Singapore's Forthcoming General Election: What it Means for the Stock Market?

The Prime Minister's Office of Singapore has declared that Deputy Prime Minister Lawrence Wong will succeed PM Lee Hsien Loong as the nation's fourth Prime Minister on May 15, after PM Lee's two-decade tenure. Looking ahead, Singapore will conduct its general election by November 23, 2025, at the latest, to elect the members of the 15th Parliament.

The maximum term of the Singapore Parliament is five years, meaning that general elections must be held at least once every five years. Since the year 2000, Singapore has conducted five general elections. A retrospective analysis by UBS, delving into the performance of the Singapore stock market surrounding past elections, uncovers a fascinating trend: Historical data indicates that in the 12 months preceding an election, the performance of the Straits Times Index (STI) typically lags behind that of the MSCI ASEAN Index and the MSCI Asia Ex Japan Index. However, on average, the STI index surpassed the MSCI ASEAN Index during the 6-12 month period post-election.

It is noteworthy that, among the five general elections held in Singapore since 2000, three of them have corresponded with a more expansionary fiscal budget. The exceptions were in 2011 (+0.7% of GDP) and 2006 (unchanged). Below are the key points of the election year fiscal budget since 2000.

Prime Minister: Goh Chok Tong

Finance Minister: Hu Tsu Tau

1. Increased rebates for public housing fees, utilities, and income tax.

2. Lowering the corporate tax rate and exempting 75% of the taxable income for the first 10,000 USD and 50% for the following 90,000 USD; reducing the property tax rate from 12% to 10%; lowering the personal income tax rate.

3. Sharing the budget surplus, including a 10% personal income tax rebate, refund schemes for management fees and rent, etc.

Prime Minister: Lee Hsien Loong

Finance Minister: Tharman Shanmugaratnam

1. Introducing the "Silver Support Scheme" to assist elderly citizens aged 65 and above, and making policy adjustments to wage subsidies and foreign worker taxes.

2. Launching the Wage Credit Scheme (WCS), under which the government will co-fund 20% of the wage increases for Singaporean employees earning less than SGD 4,000 per month.

3. Expanding and strengthening the merger and acquisition tax relief scheme, increasing the annual acquisition subsidy from 5% to 25%.

4. All resident individual taxpayers for the 2015 tax year will receive a one-time 50% tax rebate, up to a maximum of SGD 1,000.

5. Extending the pre-approval of input tax deduction for banks, allowing financial institutions to enjoy tax relief on loan loss provisions.

Prime Minister: Lee Hsien Loong

Finance Minister: Heng Swee Keat

1. Introducing the Jobs Support Scheme (JSS), under which employers will receive a cash grant of 8% of the total monthly wages for each local employee for the period of October to December 2019.

2. Strengthening the Wage Credit Scheme (WCS). The monthly wage ceiling for eligible wage increases in 2019 and 2020 will be raised from USD 4,000 to USD 5,000.

3. Corporate Income Tax (CIT) rebate. For the year of assessment 2020 (YA), a CIT rebate of 25% of the tax payable will be granted.

4. Extending and enhancing the Double Tax Deduction for Internationalization (DTDi) scheme.

As mentioned in Lawrence Wong's budget report, it is"essentially a balanced fiscal position."James Cheo, the Chief Investment Officer at HSBC Global Private Banking and Wealth, remarked that the 2024 Singapore budget largely met market expectations. He noted that although the budget provides short-term fiscal relief to mitigate the cost-of-living burdens, it emphasizes long-term strategies aimed at unleashing Singapore's growth potential in the medium term.
In FY2024, Singapore is planning a small budget surplus of S$778 million, breaking a six-year planned deficit streak, even with major upgrades to areas such as transport, healthcare, and education. The surplus represents about 0.1% of gross domestic product (GDP) and includes a non-cash addition of S$4.1 billion from the capitalization of significant infrastructure and a deduction of S$403 million due to related interest costs and loan expenses. Despite the surplus, higher operating revenue is expected to only partly offset higher spending.

Regarding the performance of the Straits Times Index (STI), research analysts Foo Fang Boon and Yeo Kee Yan from DBS Group Research suggest that the STI could fluctuate between 3,030 to 3,300 over the next few months. They note that the expected earnings growth for the STI is projected to decrease to 3.5% in the 2024 fiscal year and to 2.6% in 2025. Analysts at HSBC Global Private Banking and Wealth maintain a neutral stance on Singaporean stocks, considering their valuations to be reasonable. Furthermore, they have observed that high-quality Real Estate Investment Trusts (REITs) are brimming with opportunities.