The case for gold in Singapore
A major financial and shipping hub, Singapore stands out in developing ASEAN.1 GDP per capita has nearly tripled in the last 20 years and Singapore now ranks as one of the most prosperous nations in the world.2 But risks and challenges remain, even for Singapore.3
Risk of currency depreciation
In the immediate future, the economic fall-out from the COVID-19 pandemic remains the most critical risk. A combination of falling exports, lower oil prices, fewer tourists and rising unemployment is widely expected to create a decline in both demand and inflation.This, in turn, increases the risk of further depreciation in the Singapore dollar.
Trade tensions and geopolitical uncertainty
Beyond the pandemic, trade-reliant Singapore is deeply vulnerable to ongoing geopolitical uncertainty. Further deterioration in US-China relations could generate considerable friction in ASEAN and prompt a slowdown in global demand. Singapore is not immune to capital outflows typically seen in ASEAN at such times and a global flight to safety could provoke a broad decline in Singapore dollar-denominated assets.
An ageing population
In the long run, an ageing population is expected to impose further pressure on Singapore’s public finances. Sovereign wealth funds, which contribute to the national budget, will almost certainly need to take on riskier, illiquid investments to finance growing government expenditure.4 Financial institutions will also have to adopt riskier asset allocations to support profitability, as an ageing population is likely to perpetuate a low yield environment.
The role of gold
Consumers in Singapore have long recognised the benefits of gold. Per capita gold consumption is among the highest in the world and second only to Hong Kong in Asia.5 However, institutional investors also stand to benefit from allocating a proportion of their portfolio to gold. In today’s environment, we believe that gold has an increasingly relevant role to play, helping investors navigate the risks and challenges in both Singapore and the wider ASEAN region (see Focus 2).