Tuesday, 20 January 2009
Asian Daily Singapore Market Strategy ---------------------------------------------- Maintain UNDERWEIGHT Implications of a fall in population Sean Quek, CFA / Research Analyst / 65 6212 3337 / sean.quek@credit-suisse.com Kwee Hong Ching / Research Analyst / 65 6212 3142 / kweehong.ching@credit-suisse.com
! CS economist Cem Karacadag now expects the Singapore economy to contract by 2.8% in 2009. In addition, 200,000 foreigners and permanent residents might leave Singapore during 2009-10, reducing its population by around 160,000 to 4.68 mn. The potential drop in employment and population would have farreaching implications for the economy. ! Within the Singapore market, we continue to avoid less defensive domestic plays. Sectors most exposed to a further slowdown in domestic demand include property, banks and consumer (including media) sectors. Within property, City Dev is the most exposed to the Singapore residential property space, in our view. A more U-shaped recovery could also impact SPH further. ! On the other hand, we continue to favour defensive names excluding those more leveraged to the domestic economy. We remain OVERWEIGHT on telecoms and transport. Telecom (SingTel, M1 and StarHub) and land transport names (SMRT and ComfortDelgro) are domestic plays least sensitive to a decline in domestic demand. ! Our Singapore top picks remain SingTel, SIA and Wilmar. Least preferred names are COSCO, CCT and OCBC. Singapore s population could drop to 4.68 mn by 2010
CS economist Cem Karacadag now expects the Singapore economy to contract by 2.8% in 2009, with the balance of risks remaining to the downside. In addition, according to Cem, 200,000 foreigners and permanent residents (PRs) might leave Singapore during 2009-10, reducing its population by around 160,000 to 4.68 mn. (%)
300
6.0
250
5.0
200
4.0 3.0
150
2.0
100
1.0
50
0.0
0
-1.0
-50
-2.0
-100
-3.0 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Change in total population [LHS]
15.0
10.0
5.0
0.0
-5.0
-10.0 2Q01 4Q01 2Q02 4Q02 2Q03 4Q03 2Q04 4Q04 2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 SG domestic demand YoY
GDP growth (%)
Source: CEIC, Credit Suisse estimates.
A drop in population, coupled with rising completions, CS Singapore property sector analyst Tricia Song sees private residential vacancy rates hitting 15% (versus the historical high of 9%) and residential property prices declining further from current levels. Figure 3: Private residential property vacancy rate (%) 18 16
15.4
14 12 10
9.0
8 6
5.7
5.6
4
Figure 1: Population change ( 000, mid year to mid year) change in person ('000)
Figure 2: Singapore domestic demand vs GDP growth
Population growth [RHS]
Source: Department of Statistics, Credit Suisse
Negative for domestic demand
The potential drop in employment and population would have farreaching implications for the economy. Firstly, private consumption could contract in both 2009 and 2010. We are expecting private consumption growth to slow from the projected 4.2% in 2008 to 0.7% in 2009 and 1.8% in 2010. Unemployment rate could rise from 1.9% in 3Q08 to 5.6% by 2010, its highest level since 6.5% in 1986.
2 0
Source: URA, Credit Suisse estimates
Reiterate avoid less defensive consumer names
Within the Singapore market, we continue to avoid less defensive domestic plays. Sectors most exposed to a further slowdown in domestic demand include property, banks and consumer (including media) sectors. Banks remain our biggest UNDERWEIGHT and within banks we are UNDERWEIGHT OCBC. Within property, City Dev is the most exposed to the Singapore residential property sector, in our view. A more U-shaped recovery could also impact demand for advertising and, in turn, SPH s earnings. We remain OVERWEIGHT on telecoms and transport
On the other hand, we continue to favour defensive names excluding those more leveraged to the domestic economy. We remain OVERWEIGHT on telecoms and transport. Telecom (SingTel, M1 and StarHub) and land transport names (SMRT and ComfortDelgro) are domestic plays least sensitive to a decline in domestic demand. On a bottom-up basis, the MSCI should see 21% upside to 254 over the next 12 months. Our Singapore top picks remain SingTel, SIA and Wilmar. Least preferred names are COSCO, CCT and OCBC.
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