Singapore's Resilient Growth Amid Manufacturing Slump: Sector-Specific Allocations for Investors

The Singapore economy's Q2 2023 performance underscored a stark divergence between its construction and services sectors—both growing robustly—and its struggling manufacturing sector, which contracted sharply. For investors, this divergence presents a clear roadmap: pivot toward domestic resilience plays in construction and services while avoiding manufacturing-linked equities.

Construction: A Beacon of Steady Growth

The construction sector delivered a standout performance, growing 6.8% year-on-year (y/y) in Q2 2023, fueled by major infrastructure projects like the Tuas Port expansion and Changi Airport's fifth terminal. These projects are part of Singapore's long-term strategy to reinforce its position as a global logistics and trade hub. Government data highlights that construction output has now grown for five consecutive quarters, outperforming pre-pandemic levels.

Why this matters for investors:
- FDI inflows into construction-linked projects surged 15% in 2023, with foreign firms like APM Terminals and Patron Capital committing to infrastructure ventures.
- REITs exposed to construction pipelines, such as Ascott Residence Trust (up 8% YTD) and Keppel DC REIT (up 12% YTD), offer steady returns tied to rising demand for logistics and data center facilities.

Services: Rebounding on Tourism and Tech

The services sector grew 2.6% y/y in Q2, driven by a tourism rebound and tech infrastructure investments. International arrivals hit 1.42 million in July—a 230% jump from May 2022—supercharging sectors like hospitality and retail. Meanwhile, Singapore's status as a regional tech hub attracted FDI in cloud infrastructure and AI-driven fintech, with firms like Grab and Sea Group expanding operations.

Key opportunities:
- Accommodation REITs, such as Ascendas REIT (up 9% YTD), benefit from rising occupancy rates (now 82%, up from 65% in 2022).
- Tech infrastructure stocks, including ST Engineering (up 14% YTD) and ComfortDelgro (up 7% YTD), are positioned to capitalize on 5G rollout and Industry 4.0 investments.

Manufacturing: A Cautionary Tale

While construction and services thrive, manufacturing output fell 7.5% y/y in Q2, with electronics and chemicals hardest hit. Weak global demand—particularly in the U.S. and EU—and overproduction in semiconductors exacerbated the slump. Even the resilient aerospace sub-sector (up 35.9% y/y) cannot offset broader sector headwinds.

Investment caution: Avoid manufacturing-linked equities like United Industrial (down 18% YTD) and IGI Global (down 23% YTD), as external demand risks linger.

Data-Driven Sector Divergence

• PMI Trends: Singapore's Services PMI averaged 54.5 in 2023 (expansion territory), while Manufacturing PMI dipped to 49.8 (contraction).
• FDI Breakdown: FDI into construction and services rose to $18.3 billion in 2023, a 22% increase from 2022, versus a 12% decline in manufacturing FDI.

Investment Strategy: Overweight Domestic Resilience

1. Construction & Infrastructure:
2. REITs: Prioritize Ascott Residence Trust (exposure to serviced apartments for construction workers) and Keppel DC REIT (data centers).

3. Equities: ST Engineering (diversified engineering and tech) and Sembcorp Industries (utilities and infrastructure).

4. Services & Tourism:

5. REITs: Ascendas REIT (hotels and commercial properties) and Mapletree Commercial Trust (logistics hubs).

6. Equities: Genting Singapore (casino resort operator) and City Developments Limited (retail and office space).

7. Avoid Manufacturing:

8. Steer clear of semiconductor-related stocks like SMIC and ASE, as global inventory overhangs persist.

Conclusion: Pivot to Domestic Strengths

Singapore's economy is bifurcating into winners and losers. Construction and services—bolstered by infrastructure spending, tourism recovery, and tech FDI—are anchors of resilience. Investors ignoring these sectors risk missing out on steady returns, while overexposure to manufacturing could amplify losses. The message is clear: allocate capital to domestic resilience plays, and avoid the drag of global demand cycles.