Elections 'unlikely to sway local markets'

Private bank Coutts expects Govt spending to rise while monetary policy eases

The upcoming elections are not expected to have a significant impact on local asset markets, an investment strategist said.

Investment strategist Rashmi Sadhwani at private bank and wealth manager Coutts also said government spending is expected to rise, and the likelihood of the central bank easing monetary policy at its next meeting is increasing, whatever the election outcome.

Socio-economic issues will be at the forefront of the elections, said Ms Sadhwani in a note yesterday.

These include the "high cost of living, the foreigner influx that has driven up property prices, and slowing growth, particularly in the manufacturing sector" - a key issue given Singapore's open and export-oriented economy, she noted.

Even though there has been growing support for the opposition, the incumbent People's Action Party is still expected to "achieve a majority as some of the social issues have already been addressed", she said.

For instance, "the Government has been prudent in implementing property cooling measures", which are likely to remain in place for some time yet.

After the elections, the Government is expected to continue increasing support for lower-income groups, while spending on transport infrastructure and other development projects, she said.

The case for the Monetary Authority of Singapore (MAS) to ease monetary policy at its next meeting, scheduled for October, has strengthened, Ms Sadhwani noted.

MAS uses the exchange rate as its main tool to strike a balance between controlling inflation from overseas and laying the foundations for economic growth.

A stronger currency helps counter inflation by making imports cheaper in Singapore dollar terms, while a weaker Singdollar helps exporters, whose goods become cheaper in foreign markets.

Although economic growth has been "soft and patchy", MAS has historically been responsive towards inflation trends rather than growth, Ms Sadhwani said, noting that the chances of monetary policy easing have risen, because Singapore has been experiencing low to negative rates of inflation.

"This in turn could provide support for exports as the Singapore dollar is currently overvalued in real terms versus its long-term average," she added.

A version of this article appeared in the print edition of The Straits Times on August 29, 2015, with the headline 'Elections 'unlikely to sway local markets''. Print Edition | Subscribe