With the resumption of business and travel post-pandemic at the start of 2022, there were hopes for a bounce back in the global economy. However, the global economy has faced significant challenges, shocks and uncertainties that have derailed the timeline of the recovery. For instance, the conflict in Europe has opened up new unimaginable tail risks in energy and food security as well as disruptions in the global supply chain, which has dampened consumer demand across the board.
Moreover, interest rates have risen and inflation has increased globally, creating a demand destruction spiral. Since February 2022, the world saw four straight 0.75 percentage point hikes in interest rates by the US Federal Reserve (FED). While the FED took a more moderate approach to interest rate hikes in the fourth quarter of 2022, it is difficult to predict the direction it will take in 2023. Experts say that the terminal funds rate will not continue to hover around 4.6% as recent statements have indicated the level could exceed 5% in 2023.
In the face of these challenges, Singapore has emerged as one of the most resilient economies globally. According to the Economist Intelligence Unit’s business environment rankings for the fourth quarter of 2022, Singapore is earmarked to be one of the best places in the world to do business in the next five years.
This raises the question—are Singaporean companies and sectors a safer haven for investors with the global market volatility, or is the strong performance in 2022 a false beacon of hope?
Understanding uncertainty: the headwinds for Singapore
Singapore’s Ministry of Trade and Industry (MTI) recently forecasted that economic growth in the country will slow to 1.8 in 2023. Amidst an uncertain global outlook, the growth of outward-oriented sectors may be affected by reduced demand in industries such as the manufacturing clusters of biomedical, chemicals, and electronics—specifically semiconductors.
In addition, prospective hikes in interest rates may make it more expensive for businesses to borrow money through loans and lines of credit. The impact of this generally ripples through the overall economy, impeding businesses’ and startups’ cash flow and their ability to borrow, reinvest and even hire workers.
Building resilience: Singapore’s defensive composition
Singaporean companies were more resilient in 2022 than their counterparts elsewhere due to the country’s drive to reopen its economy. Singapore is also viewed to have a defensive composition due to the prominence of value-oriented industries such as the telecommunications and banking sectors, as well as REITs.
For instance, SingTel, one of Singapore’s largest telco providers, reported a net profit in the half year ending 30 September of S$1.17 billion, up from the previous year, bolstered by performance in regional markets. Moreover, Singapore’s banking trio reported strong earnings in the third quarter of 2022.
One of the brighter spots of the economy has been the recovery in tourism. According to Singapore Tourism Board, the number of international visitors hit a new post-COVID record in September 2022 with 778,141 arrivals. This was an increase of almost 50,000 visitors as recorded in August 2022. This continues on the upward trajectory since February, bolstered by the return of international events such as the Formula 1 Singapore Grand Prix. This also has ripple effects on the wider transport ecosystem, as seen by the performance of SIA Engineering, which has recovered faster than its regional counterparts.
As Singapore continues to act as a convenor for international events, talent and business, tourism and services have become a stable component of Singapore’s defensive composition, highlighting not only the resilience but the maturity of the economy.
Troubles in the tech sector are an emerging concern
One of the emerging concerns is the growing uncertainty and volatility in the tech sector. Global tech giants such as Meta and Twitter have let go of 11,000 and 3,700 employees respectively. Amazon has also laid of 18,000 employees. The layoffs by Meta, Twitter and Amazon include positions in their Singaporean offices. Shopee has also gone through three rounds of layoffs.
The layoffs notwithstanding, tech talent in Singapore remains in demand, as non-tech companies and startups are able to leverage on this new influx of talent to innovate and assist in the digital transformation. As Singapore looks to reinforce its position as a global tech hub, there’s a need to adopt a cautious outlook, as we continue to understand the impacts of volatility in the tech sector on the local economy.
Looking ahead into 2023
All in all, stagflation risks have intensified, with the conflict in Europe disrupting the global growth trajectory, and spillover effects tied to the path and timeline of a resolution. The conflict has also exacerbated inflation pressures, creating even more challenges for policymakers.
In this volatile context, Singapore has been reducing risk since the start of 2022 with its companies focusing on regions, sectors and asset classes that provide protection and income in a highly uncertain environment of slowing growth and rising inflation.
There are bright spots in the economy, particularly the stability of sectors such as banking and finance, as well as the momentum of the tourism and transport sector, as we see the resumption of travel.
Amidst the current economic backdrop, there are potential opportunities for investors, especially if they adopt a selective approach and pick counters that are resilient. Blue-chip companies, such as banks, are prominent in Singapore and have traditionally been stable. The stable macro and political backdrop in the country also offers investor stability. In addition, there will be more potential opportunities in the construction, hospitality and travel sectors.
Terence Chua
As a senior research analyst of Phillip Securities Research, Terence specialises in the consumer, conglomerate and industrials sector. He has over five years of experience as an analyst in the buy-and sell-side. As an institutional fund management analyst, he also sits on the China-Hong Kong desk. Terence was ranked top 3 for Best Analyst under the small caps and energy category in the Asia Money poll 2018. He graduated from the Singapore Management University with a major in Finance (Honours), and is the honoured recipient of the CFA scholarship.
