FPA Financial Investment Committee Policy Summary April 2018 - Opportunities
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FPA Financial
Investment Committee Policy Summary
April 2018
“Regenerating
Opportunities” 1Economy / Stock Market
Outlook
“Regenerating
Opportunities” 2Singapore GDP rose by 4.3% yoy in Q1 2018
According to Ministry of Trade and Industry (MTI), Singapore’s GDP rose by 4.3% yoy in Q1 2018. On a quarter-on-
quarter seasonally adjusted annualized basis, the economy expanded by 1.4%. Q1’s growth was boosted by the strong
manufacturing growth (+10.1% yoy). Services industries increased by 3.8% yoy but construction output declined by 4.4%
yoy.
MTI expects the Singapore’s economic growth to GDP Forecast by various Institutions
moderate in 2018 as compared to 2017, but remain firm.
The manufacturing sector is likely to continue to expand. 2018F 2019F
Externally-oriented services sectors are expected to
benefit from external demand while domestically- MAS (Mar) 3.2% 2.8%
oriented services sectors are expected to grow due to
rising consumer sentiments and an improving labour
IMF (Apr) 2.9% 2.7%
market.
Risks to the economy include the protectionist trade DBS (Apr) 3.0% 2.7%
policies by the US, potential upside surprise in inflation
resulting in tighter monetary policy as well as a sharp
slowdown in the Chinese economy.
MTI (Feb) 1.5% - 3.5% -
For 2018, the Singapore economy is expected to expand
Source: MAS March Survey of Professional Forecasters, IMF World Economic
by between 2.5% and 3.2% while growth in 2019 is Outlook, DBS Key Indicators Projections, MTI Economic Performance Forecast
expected to be between 2.7% and 2.8%.
“Regenerating
Opportunities” 3Retail sales rose on Chinese New Year demand,
unemployment rate declined
Retail sales rose by 8.6% yoy in February after declining by 8.4% yoy in January. This was partially due to the Chinese
New Year festive season. Sales of wearing apparel & footwear rose by 42.4% yoy while sales at department stores rose
by 25.4% yoy. However, motor vehicle sales fell by 17.5% yoy. Excluding motor vehicles, retail sales increased by 14.0%
yoy. On a seasonally adjusted month-on-month basis, retail sales fell by 1.7% mom in February.
According to Ministry of Manpower (MOM) Singapore’s overall unemployment rate declined to 2.1% in Q4 2017 from
2.2% in Q3 2017, signaling an improving labour market. The unemployment declined on a qoq basis for both residents
(from 3.1% to 2.9%) and citizens (3.2% to 3.0%). For the whole year of 2017, the overall unemployment was 2.2%. MOM
expects continued growth of local employment in 2018.
Source: compiled using data from Singstat
“Regenerating Source: compiled using data
from MOM
Opportunities” 4Manufacturing output remained strong in
February, manufacturing sentiment rose
Manufacturing output rose by 8.9% yoy in February, after Singapore’s PMI rose by 0.3 points to to 53.0 in March
expanding by 16.9% yoy in January. Electronics (+ 17.4% from 52.7 in February. This marks the 19th consecutive
yoy) posted the largest yoy gain among clusters due to month of expansion (PMI above 50). SIPMM reported that
the booming semiconductors segment (+26.7% yoy). The the expansion was mainly attributed to a faster growth in
volatile biomedical manufacturing cluster rose by 8.4% factory output, as well as higher new orders and new
yoy on the back of higher output from pharmaceutical exports. The electronics sector PMI also rose by 0.3
segment (+15.2% yoy). General manufacturing (-6.3% points to 52.4 in March.
yoy) in the only cluster that recorded a yoy decline.
Source: compiled using data from SIPMM
Source: compiled using data from EDB
“Regenerating
Opportunities” 5NODX fell for a second straight month in March
Singapore’s NODX fell by 2.7% yoy in March, recording a second straight yoy decline after falling by 5.9% yoy in
February. According to BT, this is partly due to a high base from a year ago. Both electronic and non-electronic continued
to decline. Electronic NODX, which had been a key economic driver over the past year, fell by 7.1% yoy, mostly due to
decline in exports of parts of personal computers, integrated circuits and diodes and transistors. Non-electronic NODX fell
by 1.3% yoy.
Going forward, UOB economists commented that the
very strong year-on-year growth rates recorded for
most of last year may not be sustained.
Economists cited the trade dispute between the US
and China as a key downside risk to Singapore’s
export performance. IHS Markit commented that rising
threat of global trade war increases uncertainties
about worldwide trade conditions, which is bad for
Singapore’s trade-dependent economy. Nomura
shared the similar view, commenting that Singapore’s
economy is susceptible to any escalation in trade
protectionism and tech cycle downturn.
Source: compiled using data from Singstat
“Regenerating
Opportunities” 6Slightly positive on Singapore Equities
Singapore’s stock market valuation:
The MSCI Singapore index is trading on a forward PE multiple of 13.84x and PB multiple of 1.37x, presenting an
upside potential of 32.57% should multiples revert to their long-run averages.
