On Friday, Singapore announced their budget for 2014 which centred on improving social equity and workforce productivity. The key initiatives include the Pioneer Generation Package, healthcare insurance subsidies, an increase in employer CPF Medisave contribution (+1ppt), enhancements to the Productivity Innovation Credit Scheme (PIC), and ICT investment subsidies (IPG) for SMEs. The FY14 budget is expected to dip Singapore into a slight deficit (S$1.2bn)
                                 
Macquarie Equities Research (MER) released a note this morning that shares their thought on how the budget has limited impact on the stock market, given that approximately 85% of FSSTI constituents’ sales are derived externally. Nonetheless, MER highlights takeaways from the budget speech which could impact sectors on the margin.
 
Telecom (+ve) to benefit from ICT spending boost from SMEs. A 3-year, S$500m programme, ICT for Productivity and Growth (IPG), will subsidise 70% of SME’s ICT capex, 50% of their monthly fibre subscription plans (capped at S$120/mth for up to 2 years) and 80% of in-building fibre optics rollout costs.
 
Offshore and marine (+ve) dodged a bullet; no further tightening of foreign labour. The past few fiscal budgets have seen tighter foreign labour measures as the government steers the economy towards a productivity-led growth model. This time around, the low-skilled foreign workers levy has been increased only in the construction sector.Also, the maximum period of employment for higher-skilled foreign labour (including for the O&M sector) has been extended from 18 to 22 years. MER’s top pick here is SembCorp Marine
 
Property (-ve): “It is still too early to start relaxing our measures” was the response made by DPM Tharman Shanmugaratnam to recent calls for property cooling measures to ease. MER remain underweight on the developer sector and prefer names with non-SG exposure (such as CapitaMalls Asia, CapitaLand and Hong Kong Land).
 
Further support to boost productivity.The PIC scheme, which provides incentives for businesses to improve productivity, will be extended from 2015 to 2018 and will also be enhanced to “PIC+”. This new scheme will increase the maximum tax deductions from S$1.2m to S$1.8m across these 3 years.
 
Universal lifetime healthcare plan (Medishield life) for Singaporeans was first announced by PM Lee in Aug 2013. To fund premium increases, the rate of employer’s CPF Medisave contributions will rise by 1 percentage point. Healthcare is a key theme across ASEAN, and MER’s team had recently written on the topic.
 
Pioneer Generation Package was the highlight of this year’s budget. The S$8bn programme will honour first generation Singaporeans by subsidising approximately 75-85% of outpatient treatment, topping up CPF Medisave accounts by S$200-800/yr and subsidising 40-60% of Medishield life premiums.

Outlook
Singapore’s economy has been undergoing a restructuring process towards a productivity-led growth model. MER thinks domestic demand will continue to be soft. As such, MER continues to like stocks with foreign and cyclical exposure. They include SembCorp Marine, CapitaMalls Asia, Genting Singapore, Hong Kong Land and DBS while their mid-cap top picks include Ezion Holdings.
 
Elsewhere, here are the key economic reports scheduled for release this week:
 
Mon 24 Feb: China January Property Prices,Eurozone CPI (Jan),US Dallas Fed Manufacturing Activity (Feb)
Tue 25 Feb: HK Exports (Jan), US Consumer Confidence Index (Feb)
Wed 26 Feb: HK 4Q GDP, US New Home Sales (Jan)
Thu 27 Feb: Eurozone Consumer Confidence (Feb)
Fri 28 Feb: Eurozone Unemployment Rate (Jan),US 4Q GDP Annualised (4Q)

Source: Macquarie Research - 24 Feb 2014