Singapore stocks face policy risks

An upgrade to Singapore's growth outlook spells positive news for the broader economy, but analysts caution the short-term outlook for equities may not be as bright.
In the wash-up of first-quarter reporting season, and with a new cabinet named following recent elections, some analysts have adjusted their market strategy.
Singapore's Straits Times Index XX:$STI -0.27% has gained 2.8% over the past three months, according to data from FactSet, and is 1.5% stronger this month.
This performance has outpaced most other markets in the region, with Japan's Nikkei Stock Average JP:NI225 +0.12% down by nearly 11%, Hong Kong's Hang Seng IndexHK:HANGSENG +0.10% off 1.8%, and Australia's S&P/ASX 200 AU:XJO -0.44% lower by 4.4% over the same period.

New-look government
On May 8, Singapore's incumbent People's Action's Party (PAP) retained power after one of the most fiercely fought election battles in the nation's post-independence history.
Prime Minister Lee Hsien Loong unveiled his new cabinet line-up this week, with the moves expected to see policy shifts that could affect the stock market's future path.
While retaining his current portfolio, Finance Minister Shanmugaratnam Tharman also became deputy prime minister and manpower minister. Other portfolio restructures will affect the national development, health and transport portfolios, and several retirements were announced.
"The People's Action's Party will continue to focus on policies to foster growth. However, the focus, we believe, will likely be on the quality of growth rather than on the pace of growth," analysts at Nomura said.
"To the extent that the cabinet changes will mean a review of existing policies and approaches, investors will have to adjust their preconceptions about the Singapore stock market and sectors, such as property, health-care, transport and gaming, which were areas of voter dissatisfaction during the recent general elections," the analysts said.
Sectors to watch
Normura said that "policy risks will continue to undermine the performance of developers in Singapore," while concerns about foreign workers — a key election issue — may also have an impact on companies in the country.
"While the government had started to curtail foreign workers prior to the elections, it would likely continue with its policy of weaning employers from over-dependence on foreign workers," the analysts said.
"Companies who depend heavily on foreign workers will need to improve productivity, but they may in the near term see higher personnel costs and therefore eroding margins," Nomura said.
The gaming sector may also see changes under the new government.
"The government recently levied fines on Genting Singapore PLC SG:G13 -2.90% GIGNF -7.39% for flouting the rules. One policy risk is that the government may further tighten rules to mitigate the social ills generated by the integrated [gambling] resorts on Singaporeans," Nomura said.
In Singapore trading on Friday, shares in Genting fell 1%.
Growth forecasts lifted
Better-than-expected first-quarter gross domestic product data prompted the Singapore government to ramp up its annual growth estimates earlier this week.
The Ministry of Trade and Industry (MTI) revised its growth outlook for 2011 to between 5% and 7%, from the 4%-6% range previously forecast.