With Singapore looking to be mired in its worst recession since independence, the Government delivered a major fiscal package in response. Key tasks were to save jobs and to help companies. Corporate tax rate was brought down to 17%, and property tax rebates were introduced. Greater confidence was also injected to the banking sector, with the government stepping in to share the risk in lending to SMEs.
Key sector beneficiaries:
Banks (UOB, OCBC), Property (City Dev, Wheelock, Allgreen), Transport (SMRT, ComfortDelgro).
Saving Jobs, Saving Companies.
The key thrusts of Singapore’s 2009 budget were to save jobs for Singaporeans and to keep companies afloat in what is looking to be the deepest recession since independence. The Government unveiled a S$20.5bn Resilience Package, acknowledging that it will not be an instant cure, but affirming its commitment in pushing through a strong fiscal move to avert a sharper downturn. Key Measures. The key measures were a job credit scheme which gives employers the incentive to keep workers, as well as a Special Risk-sharing Initiative (SRI) ,which aims to improve credit availability to SMEs, with the government taking on a significant portion of the risk. The government also cuts the corporate tax rate from 18% to 17%. The property market also saw a 40% tax rebate initiative for commercial and industrial properties, among other measures.
Not an Instant Cure.
Despite this fiscal boost, the openness of Singapore’s economy and the lagging effect of the fiscal measures mean that the tide will not turn overnight. The market will remain volatile in 1Q09 as economic data points continue to head south. Even though the market is currently trading at a P/E of 9.4x (FY09F), which is lower than the average of 16x in the past decade, negative newsflow from the corporate sector will continue to cap performance. We continue to expect a trading range of 1450 to 2180 for the STI, which implies a standard deviation of –2, as is the case in recession years.
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