Singapore navigates choppy waters again
SINGAPORE: Singapore’s policymakers have a fondness for boats. Or so it seems from recurring images of “a small vessel in choppy waters” in their descriptions of the city-state’s economy during turbulent times.
The market could do with a reminder of that metaphor. In the pre- and post-Brexit tumult, Singapore has emerged as a haven of stability. During the past month, six out of 10 major world currencies have fallen between 1% and 11% against the Singapore dollar, while a seventh — the US dollar — has held steady.
Nothing wrong with being a sturdy ship, except that Singapore would rather not be seen as one — not now, not with exports foundering and labour too expensive. A stronger home currency could become a serious handicap for Singapore Inc.
For now, equity investors’ focus is on Singapore companies that could bear the brunt of the business uncertainty created by the UK’s decision to leave the European Union. For example, analysts have trimmed by 3% their earnings estimates for Ascott Residence Trust, which has four serviced residences in the UK. With Brexit being viewed as bad news for energy demand, earnings downgrades have also hit the rig builder Sembcorp Marine, which was already dealing with an oversupply.
However, if the “haven effect” keeps pushing the local dollar toward the top end of the central bank’s undisclosed tolerance range, Singapore’s languishing export industries may start to share the misery.
The last time electronics exports grew for three straight months was in the summer of 2012. Anaemic world demand is only one part of the story. A comparison with Vietnam’s smaller — and far less sophisticated — electronics industry shows Singapore’s cost structure may be increasingly uncompetitive.
No doubt, the illusion of stability in a topsy-turvy world brings Singapore the benefit of a capital glut and lower interest rates. While that might offer some relief to overstretched mortgage borrowers squeezed by falling property prices, the pain of a stronger currency can outweigh the gain.
In April, Singapore took the rather unusual step of seeking a pause from a stronger currency. That was before Brexit. The message that Singapore doesn’t want to be a haven needs some reinforcement. And to make sure the market takes their intent seriously, it might be time for policymakers to give that boat-in-a-storm parable another outing.
As Prime Minister Lee Hsien Loong once told Fareed Zakaria of CNN: “What worries us in Singapore is not that the world will not prosper, but in the ups and downs of the world, a small boat like Singapore with not very much room to manoeuvre, can you make sure that every time you catch a wave head on and you are not flipped over? Because once you’re flipped over, that’s it.”