Countries are now tightening measures on capital outflow.
Given its trade-driven economy, Singapore faces a tough 2017 ahead against the backdrop of tepid global growth, near-term fundamental growth challenges to key financial services, property and energy-related sectors plus the growing risks from rising protectionism in many western markets.
According to Maybank KimgEng, there are two specific external risks that are waiting just around the corner for Singapore. For one, countries in the region are tightening their measures to restrict capital outflow, which is actually a negative for Singapore.
"Impact on market liquidity from rising level of capital control in neighboring countries. Central banks elsewhere in the region are taking measures to restrict capital flight which could have a bearing in the medium term for Singapore housing sales to foreigners, tourism and direct investment," the research firm noted.
Also, Singapore is facing some potential geopolitical risk arising from cooling-off in Singapore-China relations after a recent diplomatic incident that saw Singapore-bound military vehicles from Taiwan impounded en-route by Hong Kong.
"This specific issue seems to have been resolved for now but it brought a strong reaction from China’s Foreign Ministry opposing any form of official exchange or cooperation with Taiwan and urging Singapore to stick to Beijing’s ‘One China’ principle," Maybank noted.
It added, "Singapore has historically maintained a neutral balancing act between trade blocs often at odds with each other. But with recent moves by other ASEAN countries trying to strengthen China ties in the face of a protectionist US, Singapore likely faces the tricky prospect of needing to reevaluate its relationship along ‘One China’ lines or possibly risk not making the most of regional growth opportunity. China has been amongst one of the largest sources of FDI as well and amongst one of the largest exports destinations for Singapore in recent years."
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