over recent years. What are their features and benefits? The most distinctive feature is they do not try to beat the market – they do not attempt to outperform their chosen market index. They only seek to track the chosen market index so investors get a return that is close to what the index makes. Bear in mind, there may be small variations against the index’s actual returns – something called “tracking error”.
So, for example, if the ETF invests in Singapore stocks, then their chosen market index is the Straits Times Index (STI). The Singapore market ETF does not try to do better than the STI – they are structured to closely (not perfectly) track the index.
1. Lower management fees than those typical for unit trusts:
ETFs bear significantly lower annual management fees because of this distinctive feature of not attempting to beat the market but to simply follow the market. So, they do not need to hire fund managers to “actively manage” the holdings. All they do is structure their stock holdings to closely mirror the performance of the underlying index. This is called “passive investment” and costs less than “active management.” Management fees will differ in different ETFs. But generally, they are significantly lower than for unit trusts. As an example, the Nikko Asset Management Singapore STI (Straits Times Index) ETF had an annual management fee of 0.2% last year. This was much lower than management fees charged by unit trusts, which are typically around 1% and sometimes more. But to be fair, this means investors are giving up the possibility of putting their money with a unit trust fund manager who may outperform the fund’s benchmark index. So, ETFs make sense where unit trusts available in your chosen market are not outperforming the benchmark index sufficiently to justify their higher fees.
2. Unlike unit trusts, there are neither initial sales charges (subscription fees) nor redemption (realisation) fees for etfs.
Unlike the situation with unit trusts, investors who buy ETFs on the SGX don’t pay initial sales charges. Nor do they pay redemption fees for selling their ETF units. An alternative to buying through a broker is investing via a regular savings plan. But for smaller amounts such as S$100, the sales charge is likely to be much cheaper than buying through a brokerage because it is common for brokerages to charge a minimum fee (often around S$25) for trades.
3. Small initial investment.
ETFs can typically be bought and sold on the Singapore Exchange (SGX) for board lots of 100 units. That translates into smaller initial investments than for unit trusts. For example, the ABF Singapore Bond ETF was trading at $1.117 at the time of writing – which translates to investments from as little as $112. Another example is the Nikko Asset Management Singapore STI ETF, which traded at $3.44, translating to investments as little as $344. Unit trust investments typically start at $1,000 although they can be much lower under a regular savings plan. However, the minimum brokerage fees mentioned above in #2 can be quite substantial in percentage terms for small amounts. So, in this instance, again, where investing in small amounts, it might be more cost efficient to buy ETFs through a regular savings plan.
4. Diversification for a small outlay.
For example, the SPDR Straits Times Index ETF holds 30 stocks to replicate the Singapore market index. That’s available at board lots of 100 units. And at a price of $3.39, that’s giving investors access to a small slice of a 30-stock portfolio for only $339.
5. Reducing single stock risks.
So, it follows that if a retail investor was to start with only a few thousand dollars, the chances are he will only be able to start with one stock. That exposes the investor to “single stock concentration risk” – meaning he has put all his available investment dollars in one stock. And if something averse happens to that stock, the investor’s entire portfolio is affected. By investing in an ETF with 20-30 stocks, the impact of poor performance in any single stock is diluted.
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In a country like Singapore, with both unregulated and licensed providers in the industry –
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A few basic questions to ask
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