Singapore started its Phase 2 reopening with a gradual easing of restrictive measures on June 19. This provided much-needed relief for many businesses. Coupled with the reopening of economies in other countries, Singapore should see green shoots of recovery emerging.
While the worst may be over, the trajectory of the recovery may be uneven and choppy, given the cautious approach in the reopening and the risk of the second wave of infections. The pace of recovery is also likely to differ across industries. Domestic transportation, retail and food & beverage sectors will be immediate beneficiaries while tourism and aviation sectors are likely to take a longer time to recover.
Due to the weaker external demand outlook and circuit breaker impact, the Ministry of Trade and Industry lowered its 2020 GDP forecast by 3%, from the previous range of -4% to -1% to -7% to -4%. To cushion the COVID-19 impact, the government has set aside S$92.9 billion1 (19.2% of GDP) of stimulus measures to help companies and workers to cope with immediate concerns and capitalise on new opportunities via digitalisation of processes. Besides saving jobs, the policy focus has also shifted to creating job opportunities for unemployed workers and fresh graduates.
While the job support schemes will help to contain job losses, we expect near term employment prospects to deteriorate further. The labour market recovery lags behind the economic growth cycle. The unemployment rate could continue to increase over the next few quarters from 2.3%1 in 2019. We expect the economy to bottom out in the second quarter 2020.
The pandemic has also hastened the pace of corporate actions/restructurings as evidenced by Singapore Airlines’ fund raising and the recapitalisation and demerger of Sembcorp Marine potentially leading to the consolidation of the offshore and marine industry. The impact on companies reflects the severity of the pandemic. Many businesses may not be able to survive, and the transition could be painful to some. To weather this crisis, companies must use this opportunity to strengthen their capabilities and competitiveness to emerge stronger.
The current state of the Singapore equities market can be characterised by three themes in terms of the economic impact from COVID-19 and pace of recovery. The first theme of COVID-19 beneficiaries and safe havens which had seen minimal disruption from the pandemic has outperformed the market year to date. Technology and healthcare stocks as well as industrial REITs fall into this category.
The domestic recovery theme on driving shopper and local transportation traffic has yet to play out as retail and domestic transportation stocks are still struggling to outperform. However, we believe that these stocks provide opportunities for investors given attractive valuation and expected uptick in domestic demand. Finally, we believe that tourism or travel theme will lag domestic recovery theme due to the uncertainty in the timeline of the reopening of inbound and outbound travel and earnings recovery.