Singapore consumers were pessimistic on dim economy prospects in the past year amid global economic uncertainties. Consumers’ main concern was that slower growth would translate into rising unemployment and future income. Both FTSE Straits Times Consumer Goods Index and FTSE Straits Times Consumer Services Index underperformed the Straits Times Index over the past 1-year.
How do we view this?
Although there are still lingering uncertainties in view of the future US economic policies under new administration, as well as political uncertainties in the euro area, we think that retail sales will rebound in near term.
We have an overweight view on Singapore Consumer Sector, on the brighter Singapore economy outlook and in anticipation of improved consumer sentiment.
Growing optimism over economic outlook to fuel spending
Singapore’s small, open economy made it vulnerable to external factors, particularly demand shock due to the slowdown in global growth or any decline in global trade, and financial shock. It was the first country in East Asia to slip into recession following the 2007-08 global financial crisis.
As Singapore economy slowed down from its peak in end-2007, retail sales started to decline. Refer to Figure 1, during the period of end-2007 to end-2009, Singapore had also gone through deleveraging as households borrowed less.
Singapore had maintained a stable near-zero interest rate in the period between 2009 and 2014, following the US Federal Reserve’s policy. Such low interest rate environment spur spending and borrowing. Singapore economy reacted positively to the monetary easing. Retails sales rebounded by end-2009 after Singapore economy showed clearer sign of bottoming out.
However, the upward momentum was staggered by European debt crisis in 2011, where retail sales started to slowdown following the sluggish economy growth.
Singapore economy showed sign of bottoming up in late 2016. We think that retail sales should turnaround in near term. In addition, the growth of household assets outpaced the growth of loans in mid-2015 provides a second supporting signal for improving retail sales. (We will further discuss on wealth effect later)
Consumers Sectors Top 10 Market Cap and PSR Ratings
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