Singapore GDP Unexpectedly Shrinks as Europe Crimps Exports
Comment of the Day

July 13 2012

Commentary by Eoin Treacy

Singapore GDP Unexpectedly Shrinks as Europe Crimps Exports

This article by Karl Lester and M. Yap may be of interest to subscribers. Here is a section:
Singapore's export growth held below 4 percent from a year earlier in both April and May, while retail sales rose at a slower pace in April as spending at department stores eased and vehicle purchases fell. Private home sales in May slumped 32 percent from a month ago to their lowest this year.

Temasek Holdings Pte, the state-owned investment company, said this month profit declined 16 percent in the last fiscal year as contributions from units fell amid the global slowdown.

Goldman Sachs Group Inc. and Bank of America cut their 2012 growth forecasts for Singapore today. Goldman Sachs expects expansion of 2.5 percent in 2012, while Bank of America predicts a pace of 1.9 percent from a previous forecast of 2.5 percent.

The city-state added fewer jobs than initially estimated in the first quarter, and the seasonally adjusted unemployment rate for the three months through March rose to 2.1 percent from 2 percent the previous quarter, a report showed last month.

Located at the southern end of the 600-mile (965-kilometer) Malacca Strait and home to one of the busiest container ports, the city state is vulnerable to fluctuations in overseas demand for manufactured goods. The government has boosted financial services and tourism to try and cut reliance on exports.

Today's Singapore GDP report is based on advance estimates that are computed largely from data in the first two months of the quarter. An updated estimate of second-quarter performance will be released in August.

Eoin Treacy's view While in Singapore last year, there was a perception that property prices had risen to such an extent that demand destruction was beginning to set in. In response to the threat of overheating the MAS tightened monetary policy. At least in part as a result the stock market has mostly underperformed since 2010 as Singapore's immediate neighbours went from strength to strength. Slowing economic growth will likely act as a further catalyst for monetary easing and the stock market appears to be now pricing in that eventuality.

The STI has returned to test the 3000 region over the last month. A sustained move above that area would suggest a return to medium-term demand dominance. The Financials sector continues to outperform and in absolute terms is pushing further back up into the 2010 and 2011 range. (A review of some of Singapore's higher yielding shares posted in Comment of the Day on July 4th may also be of interest).

Raffles Medical has rallied back to test the upper side of its more than year long range. A sustained move above S$2.50 would reassert medium-term demand dominance. Jardine Matheson and Jardine Strategic have both also rallied back to test the upper sides of their respective ranges.

ComfortDelgro Group found support in the region of the 200-day MA from early June and has rallied for the last six consecutive weeks. It is now somewhat overbought in the short-term, as it tests the two-year highs, but a sustained move below the trend mean would be required to question medium-term scope for continued higher to lateral ranging.

SembCorp Industries has also returned to test the upper boundary of the last year's range and while somewhat overbought in the very short-term a clear downward dynamic would be required for the current area to offer anything more than temporary resistance.

SIA Engineering rallied to break its more than yearlong progression of lower rally highs in March, found support in the region of the 200-day MA until late June and hit a new recovery high this week. A sustained move below the trend mean would now be required to begin to question medium-term recovery potential.

Singapore Press Holdings has been ranging below S$4 since early 2011 but pushed successfully above it this week and a clear downward dynamic would be required to question medium-term upside potential. Singapore Technologies Engineering has a similar pattern.

In conclusion, the Singapore market appears primed to respond to monetary easing if the MAS choses to adopt such a strategy. An additional observation is that while industrially oriented shares have underperformed by a considerable margin in most jurisdictions, they are moving to positions of outperformance in Singapore. Finally, Starhub which was looking overbought last week appears to have hit a near-term peak.

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