Singapore’s policy makers have a fondness for boats. Or so it seems from recurring images of “a small vessel in choppy waters” in their descriptions of the island’s economy during turbulent times.The market could do with a reminder of that metaphor. In the pre- and post-Brexit tumult, Singapore has emerged as a haven of stability. During the past month, six out of 10 major world currencies have fallen between 1 and 11 percent against the Singapore dollar, while a seventh — the U.S. dollar — has held steady. Closer to home, the Chinese yuan has weakened almost 2 percent against the city-state’s currency.
Nothing wrong with being a sturdy ship, except that Singapore would rather not be seen as one — not now, not with exports floundering, and labor too expensive. A stronger home currency at this juncture could become a serious handicap for Singapore Inc.
For now, equity investors’ focus is on Singapore companies that could bear the brunt of the business uncertainty created by Britain’s decision to leave the European Union. Ascott Residence Trust, which has four serviced residences in the U.K., has seen analysts prune its annual per-share earnings estimate by 3 percent over the past month. With Brexit being viewed as bad news for global energy demand, earnings downgrades have also hit rig builder Sembcorp Marine, which is grappling with a 1980s-style global oversupply in vessels used to drill for oil.
However, if the “haven effect” keeps pushing the local dollar toward what analysts believe to be the top end of the central bank’s undisclosed tolerance range, Singapore’s languishing export industries may start to share the misery. The last time electronics exports grew for three straight months was in the summer of 2012. Anemic world demand is only one part of the story. A comparison with Vietnam’s much smaller — and far less sophisticated — electronics industry shows that Singapore’s cost structure may be increasingly uncompetitive for manufacturers.
No doubt, the illusion of stability in a topsy-turvy world brings Singapore the benefit of a capital glut and lower interest rates. While that might offer some relief to overstretched mortgage borrowers who are getting squeezed by falling property prices, Natixis is right to conclude that the pain of a stronger currency outweighs the gain.In April, Singapore took the rather unusual step of seeking a pause from a stronger currency. That was before Brexit. The message that Singapore doesn’t want to be a haven needs some reinforcement. And to make sure the market takes their intent seriously, it might be time for policy makers to give that boat-in-a-storm parable another outing.