Singapore's retail investors sound increasingly gloomy over the country's outlook as the island nation gears up to celebrate its 50th anniversary, according to a new survey.
A bi-annual survey of investor sentiment by JPMorgan Asset Management dropped to its lowest level in two years amid expectations for weak investment conditions, the firm said this week.
The number of respondents expecting the benchmark Straits Times Index to decline over the next six months nearly doubled to 21 percent in December from 11 percent in the previous survey in June. The Straits Time Index gained 6.5 percent in 2014, broadly underperforming regional peers including Indonesia's Jakarta Composite, which shot up 15 percent.
"The survey results indicate that one should be cautious," said Vishnu Varathan, senior economist at Mizuho Bank. "Some of the sentiments in the survey reflect a softening property market, since that makes up a significant amount of household wealth." An estimated 47 percent of Singapore's household wealth is in real estate, according to Credit Suisse. House prices in the city, among the world's highest, cooled in 2014 as sales of private residential units dropped an annual 50 percent in the first 11 months.
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More investors are also opting for capital preservation – 46 percent compared with 41 percent in June, the survey showed – suggesting a low appetite for risk.
"Singaporean markets have been a straightforward growth story over the past few years so it's unlikely that we'll see any big declines," Song Seng Wun, regional economist at CIMB told CNBC. The loss of confidence among retail investors may have more to do with punting and making quick profits, he warned.
Meanwhile, the number of investors expecting the Singapore dollar to depreciate against the U.S. dollar doubled to 27 percent from 14 percent. Bearish forecasts for the current year increased recently, with Deutsche Bank and Standard Chartered announcing targets of S$1.40 and S$1.37 respectively. The currency last traded around S$1.33 against the greenback on Thursday.
Economic woes
The number of respondents that expect the economic outlook to worsen increased by 10 percentage points, the survey showed.
"How worried is the government about the economy? On a scale of 1 to 10, I would say maybe a 6," said Selena Ling, economist at OCBC Bank
Expectations for lower inflation played a key role in the country's outlook, the survey showed. November headline inflation in the Southeast Asian city-state was negative for the first time in five years on the back of sliding crude oil prices. Furthermore, Singapore's pessimistic economic outlook could also be attributed to declining confidence in better employment opportunities, JPMorgan said, as fewer survey participants believed better job chances are likely.
"The key challenge Singapore currently faces is restructuring the tight labor market," said Selena Ling, economist at OCBC Bank. Government efforts to reduce the country's high reliance on foreign manpower have resulted in a greater number of available positions, leading the International Monetary Fund to warn that productivity improvements will take time and may not offset the effects of declining labor force growth.
"The government will likely have to adjust its productivity targets at February's budget, since 2-3 percent growth per year looks too ambitious," Ling added.