Here are the 3 biggest headwinds that could derail Singapore consumer sector's growth

Credit crunch in China is one.

OCBC Investment Research identifies three headwinds ahead that could derail consumer sector's growth: 1) possible credit crunch in China, 2) significantly higher labour costs, and 3) political unrest.

Here's more:

First, there are growing concerns about a shadow-banking credit crunch in China. Given the tight trade links, a credit crunch will cause financing issues and unemployment beyond China.

Second, Asian economies are raising minimum wages to help the lower income, with some raises at above 10%.

Third, political unrest in Thailand might escalate again or we might see further alignment of other countries to the two factions in Russia’s annexation of Crimea.

Jittery price actions in sector despite in line CY13 earnings

FTSE Consumer Services (FSTCS) Index lagged the FSSTI in the beginning of CY14. Global macro factors such as weak Chinese manufacturing data sent regional equity markets down which saw FSTCS Index slumping by as much as 7.0% in early Feb-14.

Fundamentals held up well as FSTCS Index’s weighted EPS in CY13 came in at 40.0, which was largely in line with street’s estimate (+1.8%).

Covered counters’ prices and earnings display resilience YTD

Consumer counters under our coverage (BreadTalk Group, Petra Foods and Sheng Siong Group) were relatively less affected by the macro events with a maximum decline of only 4% between Jan and Feb. We see three trends in their 4QCY13 and CY13 earnings: 1) strong revenue growth, 2) stable margins, and 3) USD-denominated results being hurt by weaker regional currencies.

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