Singapore's Prime Minister, Lawrence Wong. AFP.
Investment summary
Singapore’s Prime Minister (PM) Lawrence Wong delivered his first Budget Statement on 18 Feb 2025 as both PM and Finance Minister, coinciding with SG60, the 60th anniversary of Singapore’s independence. The budget focused on six key areas: i) tackling cost pressure, ii) advancing Singapore’s growth frontiers, iii) equipping workers throughout their life, iv) building a sustainable city, v) nurturing a caring and inclusive society, and vi) rallying as one united people. In line with these priorities, Singapore announced a range of support measures for households and businesses, including cost-of-relief vouchers, skills upgrading initiatives for workers, and tax rebates.
Singapore is expected to end FY24 with a surplus of SGD6.4b, or 0.9% of GDP. For FY25, a similar fiscal position (surplus of SGD6.8b) is expected as well, contrary to economists’ deficit projections. An area of interest is the Monetary Authority of Singapore's (MAS) Equities Market Review Group which recently released its first set of measures. The PM has accepted their recommendations and will be introducing tax incentives for Singapore-based companies. There will also be tax incentives for fund managers which invest substantially in Singapore-listed equities.
Meanwhile, uncertainties and rising costs remain an issue. With geopolitical tensions and rising trade tensions, regional trade and growth could be impacted in the coming years. While these measures will help to ready Singapore for part of the challenges ahead, the widespread adoption of artificial intelligence (AI) and Singapore’s ability to adapt to these changes will determine its long-term growth.
For now, we expect these announcements from the Equities Market Review Group to have a minimal impact on equities. If the Equities Market Review Group is able to generate more interest in the Singapore market, this could help to raise market valuations and potentially result in a re-rating of the Singapore market. We continue to have an overweight on the Singapore market due to its still-attractive valuations as well as a large pool of good dividend yielding stocks.
Overview: Empowering people and fuelling businesses
In the just-unveiled Singapore Budget 2025, PM Wong’s first budget as PM, an excel tracker is required to tabulate the number of goodies that were announced for individuals, households and companies – essentially in line with the theme of this budget, which was titled “Onward together for a better tomorrow”.
Near term cost-of-living relief for the people
The budget covered a few key themes including skills upgrading for workers and senior citizens, readying Singapore for future growth, support for all Singaporeans and marking SG60 (Singapore’s 60th year of independence) celebrations, with all citizens aged 21 and above to receive SGD600 from Jul 2025 onwards (SGD800 for seniors aged 60 and above). Other goodies include:
While the above is largely positive for a pro-individual and pro-family budget, uncertainties and rising costs remain an issue. With geopolitical tensions and the rising trade tensions, regional trades and growth could be impacted in the coming years. While these measures will help to ready Singapore for part of the challenges ahead, the wide adoption of AI and Singapore’s ability to adapt to these changes will determine its long-term growth (with 2025 economic growth projection of 1.3%).
Long-term economic priorities and benefits for businesses
For companies, a corporate income tax rebate of 50%, capped at SGD40,000 will be given. The government is also upping the co-funding for wage increases for lower-wage Singaporeans from 30% to 40%.
On the construction and infrastructural front, more than 50,000 built-to-order (BTO) flats will be launched in the next three years. The Changi Airport Development Fund will also receive a SGD5b top-up to ensure sufficient resources to develop Singapore's air hub.
Of interest is the Equities Market Review Group which recently released its first set of measures. The PM has accepted their recommendations and will be introducing tax incentives for Singapore-based companies. There will also be tax incentives for fund managers which invest substantially in Singapore-listed equities. While details were not released in the budget statement, according to an article from The Straits Times, corporate income tax rebates will be granted to Singapore-based companies and will amount to 20% for primary listings and 10% for secondary listings. The rebates will be capped at SGD6m per year of assessment for qualifying companies with a market cap of at least SGD1b. The company will need to stay listed for five years. For fund managers, it will be a concessionary tax rate of 5% on qualifying income, provided that it or its holding company gets a primary listing on SGX and remains listed for five years. New funds need to have at least 30% of their assets under management (AUM) invested in Singapore-listed equities to get the tax exemption on qualifying income.
For now, we expect that these announcements to have a minimal impact on equities If the Equities Market Review Group is able to generate more interest in the Singapore market, this could help to raise market valuations and potentially result in a re-rating of the Singapore market. We continue to have an overweight on the Singapore market largely due to its still-attractive valuations as well as a large pool of good dividend yielding stocks.
