Which sectors will be most affected if Europe suffers a recession?
About 7.7% of the GDP is exposed to the European Union.
An expert has warned that a European recession will affect Singapore given that about 7.7% of its gross domestic product (GDP) is exposed to the European Union.
In a report, Maybank said Europe might plunge into recession soon with the continued Russia-Ukiran conflict.
If and when this economic slowdown in Europe happens, the revenues, costs and returns of Singapore’s corporates will be negatively affected, particularly those belonging to these five sectors: banks, real estate investment trusts (REITs), property, transportation, and tech.
These five sectors have “material European revenue sources,” according to the analyst.
Banks, for example, have 14% to 18% of loan books classified as “rest of the world,” which is largely comprised of developed economies, where Maybank believes “Europe is a sizable contributor from wealth management, corporate finance, and trade finance perspective.”
“We also note Singapore’s mid-caps ($1b-$5b market cap), have a larger exposure to Europe (25% of market cap), vs. 20% for large caps and 14% for small and microcaps,” the analyst added.
In the REIT sector, Maybank said the most likely to be affected will be industrial REITs like AIMS APAC REIT (AAREIT), Keppel DC REIT (KDCREIT), Frasers Logistics Trust (FLT); and hospitality REITs like Ascott Residence (ART) and CDL Hospitality Trusts (CDREIT).
Property developers such as City Developments (CIT), Capitaland Investments (CLI), and UOL Group Limited (UOL), which have 5% to 15% of fixed assets in Europe, will also be impacted by the looming recession.
In transportation, companies that have a sizeable EU exposure include Singapore Airlines (SIA) and ComfortDelgro (CD).
Meanwhile, Frencken (FRKN) has the highest share of European revenues (41%) in the tech sector.
To cushion possible effects of a European slowdown, affected businesses should “adopt a barbell portfolio approach balancing defensiveness with structural growth,” according to Maybank.