Singapore heading bumpy road ahead..find out why?

Narrow escape By Michelle Teo, The Edge Singapore

Although Singapore’s economy shrank in the third quarter of 2012, the country has narrowly avoided sinking into a technical recession, defined as two consecutive quarters of negative growth. Data for 2Q2012 gross domestic product (GDP) has been revised upwards to reflect marginal q-o-q growth of 0.2%, from a contraction of 0.7% previously, and 2.3% growth from the year before. The Ministry of Trade and Industry says the adjustment was due to new data from the construction sector, showing growth of 14.3% q-o-q compared to 0.9% previously.

“So when the second quarter drop gets revised up to a modest positive growth, Singapore ‘technically’ avoided a ‘technical recession’ despite this third quarter dip,” DBS economist Irvin Seah points out.

For 3Q2012, GDP figures released showed the economy contracted 1.5% from the previous three months, but grew 1.3% on a year-on-year basis. The decline was led by the electronics manufacturing and construction sectors, the latter shrinking 7.5% q-o-q after last quarter’s surge.

“The main surprise in the GDP release was that the manufacturing component only contracted sequentially by 3.9% q-o-q,” notes Credit Suisse analyst Michael Wan. Credit Suisse had estimated a 25% q-o-q contraction instead. “This would imply that September manufacturing output rose by 15% to 20% month-on-month, which seems strangely high to us, barring a huge boost from the volatile biomedical sector.”

Indeed, the road ahead is still bumpy, although MTI says the economy remains on track to expand by 1.5–2.5% this year, despite gloomy economic conditions on the global front.

However, inflation is still a going concern in Singapore. As such, the Monetary Authority of Singapore has decided to leave its monetary policy unchanged, which came as a surprise to many analysts. Many had expected MAS to ease the Singapore dollar’s pace of appreciation against, but the central bank says its policy stance has been “assessed to be appropriate in containing inflationary pressures”. Inflation is expected to be around 3.5–4.5% next year, from an estimated 4.5% this year.

Nevertheless, Singapore still presents strong growth fundamentals, according to Phillip Securities’ macro analyst Ng Weiwen, who recommends exchange-traded funds such as the SPDR Straits Times Index ETF. “While we are neutral on equities as an asset class given the lacklustre macro fundamentals, we continue to prefer and Overweight the Asean region on account of its resilient domestic demand and massive infrastructure expenditure, which will mitigate sluggish external demand.”

Still, one sector that has been impacted by slowing global growth is the PC sector, as two major PC chip companies, Advanced Micro Devices (AMD) and Intersil Corp warned that its sales have been falling more than expected. The companies have been hit by the double-whammy of weak demand from emerging markets, and the rise of tablet computers and smartphones.

This impacts on Singapore-listed companies Cheung Woh Technologies, Broadway Industrial and Armstrong Industrial, note Lim & Tan Securities. Cheung Woh, the maker of precision hard disk drive components, said on Oct 9 that earnings for its 1H2013 ended August slumped 84% y-o-y to just $594,000. Turnover for the six months was 54% lower at $33.8 million. The poor performance was mainly down to significantly lower sales.

In contrast, medical rubber glove maker Medi-Flex posted record earnings for its financial year ended August. Earnings doubled to RM10.6 million ($4.2 million) on the back of a 16% rise in turnover to RM169.3 million.

Elsewhere, TEE International recorded a 27.7% y-o-y increase in earnings to $2.85 million, despite revenue falling 23.3% to $30.68 million, for 1Q2013 ended August.

Singapore Press Holdings also reported a net profit of $365.5 million for the year ended Aug 31, 5.9% lower compared to the previous year.

In the coming week, other companies that are scheduled to report their financial results include Keppel Corporation and Singapore Exchange, both due out on Oct 18. Analysts are expecting rigbuilder Keppel to report weaker earnings for its third quarter due to lower margins in its offshore and marine business, as well as the absence of large revenue recognition from its Reflections at Keppel Bay property.

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