chart chart chart

Singapore Market Pulse: Weaker macro conditions, but safe-haven reputation supports

Macro 4 minutes to read
Charu Chanana

Market Strategist

Summary:  While the growth outlook for Singapore is deteriorating on the back of weaker external demand, we believe exposure to the Singapore market remains a key portfolio diversifier given its safe-haven status. Rising interest rates continue to position banking stocks favourably, while the reopening of the regional and global economies brings likely benefits to retail and hospitality REITs as well as other travel related stocks and sectors. There are also some stocks to consider in-line with our preferred global equity themes of commodities and defence.


Macro conditions are deteriorating

The final print of Singapore’s Q2 GDP was revised lower to 4.4% y/y from an advance estimate of 4.8% earlier, suggesting a q/q contraction of 0.2% as against gains of 0.2% q/q suggested by the advance estimate or the 0.8% q/q growth seen in the first quarter. The Ministry of Trade and Industry (MTI) has also narrowed the forecast for annual 2022 growth to 3-4% from 3-5% earlier amid rising global slowdown risks.

Given Singapore is an export-driven economy, it remains prone to the volatile external environment. Meanwhile, China’s Zero-covid strategy has hampered global supply chains as well as export demand from Singapore. These risks keep the threat of a technical recession – which is defined as two or more consecutive quarters of negative GDP growth – alive. The officials have, however, ruled that out for now and suggest a mild positive growth for Q3 and Q4.

Is more monetary policy tightening on the cards?

Singapore’s inflation remains high, but with core at 4.4%, it is still below the global inflation levels. We can certainly feel the price pressures biting, especially in rents and transportation. That is likely to remain a key concern for the Monetary Authority of Singapore (MAS), while the gloomier growth picture will only add some caution. Headwinds from external demand will be somewhat offset by a service sector growth picking up as the local and regional economies continue to broaden their reopening measures. This is boosting retail sales and tourism-led spending, while the labor market is also still tight.

What could possibly be ruled out is an off-cycle move, or possibly a re-centering of the S$NEER policy band, unless core inflation surprises significantly to the upside. Singapore’s monetary policy has entered a restrictive mode with four tightening moves since October 2021, and further steepening of the S$NEER slope cannot be ruled out.

What to consider in the markets?

Singapore’s safe-haven status makes it an important stabilizer in the portfolios, especially in the choppy global markets. Singapore equities are riding on services demand recovery and sustained export momentum. The banking stocks such as DBS (D05:xses), UOB (U11:xses) and OCBC (O39:xses) remain well positioned to benefit from the rising interest rates, even as the wealth management income takes a haircut due to the weak market sentiment. Meanwhile, REITs offer a good dividend yield, and therefore inflation protection. Travel related stocks and sectors, such as retail REITs, hospitality REITs, Singapore Airlines (C6L:xses) or SATS (S58:xses) could also benefit from a sustained reopening momentum.

Out global equity baskets have shown an outperformance from the Commodities and Defence baskets so far this year. Defence stocks could remain in focus with the increasing geopolitical tensions, and that means Singapore Technologies Engineering (S63:xses) may be worth a look. Green transformation also necessitates a look at Sembcorp Industries (U96:xses), while Singtel (Z77:xses) remains in a position to ride through the economic crisis with its rapid 5G adoption. Wilmar (F34:xses), an agribusiness firm with market cap greater than Singapore Airlines, has gained tremendous attention due to the tight edible oil markets since the Ukraine invasion, and its exposure to consumption in some of the largest emerging markets also makes it a key inflation play.

Some of the sectors to remain cautious about would be the technology or manufacturing with exposure to China. REITs with exposure to China’s property market also face further threat.

Key risk factors to watch

While the external demand outlook remains fragile and dampens the growth prospects of Singapore economy and companies, there are also risks from a global tightening wave which could result in capital outflows. Meanwhile, rising geopolitical tensions in the region could also result in cautious investor sentiment. There remains a risk of US-China trade tensions coming back, and that could be a headwind for Singapore. Lastly, a resurgence of Covid remains a key risk to watch in Singapore and Asia, as the response will likely remain stricter than Europe despite a high level of vaccination.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
Beethovenstrasse 33
CH-8002
Zurich
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.