Singapore Inc emerging from the doldrums

It has been a time of taking stock for the Singapore economy recently.

The Committee on the Future Economy report was released last week, the Ministry of Trade and Industry (MTI) announced GDP growth figures last Friday, and the Budget statement for 2017 was delivered in Parliament on Monday.

Economic growth last year, at 2 per cent, was similar to 2015's 1.9 per cent but there are signs that Singapore Inc is finally getting out of the doldrums.

The economy surpassed all expectations and surged 12.3 per cent (quarter-on-quarter, seasonally adjusted annualised rate), noted a DBS Group Research report on Monday.

"This is the strongest quarterly growth in six years and translates into 2.9 per cent year-on-year," added DBS senior economist Irvin Seah.

But investors considering stocks of local firms should note that the performance across industries has been rather uneven.

The recovery of the economy is largely attributed to the manufacturing sector, primarily due to the strong growth in the electronics and biomedical manufacturing cluster.

Manufacturing grew 11.5 per cent year-on-year, accelerating from the 1.8 per cent growth in the preceding quarter.

The improved momentum seen in manufacturing is expected to be sustained in 2017, said an MTI press release.

This rising trend in Singapore's electronics exports generally bodes well for the electronic components sub-segment. SGX report

A report released by Singapore Exchange (SGX) on Tuesday noted that the electronic components sub-industry was among the best performing sub-sectors in Singapore's IT industry. (See chart, above right.)

It generated average total returns of 31.7 per cent in the year-to-date and 66.7 per cent in the last 12 months, compared with the Straits Times Index's total returns of 7.8 per cent and 21.2 per cent in the same periods.

"Singapore's electronics exports rose 6.1 per cent to $4.3 billion in January 2017 from the same period a year ago. This rising trend in Singapore's electronics exports generally bodes well for the electronic components sub-segment," noted the SGX report.

But, construction has been affected by the quiet real estate market.

The sector shrank by 2.8 per cent year-on-year, extending the 2.2 per cent contraction in the previous quarter.

SLUGGISH DEMAND

The outlook for the sector continues to weaken, on the back of a drop in contracts awarded in the last two years, largely due to sluggish demand in the private sector, noted MTI.

But it is not all doom and gloom.

Owners of real estate developers' and operators' stocks on SGX have also seen some light earlier this year.

Over the first six weeks of 2017, real estate management and development stocks have outshone Real Estate Investment Trusts (Reits), which led the property sector stocks in 2016.

The real estate management and development stocks have returned 12 per cent year to date, outperforming the STI's 8 per cent, according to an SGX report on Feb 14.

"Despite the rally, the price-to-book (P/B) ratio of the sector is still trading near one standard deviation below its historical mean," noted the SGX report.

The P/B ratio provides a common gauge to determine whether a market may be undervalued or overvalued.

The FTSE ST Real Estate Holding & Development Index (which has a comparatively long history of metrics) currently has a P/B ratio of 0.71 times.

There are five Real Estate Management & Development stocks with market capitalisation above $1 billion listed on the SGX with substantial exposure to the Singapore property market.

These five companies have returned an average of 14.6 per cent in the year so far.

Following the recent rally in the real estate sector, there are several "potential drivers" that investors should consider, said the SGX report.

The stabilisation of private residential property prices and the decline in supply could boost the industry.

But there are a few downsides.

The upcoming Fed rate hikes would affect the property market as Singapore's interest rates are sensitive to movements in the US.

The three-month Singapore Interbank Offered Rate (Sibor) - which typically sets housing-loan interest rates here - has increased by approximately 9 basis points since the conclusion of the US Election to 0.96 per cent.

Industry players who have been pushing for a relaxation of property cooling measures in recent months were also disappointed - there was no easing of property curbs among the Budget 2017 measures.

In an interview with Bloomberg, National Development Minister Lawrence Wong said the cooling measures "have helped to achieve a soft landing in the property market" and "demand remains very resilient".

Asked whether there would be any moves on property curbs this year, he said: “You have to wait and see.”