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How Will The Trans-Pacific Partnership Benefit Singapore-Listed Companies?

After five-and-a-half years of arduous negotiations, the Trans-Pacific Partnership (TPP) has finally been tied down by the 12 countries involved, namely Singapore, Chile, New Zealand, Brunei, Australia, Peru, the USA, Malaysia, Vietnam, Canada, Mexico, and Japan.

The TPP’s roots can be traced back to 2006 when a trade agreement that had been inked between Singapore, Chile, New Zealand, and Brunei came into force. The other eight countries that are part of the TPP then came onboard later, starting with Australia, Peru, and the USA in 2008.

Although the 12 countries have since hammered out the issues amongst themselves, they’d still have to bring the agreement back home to be ratified by their respective lawmakers.

If the TPP becomes a reality, how might it affect Singapore-listed companies?

At first glance, the TPP does not seem to affect Singapore very much. The products that are manufactured in Singapore for export are not a big portion of the overall Singapore economy. Thus, any increase in exports may not move the needle much.

But, as my colleague David Kuo rightly pointed out to me, Singapore is seated nicely in the middle of many global business trade routes. If the TPP gets the nod from all the countries’ lawmakers, there might be a significant increase in the amount of trade between the other 11 nations in the partnership.  And where would the bulk of the trade pass through? That’s right: Singapore.

More trading between the TPP members may thus result in higher air-freight and sea-freight traffic into and out of Singapore. To me, that’s potential good news for our nation’s logistics sector. Companies involved with logistics, such as Ascendas Real Estate Investment Trust (SGX: A17U) and SATS Ltd (SGX: S58) – the former owns logistics properties in Singapore while the latter handles air-freight cargo – may get to benefit.

But caution may be needed if investors were to place the TPP as the sole investing thesis for any company – as my fellow Fool Chong Ser Jing had noted previously, “there are many obstacles that stand between a growing macro-trend and a company’s business growth. These obstacles are things we as investors have to focus on.”

Foolish Summary

From the beginning, I never really believed that the TPP can be a reality. There were just too many interests to take care of and too much politics to maneuver past.

But, the representatives of the 12 nations had surprised many, myself included, by coming to an agreement and completing the negotiations. Though like I already mentioned, this isn’t the end of it – the TPP would have to pass through the scrutiny of lawmakers in the 12 countries before it can be carried out.

If the TPP gets the greenlight, Singapore’s logistics sector may just get to enjoy an immense tailwind.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own any companies mentioned above.