OCBC noted that Singapore equities traded within a narrow band in March after rebounding strongly at the end of
February. However, OCBC does not expect the current tariffs on Chinese goods to have a major impact on most
Singapore sectors or stocks. The key local sectors such as telecommunications, retail, hospitality, tourism, property
and healthcare are largely shielded from the impact of any potential trade war. OCBC also noted that Singapore’s
banking sector stands to benefit from a rising interest rate environment, which the bank forecasts for this year.
DBS has revised the STI’s 2018 earnings up by 1.5% and 2019 earnings up by 0.7% after the Q4 results season. DBS
pegged near-term support at 3,440 – 3,465 and lifted the 2018 base case year-end objective to 3,715 (previously
3,688), optimistic 3,816 (previously 3,800). With the synchronized global recovery entering its second year, DBS
continues to favour mid to late-cycle sectors, namely capital goods, construction, basic materials, commodities-related
plays and consumer services.
In light of the market developments, we are slightly positive on Singapore equities as valuations remain attractive and
corporate earnings are projected to grow. However, according to Natixis, while the direct impact of trade tensions on
Singapore maybe muted due to the Free Trade Agreement , it will affect companies with significant US exposures, e.g.
the electronics companies. Further, faster-than-expected increase in interest rates, while positive for the banking
sector, could weigh on the performance of other stocks.
“Regenerating
Opportunities” 7Singapore Fixed-Income
As at 20-Apr-18, 10-year government bond yield stood at 2.49%, up by 37 basis points (bps) from 2.12% on 12-Jan-18.
The Consumer Price Index increased by 0.2% yoy in March, after rising by 0.5% yoy in the previous month. Service inflation
slowed to 1.4% yoy increase from 1.9% yoy increase in February, while private road transport fell by 0.6% yoy, reversing the
0.6% yoy increase in February. Core inflation, which excludes accommodation and private road transport costs, rose by 1.5%
yoy in March, slowed from the 1.7% yoy increase in February. The MAS expects headline inflation to rise gradually over the
year to reach the upper half of the 0-1% forecast range.
According to DBS head of fixed income, the first quarter has been rough for Singapore’s bond market as rising interest rates in
the US has put pressure on Singapore issuers. Investors need to be more defensive and ask for premium to cushion potential
mark- to-market swings. Meanwhile, bond offerings from Singapore-domiciled issuers dropped 21.5% yoy in Q1, signaling a
supply shortage which could push up the bond prices.
5-year movement of Singapore 10-yr government yields
Source: compiled using data from Singstat Source: Trading Economics
“Regenerating
Opportunities” 8Singapore Dollar
Over the period from 12-Jan-18 to 20-Apr-18, the USD/SGD exchange rate decreased to 1.31 from 1.33. According to MAS,
this is due to the broad-based US dollar weakness.
MAS announced on April 13 that it will slightly increase
the slope of the Singapore dollar nominal effective S$ Nominal Effective Exchange Rate (S$NEER) since Apr 2015
exchange rate (S$NEER) policy band, setting the Sing
dollar on a "modest and gradual" appreciation path.
This marks the first time in six years that MAS moves
to tighten monetary policy. Most economists expect
the slope to be about 0.5% per annum.
UOB also mentioned that the tightening has been
priced in and believes it may be difficult for the SGD to
strengthen further against the USD, as increasing
trade tensions put Singapore’s exports at risk. This
also comes at a time when the US Fed is poised to
continue its monetary policy normalization with gradual
rate hikes and ongoing balance sheet reduction.
According to OCBC, whether there would be further
tightening in MAS’s October meeting would largely Source: MAS
depend on if inflation will pick up faster than expected.
“Regenerating
Opportunities” 9Our Contact Details
Please contact our wealth managers for further information at:
FPA Financial Corporation Pte Ltd
60 Paya Lebar Road,
#11-01 Paya Lebar Square
Singapore 409051
Tel: (65) 6323 1788 Fax: (65) 6323 1768
www.FPAFinancial.com
Disclaimer:
The research data, information, or opinion expressed herein may include those that are provided by third parties. They are
provided by sources we believe to be reliable, but we do not guarantee their accuracy, timeliness, completeness or suitability
for any particular purpose. Any research data, information, or opinion expressed does not constitute a solicitation for the
purchase or sale of any investment.
The opinions or recommendations expressed herein are premised upon reasonably available data at the relevant time. Please
note that markets and the value of investments may experience significant fluctuations in short periods of time, which may
render the opinions or recommendations incomplete, inaccurate or inappropriate. You should take into account such
fluctuations or other material events before relying on the opinion or recommendation for assessing your investment decisions.
We shall not be howsoever liable for any opinions or recommendations being incomplete, inaccurate or inappropriate due in
whole or in part to subsequent unforeseen events.
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