Singapore Strategy:Budget 2018supports positive view

FY18’s expansionary budget continues the themes of SME and elderlysupport via extension / enhancement of initiatives from the FY16-17 budgetscovering tax relief, wage credits, continuing education, selected healthcare,and housing. Foreign worker levy increases in the marine sector also getdeferred for another year (Keppel is our preferred play here). Longer term, thebudget sustains investment in IP and R&D initiatives to ensure Singapore’scompetitiveness while Infrastructure remains a focus area as well, with S$20bset to be spent in FY18 (up from S$8.5b in 2011). This will cover areas likerail expansion, redevelopment (Jurong Lake, Punggol, Woodlands North),Changi T5 and other strategic projects (we like SATS as a play on T5).

    Potential pitfalls avoided: A widely expected 2% GST increase will only beimplemented by FY21-FY25. An e-commerce tax was also announced, butlimited to services (and only by 2020) with goods not in scope. This mitigatestwo potential risks to personal consumption, which has re-emerged as a keydriver of GDP in the last three quarters. A 1% increase in the top marginalBuyer’s Stamp Duty to 4% on residential property was the budget’s mainnegative surprise to us, but our property team does not see it as overlyonerous; we keep City Developments and CapitaLand as top picks.

    Positive read across for banks and construction. SMEs stand to benefitmost from tax and worker credits, which is positive for this exposure vis-a-visthe banks, on which we have a positive view (top pick: OCBC). The plannedexpansion of the government bond market is also an incremental positive forthe banks. The budget’s highest spending growth is in the Transport sector(Fig 3) - driven by development expenditure