Left Brain Right B - the DBS Vickers Securities Equities Research
Left Brain Right B - the DBS Vickers Securities Equities Research
Left Brain Right B - the DBS Vickers Securities Equities Research
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
Regional Equity Strategy 4Q 2009<br />
Strategy Overview: Asia Equity<br />
Singapore: Break of dawn (Irvin Seah, irvinseah@dbs.com, extracted from “Economics – Markets – Strategy,<br />
4Q09” dated 17 September 2009)<br />
• The economy emerged from <strong>the</strong> recession with a<br />
remarkable 20.7% (QoQ, saar) expansion in <strong>the</strong><br />
second quarter<br />
• The recovery was largely led by <strong>the</strong> manufacturing<br />
sector on <strong>the</strong> back of pharma and electronics<br />
• The labour market has stabilised and job losses<br />
have been lower than earlier expected<br />
• GDP growth is expected to register -3.0% in 2009<br />
and 5.2% next year<br />
• Inflation should average 0.0% in 2009 and 1.7%<br />
in 2010<br />
• The exchange rate policy stance should remain<br />
unchanged in <strong>the</strong> forthcoming policy review in<br />
October<br />
A broad-based turnaround in manufacturing<br />
The turnaround in <strong>the</strong> manufacturing sector has been<br />
nothing short of remarkable. After having hit <strong>the</strong> bottom<br />
around Jan-Feb09, both NODX and <strong>the</strong> industrial production<br />
index (IPI) have embarked on a “V-shape” recovery. While<br />
<strong>the</strong> surge in pharmaceutical output (probably due to <strong>the</strong><br />
H1N1 outbreak) as well as restocking in <strong>the</strong> electronics<br />
industry have been widely cited as <strong>the</strong> key reasons behind<br />
<strong>the</strong> stronger manufacturing numbers, it should be noted<br />
that <strong>the</strong> recovery in <strong>the</strong> manufacturing sector has in fact<br />
been ra<strong>the</strong>r broad-based. All key manufacturing segments<br />
have recorded significant improvements in output over <strong>the</strong><br />
last few months.<br />
While <strong>the</strong> sustainability of <strong>the</strong> surge in pharmaceutical<br />
output remains questionable, continued improvement in <strong>the</strong><br />
o<strong>the</strong>r industries going forward should be able to offset any<br />
potential downside risks in <strong>the</strong> pharmaceutical industry. For<br />
example, most recent PMI readings have remained above<br />
<strong>the</strong> crucial 50 level, reflecting <strong>the</strong> expectation that <strong>the</strong><br />
manufacturing sector will continue to expand. In addition,<br />
leading indicators for <strong>the</strong> electronics industry, namely <strong>the</strong><br />
electronics PMI as well as <strong>the</strong> US SEMI book-to-bill ratio,<br />
have continued to point to stronger electronics<br />
performance. In fact, <strong>the</strong> SEMI book-to-bill ratio has went<br />
above <strong>the</strong> parity threshold for <strong>the</strong> first time since Jan07. This<br />
could well signal <strong>the</strong> end of <strong>the</strong> doldrums for <strong>the</strong> electronics<br />
sector. None<strong>the</strong>less, some segments within Singapore’s<br />
electronics industry have been plagued by a structural<br />
“hollowing out” problem. The disk drive segment is a good<br />
example, which saw disk drive maker, Seagate, announcing<br />
<strong>the</strong> retrenchment of 2,000 workers as it continues <strong>the</strong><br />
relocation of its manufacturing operations out of Singapore.<br />
None<strong>the</strong>less, most recent (Jul09) NODX and IPI were up by<br />
6.1% and 23.0% respectively as compared to <strong>the</strong> previous<br />
month. Consumer sentiment worldwide has improved<br />
significantly and as a result, NODX and IPI have continued to<br />
trend higher. The manufacturing sector is now expected to<br />
register a smaller decline of 5.4% YoY in 2009, up from -<br />
10.2% previously. Forecast for NODX growth in 2009 has<br />
also been lifted to -11.9%, up from -16.1%.<br />
Growth forecasts lifted<br />
Overall, <strong>the</strong> improving outlook in <strong>the</strong> external economic<br />
environment should continue to underpin <strong>the</strong> recovery in<br />
<strong>the</strong> Singapore economy. The fiscal and monetary measures<br />
introduced by government around <strong>the</strong> world have helped to<br />
“jump-start” <strong>the</strong> global economy. While downside risks<br />
remain, such as <strong>the</strong> weakness in <strong>the</strong> labour markets of <strong>the</strong><br />
developed economies, improving fundamentals globally,<br />
particularly in Asia, should help to sustain <strong>the</strong> recovery<br />
process.<br />
Domestically, in addition to <strong>the</strong> short-term policy responses<br />
that have helped <strong>the</strong> economy to wea<strong>the</strong>r this recession<br />
relatively well, measures to streng<strong>the</strong>n its longer term<br />
competitiveness and moves to solidify <strong>the</strong> foundation of its<br />
economic structure will fur<strong>the</strong>r ensure continued robust<br />
growth going forward. More importantly, <strong>the</strong> same<br />
openness of <strong>the</strong> Singapore economy that has brought about<br />
its deepest recession in decades should also enable it to<br />
recover faster and stronger than many o<strong>the</strong>r countries. We<br />
are maintaining our full-year GDP growth forecasts for 2009<br />
and 2010 at -3.0% and 5.2% respectively.<br />
Page 29<br />
“This report has been re-printed with permission from <strong>DBS</strong> Group <strong>Research</strong><br />
(Regional Equity Strategy) of <strong>DBS</strong> Bank Limited” disclosures on page 37 of this report