Singapore's Q1 figures weaker than
expected
11 April 2002
The Singapore economy has apparently performed worse than expected in the first quarter of 2002. Based on the Singapore government's flash estimate, the economy contracted 2.6 percent from a year ago in the first quarter. While this represents an improvement over previous quarters, it was worse than the 2 percent forecasted by economists.
As the flash estimates are based on data for January and February only, it is likely to be revised once the data for March is available. Some economists expect an upward revision. For example, Rajeev Malik, senior economist at JP Morgan Chase, suggested that the latest figures made assumptions for March which struck him as conservative. "Our economic outlook remains unchanged," he said.
Other economists, however, are less optimistic. IDEAglobal.com expects Singapore's non-oil domestic exports and industrial production index for March to show steep double-digit declines. "We do not expect the economy to show a convincing turnaround in year-on-year terms until Q3 and that will be driven largely by base effects," its regional economist Paul Schymyck said yesterday, following the release of the flash estimates. And Goh Research's regional economist Song Seng Wun said: "Underlying momentum is decent, but it is not as hot as some people think."
The Singapore stock market probably took the pessimistic view. Yesterday, the Straits Times Index (STI) fell 38.91 points to close at 1,715.35. Of course, concerns over tech sector earnings in the United States and the Middle East tension also probably contributed to the fall.
Negative surprises are not new to the current economic recovery. February's non-oil domestic exports had fallen 23.4 percent year-on-year when analysts had expected a 16.5 percent fall. There is a real danger that analysts are over-optimistic about the current recovery. While the US economy has proven to be stronger than expected, much of the strength lies in the housing and consumer sectors, not the IT and capital goods sectors which the Singapore economy is more exposed to.
The Singapore stock market, until yesterday's fall, had been up 8 percent since the start of the year, over a period of just over three months. Even after yesterday's fall, the STI is up 5.7 percent for the year-to-date, and the P/E ratio is about 20. These figures show that much of the recovery is already factored into stock prices. Little wonder then that the market is vulnerable to negative surprises.
Having said that, a P/E ratio of 20 is not particularly high after taking into account the cyclically depressed earnings on which it is based. And the recent gain in the market has been made after a two-year period over which the market lost a whopping 35 percent.
So it is probably safe to say that the Singapore stock market is not over-valued. What is keeping the market down is the uncertainty over the economic recovery. While indications of a recovery abound, the economy is clearly not firing on all cylinders, with many industries still facing over-capacity. And dark clouds remain over the horizon, including rising oil prices, continuing economic weakness in Japan and question marks over the sustainability of US consumer demand in the face of rising debt levels.
Under the circumstances, the stock market is likely to continue to consolidate around current levels until the middle of the year. But a continuation of the rally appears likely after that, when the economic indicators become clearer, and the Straits Times Index will probably hit 1,900 sometime in the second half of the year.
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