Hi Folks, welcome back to Investment Income for Life. Today’s post is a
little different from my usual dividend and portfolio updates. Over the past
two weeks, Singapore has found itself on the receiving end of some rather
hostile words, and now actions, from across the Straits. As investors living in
a small, resource-poor city-state of Singapore, I think it is worth stepping
back and asking what this episode tells us about risk, resilience and where
Singapore needs to go next.This year’s haze has been the worst since 2015. The 24-hour PSI peaked at 230 on 18 October, and for a few days Singapore was ranked among the most polluted cities in the world. Our government decided enough was enough. NEA sent legal notices to 10 companies over fires believed to be on their land, SGX queried seven listed agricultural firms about their operations and possible links to the haze, and Senior Minister K Shanmugam made it clear that companies would not escape responsibility.
The response from Jakarta was not cooperation, but retaliation. On 22
October, Indonesia’s Coordinating Minister for Downstreaming and Energy
Transition, Bahlil Lahadalia, warned that he would evaluate energy export
agreements and would not hesitate to consider stopping exports to countries
that do not respect Indonesia. He did not name Singapore, but nobody needed a
map to figure out who he meant. Two days later, on 24 October, Indonesia cut
pipeline gas exports to Singapore by about 9%, officially to divert supply for
domestic electricity needs in Batam, Bintan and Sumatra. Convenient timing,
wouldn’t you say?
The good news is that EMA has said the reduction amounts to less than 2%
of Singapore’s total daily gas demand of more than 1,000 BBTUD, and contingency
plans are in place. The lights stay on. But the message behind the move is what
matters.
Around the same time, MSCI said it expects to remove Indonesia from its global indices unless the market makes major improvements in governance. Indonesian stocks tumbled by the most since the 1998 Asian Financial Crisis. MSCI’s concerns are hardly a secret: shareholding opacity, insider trading and weak regulatory enforcement. A final decision is expected by 30 June 2027.
Instead of looking inward, former Indonesian trade minister Muhammad
Lutfi took to Instagram and alleged that Temasek and GIC had pressured MSCI to
threaten a downgrade, triggering mass panic so that Singapore could buy up
Indonesia’s best assets on the cheap. Temasek called the allegations baseless
and patently untrue, and GIC pointed out it has invested in Indonesia for more
than 30 years.
Here is the part I find most telling. Even the president director of the
Indonesia Stock Exchange, Jeffrey Hendrik, publicly defended MSCI’s
independence. CNN Indonesia also noted there was nothing in MSCI’s announcement
to support Lutfi’s claims. Folks, when your own stock exchange will not back
your conspiracy theory, it is probably time to put the phone down. Index
providers reclassify markets based on investability and governance, not on the
wishes of a neighbouring sovereign fund. Blaming Singapore for MSCI’s verdict
is a bit like blaming the thermometer for your fever.
This is not new. Every few years, some Indonesian politicians reach for the Singapore card. During past haze crises, one minister complained it was “insulting” that Singapore offered only one aircraft to fight the fires, and another blamed the wind. This year, the head of Indonesia’s government communications agency told us that when there is no haze, Indonesia sends us oxygen. You really cannot make this up.
To be fair, SM Shanmugam was careful to say these views do not reflect
the wider Indonesian government or public, and President Prabowo has been
making efforts on the haze. Ordinary Indonesians suffer from the haze as much
as we do, if not more. But in my view, a small but loud group of politicians
finds it far easier to point at the little red dot than to explain to their own
people why the economy is struggling, why governance problems are spooking
global investors, and why the same plantation fires keep burning year after
year. A foreign bogeyman is a cheap distraction from domestic hardship and poor
governance.
Older readers will remember that Singapore has been here before. For decades, we depended heavily on Malaysia for water, and whenever relations soured, certain Malaysian politicians, Dr Mahathir being the most famous, would raise the spectre of turning off the taps or renegotiating the price. It was leverage, plain and simple.
Singapore’s answer was not to shout back. It was to invest. NEWater and
desalination turned water from a vulnerability into a national strength, and
today the “Four National Taps” mean no single neighbour can hold us hostage.
The threats did not stop because Singapore won the argument. They stopped
working because Singapore removed the leverage.
Energy is our modern-day water problem. The vast majority of Singapore’s electricity is generated from natural gas, and a meaningful portion of that gas still arrives by pipeline from Indonesia. This week’s 9% cut is small in absolute terms, but it is a clear signal that gas supply can and will be used as a political weapon.
I see two things Singapore must do. First, diversify our LNG sources
aggressively across more supplier countries, so that no single exporter can
squeeze us. Second, and more importantly, Singapore should seriously embark on
building small modular light-water nuclear reactors on home soil. Modern
reactor designs are far smaller and safer than the plants of the past, they run
around the clock regardless of weather, and they produce no carbon. Just as
NEWater freed us from water threats, home-grown nuclear power could free us
from energy threats. It will take years of planning, regulation and public
engagement, which is exactly why we should start now, not during the next
crisis.
Let me put on my investor hat for a moment. First, governance risk in Indonesian equities is real and now has a deadline attached. If MSCI follows through in 2027, passive fund outflows could weigh on the market for some time. Investors with direct Indonesian exposure, or funds heavy in Indonesia, should know what they own and why.
Second, keep an eye on the SGX-listed plantation and agribusiness names
that were questioned over the haze. Regulatory scrutiny and reputational risk
can hit valuations, as we saw when several of these counters slipped after SM
Shanmugam’s remarks.
Third, and on a more positive note, episodes like this tend to accelerate
investment in Singapore’s energy security, from LNG infrastructure and regional
power imports to longer-term clean energy. That is a theme worth following for
long-term investors. As always, this is my personal view and not financial
advice, so do your own homework.
Singapore cannot choose its neighbours, and we should always aim for good relations with Indonesia, a country of great people and enormous potential. But hope is not a strategy. The lesson from water applies equally to energy: the best response to threats is to quietly build our way out of dependence. When our vital resources are secure, the bluster from across the Straits becomes just noise, and we can get back to what we do best, which is building wealth and income for life.
Ok folks, that's all from me today. Have a great week ahead!
