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Who Would Face the Largest Impact If Singapore’s Economy Slows Down?

The Monetary Authority of Singapore (MAS) announced on Monday that it will continue to hold its monetary policy (which includes the S$ Nominal Effective Exchange Rate band) steady for the time being. This comes as the Ministry of Trade and Industry had estimated a sequential growth rate of only 0.1% in Singapore’s Gross Domestic Product (GDP) for the first quarter of 2014. This marks a drastic slowdown from the 6.1% growth in GDP that was experienced in the last quarter of 2013.

The objective of Singapore’s central bank has always been to maintain a small and stable appreciation of the Singapore dollar. For many years, the MAS has mostly been successful in this particular endeavour. However, with the onset of a tapering of the United States Federal Reserve’s Quantitative Easing (QE) programme as well as the Japanese government’s huge stimulus package, the global economy’s faced with a situation where no one has really experienced before. As such, there might be huge impacts on Singapore’s economy depending on how the MAS reacts to external events.

Companies facing the largest impacts should Singapore’s economy slowdown

Companies where Singapore’s a huge part of their businesses include the local stock market operator Singapore Exchange (SGX: S68), the media outfit Singapore Press Holdings (SGX: T39), and one of Singapore’s three telecommunications operators Starhub (SGX: CC3).

All three aforementioned companies derive most – if not all – of their profits from Singapore. Starting with Singapore Exchange, it is the sole clearing house and exchange operator for Singapore’s financial markets. And although SGX attracts global clients for its services and is the sixth largest exchange in the world, it is still dependent on Singapore’s attractiveness as a financial hub within Asia. If Singapore’s economy slows, the attractiveness of SGX’s services might diminish.

Next, we have Singapore Press Holdings. With its business activities that include selling magazines, collection of advertising revenue from local newspapers, and getting rental income from its Singapore-based retail-oriented investment properties, it’s easy to see how the company originates almost all of its revenue from Singapore.

Lastly, we have Starhub, which is the second largest telecommunications company in Singapore with a focus mainly on the local market. Even though the company is providing a staple service to our population, it does serve a large enterprise market as well. And if its enterprise clients become affected by any possible economic slowdown in Singapore, it might just trickle down and ding the profitability of Starhub as well.

Foolish Summary

The MAS, Singapore’s central bank, has been praised often as one of the most forward looking central banks in the world. We can only hope it has the ability to maneuver any rough seas ahead for Singapore and the global economy.

Singapore Exchange, Singapore Press Holdings, and Starhub are just three examples of many locally-listed companies that do business predominantly in Singapore and which could all be facing huge impacts should Singapore’s economy reverse. But, the truth is, it will be the general public of Singapore – i.e. me and you – who would be affected the most if Singapore’s economy does indeed slow down. This gives everyone even more reasons to start saving and investing to build up a war chest as you never know when the storm will be coming.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.