Sector Implications
Real Estate
Unlike last year, there were no new measures announced during Budget 2025 that would directly impact the property sector in a material manner. Given the focus on addressing cost of living pressures, the CDC vouchers issued to Singaporean households and the LifeSG credits for families with Singaporean children aged 12 and below (SGD500 per child) would boost consumption spending and thus benefit retail REITs. However, the boost would be marginal as the rental income of retail REITs is predominantly made up of base rents; gross turnover rents typically contribute mid-to-high single digits of their total gross revenue.
PM Wong also highlighted that the government was paying close attention to the affordability of the public housing market and will be maintaining the robust supply pipeline of Build-To-Order (BTO) flats. The Ministry of National Development (MND) will launch more than 50k flats across different locations over the next three years. To accommodate home seekers who prefer quicker access to housing, approximately 20% (3.8k flats) of the 19.6k BTO launches planned for 2025 will have a waiting time of less than three years. In 2024, HDB resale prices jumped by 9.7%, outpacing the 4.9% increase in 2023. The new BTO supply, along with previously announced cooling measures such as the reduction in the loan-to-value (LTV) ratio of HDB loans from 80% to 75%, would help to manage price growth of the HDB resale market.
To keep up Singapore’s momentum in technology and innovation, there will be continued investments in research and development (R&D) infrastructure. For example, in the biotech sector, the government will refresh its public biosciences and medtech research infrastructure in the greater one-north area.
Industrials
PM Wong mentioned during his speech that Singapore supplies more than 10% of semiconductor chips and produces one-fifth of semiconductor equipment globally. To support further innovation and technological progress, the government will be making a SGD3b top-up to the National Productivity Fund (NPF). Within the biotech and semiconductor sectors, the government will also invest an additional SGD1b in research infrastructure, including the development of a new national semiconductor research and development (R&D) fabrication facility. Separately, the Future Energy Fund will also receive a SGD5b top-up to support expanding access to clean energy and greater energy resilience.
Finally, to develop and ensure the competitiveness of Singapore’s air hub, the Changi Airport Development Fund will receive a SGD5b boost, with Changi Airport’s Terminal 5 (T5) set to break ground in the coming months. The government will also provide a guarantee to Changi Airport Group (CAG) to lower the cost of borrowings needed to develop T5 and supporting infrastructure in the Changi East area.
Consumer
This year’s budget contained a slew of supportive measures to help households cope with the elevated cost of living.
Exhibit 1: Selected supportive measures unveiled at Budget 2025 that could encourage greater domestic consumption
Source: Bank of Singapore, Various news sources
Other measures such as U-Save rebates of up to SGD760 for eligible HDB households to offset their utility bills and personal income tax rebates of 60% for Year of Assessment 2025 (capped at SGD200) also contribute towards increasing disposable incomes. However, the incremental benefit to local retailers is more obscure given that this may also potentially encourage an increase in outbound travel, which would dilute spending domestically.
Communication Services
The government will allocate SGD150m for a new Enterprise Compute Initiative. This program aims to assist businesses in adopting AI by partnering them with major cloud service providers, granting access to AI tools, computing resources and expert consultancy services. The initiative will support enterprises that need AI solutions tailored to their needs and integrated into their business processes and systems.
Maintain an Overweight on Singapore market
We maintain a positive outlook on the Singapore market, primarily due to its defensive characteristics and attractive dividend profile. With a current dividend yield of 5.3%, investors benefit from a healthy spread of 2.4% over the 10-year Singapore government bond yield, making it an appealing income-generating option. Additionally, the Straits Times Index (STI) exhibits lower volatility compared to its regional peers, making it a viable diversification option for sheltering against overall market fluctuations.
Furthermore, despite a 16.9% price increase in 2024, the STI's valuations remain undemanding, currently trading at a forward P/E ratio of 11.8x, which is 0.5 standard deviations below its 10-year historical average. Moreover, potential capital market improvement measures proposed by the Equities Market Review Group could lead to further positive re-rating for the Singapore market.
We note that there are potential downside risks on the external front. Although Singapore ended 2024 on a strong note, achieving a growth rate of 4.4% and surpassing the Ministry of Trade and Industry's (MTI) latest expectation of 4%, the MTI has maintained its GDP growth forecast for 2025 at 1-3% year-on-year (YoY). This cautious outlook is influenced by several factors, including the escalation of geopolitical conflicts and increased uncertainty surrounding US trade policies. Even if Singapore avoids direct tariffs from the US, it remains indirectly affected; potential tariffs on its major trading partners could lead to a slowdown in global economic growth and trade.
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