SINGAPORE (June 30): Maybank Kim Eng on Wednesday said Singapore needs to make “radical changes” to guard against a precipitous loss of relevance to global markets.

“With sub-2% GDP growth expectations and EPS contractions for equities, Singapore is struggling,” says Maybank lead analyst Derrick Heng.

According to Heng, some of the attributes that have been responsible for Singapore’s success so far — including appreciating property prices, high wage growth, high savings rates and lower returns from overseas investments — are now stifling further growth.

“While the government has been evolving steps to address these, we think that radical changes are called for,” Heng adds.

Here are 5 factors that Maybank thinks could be critical to Singapore’s success:

1) Property cooling measures

Singapore households have some S$840 billion of capital, or slightly over three times of GDP, tied up in residential property.

“We think turning property-cooling measures permanent could be an effective way to steer investments away from this asset class to more productive uses in the long run, which may be what the government is contemplating,” says Heng.

Maybank downgrades the residential property sector to “neutral” as developers find themselves at the losing end of these measures.

The two companies most exposed to the residential market, Wing Tai and City Developments, can be expected to be most affected.

Maybank adds that Singapore banks OCBC and DBS are least preferred as demand for loans decline.

2) Lower wage growth

According to Maybank, wage growth has outpaced productivity gains to hit 43.4% of GDP, and short-term relief to wage pressures is required to prevent an increase in retrenchments.

Historically, such levels preceded a recession, as in 1985, 1997 and 2000.

“We think that the ideal solution may be for the government to co-pay wages and increase social spending,” says Heng.

3) Boost consumption

Singapore’s household consumption is one of the lowest among developed countries at 37% of GDP – and continues to decline.

Heng foresees a consumption boost, with domestic-led growth expected to be more desirable amid rising anti-globalisation sentiment in parts of the world.

Maybank picks Sheng Siong as a favourite to benefit from an increase in consumer staples.

4) Higher government spending on R&D and innovation

Maybank says it expects higher public spending ahead as Singapore focuses on the need to create value and innovate to make up for its lack of natural resources.

Moving ahead, the government’s Smart Nation drive as well as support for R&D and high-value industries is likely to take centre stage.

Maybank reiterates its “buy” recommendation on Ascendas REIT and Mapletree Industrial Trust amid growing demand ahead for business park and high-spec space.

It also keeps its “buy” call for SingTel and StarHub as Singapore telcos reap the benefits of the Smart Nation development.

5) Going global — or not

“Growth aspirations and strong free cash flows have sent Singapore companies investing aggressively overseas since early 2000, with varying results,” Heng says. “But many may not realise that Singapore’s returns are higher than overseas returns, with China assets faring the worst.”

Maybank singled out SingPost as one company that has seen “patchy” overseas execution.

“If Singapore can shed its preoccupation with property, we believe a floodgate of savings will target yields,” Heng adds. “SGX could be the capital market for yields in Asia.”