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Markets calm on spirit of Lee Kuan Yew's legacy
SINGAPORE markets reacted with equanimity on Monday to the news that founding prime minister Lee Kuan Yew has died, and with it, the end of an era for the country.
And that reflects confidence in Singapore as an attractive place to invest in due to its rule of law, strong infrastructure and open economy - the very legacy of Mr Lee and the system of governance he established, said investors, senior business executives and analysts.
On Monday, the Singapore stock market initially rose along with most Asian markets. The benchmark Straits Times Index closed at 3,410.13 points, down 2.31 points or 0.07 per cent - not too far away from a seven-year high of 3,454.37 in May 2013. The Singapore dollar appreciated against the US dollar after the US Federal Reserve guided last week for a gentler path of interest rate increases.
Observers said that Mr Lee's death is unlikely to unsettle financial markets here because leadership transition has been smoothly accomplished, and Mr Lee has not been actively involved in day-to-day decisions on Singapore's economy for many years.
Mizuho economist Vishnu Varathan said that views among foreign investors are likely to be divided between those who think there will be leadership issues, and those who believe Singapore will move on just fine.
"I think the truth is somewhere in between . . . There could be some sense of a bit of a leadership vacuum (but) the mitigating factor is that Singapore has proven itself on many counts," he said. "Not only is it propelled by a very strong government with clear-headed views as well as pragmatic economic policy, it is also strong in its execution of these policies. The leadership at the institutional level is still solid as well."
UBS Asia-Pacific regional head Tan Min Lan said that it might be unavoidable that markets have a limited "knee-jerk reaction" to Mr Lee's death. "Inevitably, such a colossal loss to the nation would raise questions about whether Singapore can retain its stature and position in the global marketplace."
Nevertheless, Ms Tan said, Singapore retains a comparative advantage in financial, information and scientific services. Though Singapore is restructuring its economy, it still ranks as one of the top five most-competitive economies and as the most liveable city in the world, she said.
Eugene Tan, associate professor of law at Singapore Management University, said that many big investors have recently invested in Singapore, knowing that Mr Lee will not be around forever. Observers note that one of Mr Lee's achievements is how he has transferred power.
Looking ahead, they expect the successor to Prime Minister Lee Hsien Loong to emerge soon. This can be during or after Singapore's next general election, which some expect to be called this year.
"My sense is that . . . it's an orderly transition," said NRA Capital executive chairman Kevin Scully. With an ageing local population, Singapore needs to bring in sufficient foreign workers and immigrants to ensure sufficient support for elderly dependants, he said.
Currently, the biggest problem faced by companies is finding staff. What will scare investors away is if business costs rise so much that corporations cannot get a sufficient return on their capital, he said.
As Singapore has expanded its social safety net in recent years, a number of investors and politicians have wondered if the government is shifting away from its hallowed principles of fiscal conservatism.
However, Prof Tan said that recent policy changes are inevitable, not populist. "Maybe compared with Mr Lee Kuan Yew's very austere and tight-fisted policies, the ones today - for example, the Silver Support Scheme (for poor elderly) - seem totally incongruent with his mantra of self-reliance and family as the first line of support.
"But when you take into account the fact that economic globalisation hasn't lifted all boats to the same level, government social spending has perhaps been very much on the low side."
Given Singapore's economic realities, it is unlikely that alternative political parties will come up with radically different economic policies that do not espouse economic openness, he said.
OCBC economist Selena Ling said that markets are not affected by Mr Lee's death because they have been well-prepared for it in advance. Singapore's stock market is "still not doing too badly", she said.
Judith Fergin, executive director of the American Chamber of Commerce, said that investors would be drawn by Singapore's predictable, enforceable and fair rule of law. "This enduring legacy will continue to inform investors' decisions."
Victor Mills, chief executive of the Singapore International Chamber of Commerce, said: "I do not believe that international investors' confidence in Singapore will be adversely affected by his passing."
The heads of the three local banks - DBS, UOB and OCBC - said that the institutions put in place by Mr Lee enabled Singapore to flourish as an international financial centre.
UOB chairman emeritus Wee Cho Yaw also recalls Mr Lee's view that the local banks had to merge or get bigger to survive. "I agree. At the time, UOB was very small. Partly due to his advice, partly also due to my intention, I acquired five banks in South-east Asia. If based on organic growth, it would have been very slow."
He added: "After Lee Kuan Yew, Singaporeans have to work harder so we can maintain the reputation . . . Even the new politicians have to think how to encourage Singaporeans to work harder."