Singapore lowers growth forecast as virus hits economy

Visitors in Singapore on Monday. The city-state is one of the worst affected locations outside China, with 75 cases of the virus so far. (AFP)
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Updated 17 February 2020

Singapore lowers growth forecast as virus hits economy

  • Tourist arrivals, exports and domestic consumption affected in city-state

SINGAPORE: Singapore cut its economic growth forecast for this year on Monday as the coronavirus batters tourist arrivals and trade.

The city-state is one of the worst affected places outside China, with 75 cases of the virus so far. China has more than 70,000 infections.

Singapore downgraded its 2020 growth estimate to a range of -0.5 percent to 1.5 percent.

That compares with its previous forecast in November of 0.5 percent to 2.5 percent.

“The outbreak of the coronavirus . . . has affected China, Singapore and many countries around the world,” the trade ministry said in a statement. “In Asia, the outbreak is likely to dampen the growth prospects of China and other affected countries this year.”

Tourism arrivals have already started to decline, exports are expected to take a hit, and domestic consumption is likely to fall as people cut back on shopping and dining out, it added.

China is Singapore’s largest source of tourists and a major export destination.

The city-state was at risk of sliding into a technical recession, warned Song Seng Wun of CIMB Private Banking.

“There is a real possibility of two quarters of contraction or even two quarters of year-on-year decline,” he said.

“Mathematically it’s possible because of the integrated nature of the global supply chain and the impact of the slowdown in China that could have far-reaching implications on small trade-oriented economies like Singapore.”

As a small and open economy, Singapore is often the first to be hammered during global crises but it also recovers quickly when conditions improve.

Prime Minister Lee Hsien Loong last week warned the effect of the virus was already worse than that of the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003, as economies in the region are more closely linked and raised the possibility of a recession for Singapore.

“I think the impact will be significant at least in the next couple of quarters . . . I can’t say whether we’ll have a recession or not, it’s possible, but definitely our economy will take a hit,” he told reporters on Friday.

Singapore suffered a sharp, quarterly contraction at the height of the SARS outbreak, which killed hundreds after emerging in China, but bounced back swiftly.

National Development Minister Lawrence Wong last week flagged a “strong” budget — due to be delivered Tuesday — to counter the impact of virus.

Oil-rich wealth funds seen shedding up to $225 billion in stocks

Updated 30 March 2020

Oil-rich wealth funds seen shedding up to $225 billion in stocks

  • Risking more losses is not an option for some funds from oil-producing nations

LONDON: Sovereign wealth funds from oil-producing countries mainly in the Middle East and Africa are on course to dump up to $225 billion in equities, a senior banker estimates, as plummeting oil prices and the coronavirus pandemic hit state finances.

The rapid spread of the virus has ravaged the global economy, sending markets into a tailspin and costing both oil and non-oil based sovereign wealth funds around $1 trillion in equity losses, according to JPMorgan strategist Nikolaos Panigirtzoglou.

His estimates are based on data from sovereign wealth funds and figures from the Sovereign Wealth Fund Institute, a research group.

Sticking with equity investments and risking more losses is not an option for some funds from oil-producing nations. Their governments are facing a financial double-whammy — falling revenues due to the spiraling oil price and rocketing spending as administrations rush out emergency budgets.

Around $100-$150 billion in stocks have likely been offloaded by oil-producer sovereign wealth funds, excluding Norway’s fund, in recent weeks, Panigirtzoglou said, and a further $50-$75 billion will likely be sold in the coming months.

“It makes sense for sovereign funds to frontload their selling, as you don’t want to be selling your assets at a later stage when it is more likely to have distressed valuations,” he said.

Most oil-based funds are required to keep substantial cash-buffers in place in case a collapse in oil prices triggers a request from the government for funding.

A source at an oil-based sovereign fund said it had been gradually raising its liquidity position since oil prices began drifting lower from their most recent peak above $70 a barrel in October 2018.

In addition to the cash reserves, additional liquidity was typically drawn firstly from short-term money market instruments like treasury bills and then from passively invested equity as a last resort, the source said.

It’s generally a similar trend for other funds.

“Our investor flows broadly show more resilience than market pricing would suggest,” said Elliot Hentov, head of policy research at State Street Global Advisers. “There has been a shift toward cash since the crisis started, but it’s not a panic move but rather gradual.”

The sovereign fund source said the fund had made adjustments to its actively managed equity investments due to the market rout, both to stem losses and position for the recovery, when it comes.

Exactly how much sovereign wealth funds invest and with whom remain undisclosed. Many don’t even report the value of the assets they manage.

On Thursday, the Norwegian sovereign wealth fund said it had lost $124 billion so far this year as equity markets sunk but its outgoing CEO Yngve Slyngstad said it would, at some point, start buying stocks to get its portfolio back to its target equity allocation of 70 percent from 65 percent currently.

Slyngstad also said that any fiscal spending by the government this year would be financed by selling bonds in its portfolio.