MAS survey highlights Covid-19 and China among top downside market risks

Investors will take heart from predictions of strong growth for Singapore’s economy, but analysts observed that China's tech clampdown and the pandemic could still disrupt markets.
MAS survey highlights Covid-19 and China among top downside market risks

China's recent tightening of regulations on specific sectors weighed more heavily on analysts' minds in August, compared with two months ago, according to the Monetary Authority of Singapore (MAS)’s latest survey of professional forecasters, released Wednesday (September 1).

A quarter of respondents  - 24 economists and analysts in total - cited tightening regulations in China as a top factor that could affect market conditions in Singapore, up from zero in the June survey.

In addition, a larger proportion of respondents also Covid-19 escalation and the tightening of global financial conditions as downside risks in the survey conducted on August 11. A third named Covid-19 escalation as a top factor in the recent survey compared with 27.3% in June, and 91.7% cited tightening global financial conditions, compared with 81.8% two months earlier.

The Chinese government has clamped down on various tech companies, starting with an overhaul of cybersecurity regulations in July targeted at ride-hailing firm Didi Chuxing, followed by regulations to rein in the education technology sector. 

Analysts have eyed the gaming, healthcare and property sectors as Beijing's next possible targets

In terms of upside drivers, 70% of respondents were optimistic about Singapore's re-opening of its borders to international travel. Half of respondents (55%) named effective containment of the Covid-19 pandemic as upside risks and 40% cited stronger-than-expected manufacturing output growth.

Source: MAS Survey of Professional Forecasters

The respondents also predict Singapore’s economy will grow by 7% year-on-year in the third quarter of 2021, and by 6.6% annually, having expanded by an official 14.7% year-on-year in the second quarter of 2021.

In contrast, the city-state's GDP shrank 5.4% last year in its worst performance since independence in 1965.
Sanket Sinha

Sanket Sinha, head of asset management at Lighthouse Canton in Singapore, said the findings were in line with the fund house’s  predictions.

“We expect Singapore GDP growth in 2021 to be strong due to a subdued 2020 and in the range of 6-7% driven by an uptick in manufacturing, retail spend, F&B and construction sectors. Other factors that we believe will contribute to the growth include Singapore’s reopening plans [and] therefore, a positive impact on travel, hospitality and F&B,” he told AsianInvestor.

The firm expects financial markets to remain strong on the back of better market liquidity, improvements in business and job markets, and global re-opening because of increasing vaccination rates. However, Sinha warns the pandemic could still disrupt the recovery and financial market conditions.

“While the world is coming to terms with the Covid-19 pandemic, it is still an unknown factor and it is important for market participants to closely monitor its trajectory as well as the efficacy of various approved vaccines against the dominant virus variants,” he added.

The analysts surveyed also predicted that CPI-All Items inflation will hit 1.7% in 2021 with MAS Core Inflation, which excludes accommodation and private transport, estimated to reach 0.7%. In the Authority’s most recent edition of the same survey in June, respondents estimated these figures would be 1.4% and 0.8% respectively.

Official CPI-All Items inflation and MAS Core Inflation were 2.3% and 0.7% in the second quarter of 2021.

Estimates for the overall unemployment rate remain in line with the official rate of 2.7%. The survey also found that 57.1% of respondents expect corporate bond spreads to narrow in 2021.

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