Singapore is booming. GDP growth is humming along at 7-8%, while its many plus points include first-class infrastructure, low taxes and prudent economic management. As Felix Zulauf of Zulauf Asset Management has said, it is “probably the best-run country in the world”. Singapore is diversifying away from its traditional emphasis on IT and electronics to more profitable industries such as medical research and oil refining, and is establishing itself as a financial centre.
What’s more, it’s a gateway to Asian growth, Jim Jubak notes on Moneycentral.msn.com. Local firms use it as a base to exploit opportunities in faster-growing surrounding markets. Take Singapore Telecommunications. In the first quarter of 2007, its domestic revenue grew by just 2.8%, but pre-tax profits in its holdings abroad jumped by 16%. These include 21% of a Thai wireless group and 35% of an Indonesian one, which boast a 52% and 55% market share respectively. Similarly, a Singapore Airlines subsidiary targeting secondary cities in China, India, Vietnam and Cambodia grew sales by 20% last year, while Singaporean banks have established regional networks and real estate groups are targeting the Chinese and Indian commercial market. The top firms are included in the US-listed ETF tracking the Singapore market.
But while the overall story remains compelling, the near-term picture appears uncertain. Credit Suisse points out that Singapore is the most exposed country in the region to a US downturn: a 1% slowdown in US growth implies a 1.7% reduction in the Singaporean figure. Asian markets also tend to be dragged down with US stocks when they slide, so further US economy-related and credit jitters would unsettle regional markets. But it may not be too long before the Asian bull resumes its progress: according to Christopher Wood of CLSA, rate cuts by the Fed and other central banks will improve sentiment and spur a bubble in Asian and emerging equities.