Singapore construction faces slowdown

Singapore has kept its top spot on the World Bank’s ranking of the most business-friendly regulatory environment. The country kept its lead in the top 10, just ahead of New Zealand and Hong Kong.

Singapore Stock exchange
Source: Bloomberg

While the accolade suggests that Singapore will keep its competitive edge, the country will need to brace itself for slower growth next year, as its one of the most open economies in the region.

In the Monetary Authority of Singapore bi-annual outlook released yesterday, it warned that demands for Asia’s exports may be dampened by the slower growth in advanced economies.

It pointed out that industries in Singapore catering to final demand in the US were likely to fare better compared to those with exposure to the Eurozone and China.

Property sector under pressure

The central bank also pointed out labour-intensive sectors will likely continue to struggle to cope with a manpower crunch. This puts the construction sector under the spotlight as it faces a potential double whammy with the slowing residential property market.

In a speech at an industry event yesterday, Singapore finance minister Tharman Shanmugaratnam pointed out home prices still had some way to drop further to achieve a meaningful correction especially after the sharp run-up in prices in recent years.

Besides sliding prices, the construction industry could also be looking at a slowdown in projects as well. Earlier this week, the government announced its intention to scale back the supply of public sector housing flats next year by 25% to avoid a glut. To put this into context, construction had been ramped up to  tune over 25,000 Build-To-Order flats each year to meet a backlog of demands. While the cut will see the return to previous ‘norms’, the industry will still need some time to adjust to the slower growth.

In particular, construction stocks with significant exposure to government housing contracts will be under the spotlight, such as SGX-listed companies Chip Eng Seng and Tiong Seng.

On a weekly chart, Chip Eng Seng’s stock price is showing some signs of exhaustion on an uptrend.

The potential resistance level at around 90 cents is one to watch. If the stock price struggles to break through this and falls below the recent uptrend line, we could see the start of a downtrend.

There is also another possible scenario that it may push above the resistance level. In this case, we will be watching out to see if it makes a higher-high to suggest continuation of the uptrend, otherwise we may see a phase of consolidation.

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