Should Investors Be Concerned About Singapore’s Recent Weak GDP Numbers?

The short answer to the question posed in the title of this article is “Yes, you should be.” But, the long answer is a lot more nuanced then that.

The gross domestic product (GDP) of Singapore in the second quarter of 2015 saw an unexpected slowdown. Year over year, the nation’s GDP only grew by 1.7%, which is significantly lower compared to the selfsame figure of 2.8% seen in the first quarter of the year.

More alarming is the quarter-on-quarter growth rate; in the second quarter of 2015, Singapore saw a 4.6% contraction in its GDP as compared to the previous quarter. This is the sharpest drop Singapore’s economy has experienced since the global financial crisis. The manufacturing sector in particular was the hardest hit, with a 14% decline quarter-on-quarter.

Singapore’s weak economic numbers, which may be somewhat linked to China’s own slowdown in economic growth and the Greece crisis in the Eurozone, may be a sign of further bad news to come in the near future – that’s something investors may want to brace for.

But – and this is where the nuance of the longer answer to the question posed in the title of this article comes in – even if Singapore is to enter a period of technical recession in the coming quarters, it might actually be a good opportunity for investors to find bargains in the stock market.

Areas to focus on

With a sharp slowdown in the economy taking place currently, some companies – especially those with weak balance sheets – may fall into financial difficulties.

If you are interested in finding turnaround situations, these companies may make for a good hunting ground. A beaten-down company may carry such low valuations that the rewards can outweigh the risks; firms facing temporary distress may even be able to come out stronger than before. Turnaround investors may be well-rewarded by investing into these companies at the point of maximum pessimism.

If you’re interested in quality businesses or market leaders in an industry, now may be a good time to keep an eye on them as well.

As the economy declines, these companies can go on the offensive and win market share from their weaker competitors. Investing into strong businesses in such a situation might lead to great returns too.

Foolish Summary

So is the slowdown in the economy of Singapore a cause of concern? Yes. I have concerns about Singapore’s economy when looking at the latest data. Yet, opportunities often sprout in the times of panic. Investors should always focus more on the opportunities.

Over the past 50 years, Singapore has displayed a proven ability to grow despite the hostilities and challenges embedded within the Southeast Asia region. This track record can help give us faith that Singapore will continue to be a success story long into the future.

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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 writer Stanley Lim does not own any companies mentioned above.