Fiscal impulse in Singapore Budget may hit decade-high of 1.9% of GDP: HSBC

WHILE recovering, economic growth in Singapore is likely to remain subdued in 2020, which HSBC Private Bank has said could contribute to a fiscal stimulus package that may be the largest in a decade.

It is expecting the Singapore government to embark on a "highly expansionary" budget in February, one that many have already billed as an "Election Budget".

The deficit may widen to 1.3 per cent of gross domestic product (GDP) on the back of packages aimed at restoring business and consumer confidence.

This, HSBC said in an outlook report, implies that fiscal impulse, which measures how government spending affects the economy in the short term, could be "as large as 1.9 per cent of GDP, probably the largest seen in a decade".

With regard to monetary policy, the wealth manager expects the Monetary Authority of Singapore (MAS) to adopt a flat Singapore dollar nominal effective exchange rate (S$NEER) slope in the second half of 2020, after pausing in the first half.

In October 2019, MAS slightly reduced the Singdollar policy band's appreciation rate, from a "modest and gradual appreciation" path.

Along with an improving manufacturing sector, they have contributed to the revision of HSBC's Singapore growth forecast from 0.4 per cent to 0.8 per cent in 2019. The growth estimate for this year was raised from 0.9 per cent to 1.5 per cent.

With growth likely to remain tepid, HSBC Private Bank is "neutral" on the Singapore equity market for 2020.

James Cheo, HSBC Private Bank's chief market strategist for South-east Asia, said: "Upside for equities will probably fall in the single digits, but hopefully towards the 7-8 per cent range".

He advised investors to be selective, with a preference for listings that are well positioned to capture growing consumer spending power in South-east Asia.

Among Singapore-listed real estate investment trusts (Reits), which Mr Cheo acknowledged remains "crucial for the bank's clients" as a source of dividend income, there is a preference for those positioned to take advantage of long-term growth trends.

"This includes Reits that are focused on warehousing to tap the growing e-commerce market as well as data centres which are used for cloud computing," he said.

With fixed income yields likely to remain low, Asian dividend plays, such as Singapore's banks, continue to be a compelling source of income generation for investors.

But Fan Cheuk Wan, HSBC Private Bank's Asia chief market strategist said investors should only stick with quality names.

"Past market performance data has shown that good quality Asian companies with a strong cash flow stream have shown competence in being able to deliver sustained high dividend payouts," she said.