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How to Look At Economic Data If You Are A Top-Down Investor

Singapore

If you are an investor who believes more in the Top-Down investing approach, knowing where the macroeconomic situation is at now is very important.

That’s because a Top-Down style would require an investor to understand the current state of the economy before he or she can narrow down possible investment choices. And for investors wanting to know the health of the global economy, recent information provided by Singapore’s Ministry of Trade and Industry (MTI) would be very useful.

The global economy

From the MTI’s observation, it seems that the US economy should continue to recover at a faster pace going forward. The Eurozone is also seeing slight improvement and displaying signs of economy recovery. In Asia, China’s expected to continue growing as the Chinese government has started taking measures to boost its economy to counterbalance the effect of the crackdown in corruption and other tightening measures. As for Singapore’s neighbouring economies such as Malaysia and Indonesia, the MTI is optimistic about them due to their healthy domestic demand.

That said, there are still major risks within the global economy. The financial world is still nervously waiting for the Federal Reserve’s Quantitative easing programme to come to an end; shadow banking activities in China are slowly ‘stepping out of the shadows’; and oil-producing nations in the Middle East are still involved in international conflicts, possibly leading to more volatile oil prices.

All these information is important as Singapore is a global hub and its local economy is very much linked to the health of the global economy. In light of that, sectors which serve the international markets – such as the wholesale, finance, and insurance sectors – should continue to do well. On the other hand, sectors which are more labour intensive – such as the local retail and food services industries – might feel the effects of labour constraints in Singapore soon.

How are businesses affected?

For illustrative purposes, if you subscribe to the views above, companies such as Noble Group Limited (SGX: N21) and DBS Group Holdings Ltd (SGX: D05) might be well positioned to take advantages of the global economic recovery. After all, the former is involved with the wholesaling of commodities around the world while the latter is Southeast Asia’s biggest bank.

An example of a retail and food services outfit would be BreadTalk Group Limited (SGX: 5DA). Companies in similar lines of business might be facing labour shortages and rising operational costs. If those come to pass and a company in that line of business finds it hard to transfer higher costs to consumers, its profit margins would be impacted.

Foolish Summary

This little exercise is just an example of how we can go about finding possible investment opportunities through the Top-down method. It pays to note however, that there is no fixed rule on how an investor arrives at an investing decision, so all the above is just a simple illustration to demonstrate the process.

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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 any shares of companies mention above