The growth in developed markets made many Singapore shares seem like sure things 10 years ago but that thinking now is "dangerous" and "completely wrong", said a senior banker Wednesday.
Mr James Sullivan, JPMorgan's head of ASEAN/Singapore research, said there is a wide perception that as the United States and Europe recover, emerging markets could become good investment destinations given their exposure to these economies.
Singapore is regarded as one of the key beneficiaries in this as it is an open economy.
"There are two fallacies to that," said Mr Sullivan at a briefing here on the outlook for local shares next year.
One is that the export profile of emerging markets has changed drastically. Much of their exports - and those from Singapore as well - went to the US and Western Europe 10 years ago but now a higher proportion heads to China and other new markets.
Mr Sullivan also noted that firms listed on the Singapore Exchange (SGX) are either "very (emerging market)-heavy" or exposed to domestic earnings.
He added that about 75 per cent of the revenue of SGX-listed firms is derived from outside Singapore.
If the big commodity traders such as Noble Group, Wilmar International and Olam International are omitted, the revenue composition is about 60 per cent.
The bulk of this comes from operations in China and other emerging markets while less than 10 per cent stems from developed markets such as the US and Europe.
The remaining revenue comes from Singapore, where the economy is undergoing a structural transformation that will likely bring transitional pains.
Concerns over this transition have prompted JPMorgan to go underweight on Singapore.
The bank believes the transformation from an input-driven economy to a productivity-driven one will impact growth rates, inflation, the currency and the overall economic structure.
It could also mean growth rates here that more closely mirror developed markets and developed global cities, said Mr Sullivan.
While the local economy mirrors that of emerging markets such as Malaysia and Indonesia given the size and scope of the manufacturing sector here, its cost base is very much like developed markets and cities such as New York, he added.
Manufacturing as a percentage of GDP in Singapore is more similar to emerging market global cities such as Beijing rather than Hong Kong or New York.
"In many ways, the old comparison between Singapore and Hong Kong appears incorrect... the more apt comparison is Singapore to Beijing or Shanghai," he added.
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