• What’s the outlook for the Singapore economy?

We remain optimistic about the longer term outlook for the local economy. “Domestic” is the watchword for this year as Singapore's economic growth drivers become more domestic demand led. Unlike the previous cycle, job creation is increasingly diversified across many industries, reducing the risk of a sector downturn having economy-wide impact. Multiplier effects from the property upturn and inward investment are also beginning to spill over to construction and other sectors. In addition to the increase in overall jobs, strong wage growth and rising wealth effects from higher property prices will be supportive of consumption.

Potential headwinds for the economy lie in risks to U.S. growth from the rollover of the real estate boom. Problems in the sub-prime market could potentially percolate to more prime segments of the property market, or induce lower discretionary spending on luxuries by affected communities. With inflation still running at levels beyond the Fed's comfort zone, the risk is that the U.S. may be caught between the proverbial rock and hard place. A weakening real estate market may warrant some easing, but inflationary pressures could limit the Fed's willingness to relax monetary policy.

Although we expect a bumpier year ahead for the U.S. economy, Singapore's domestic component of economic growth is expected to cushion the potential external impact.

• What are prospects like for the Singapore stock market?

Valuations are no longer cheap, trading somewhat above 10-year average levels, but earnings momentum for domestic-oriented sectors is expected to remain supportive of valuations. Speculative interest in equities is also beginning to build up. For these reasons, a more selective approach may be appropriate, notably where individual stocks are trading at excessive valuations or could be at risk of earnings disappointments. While current above-average valuations may induce more bouts of profit-taking, the market is still below the extreme valuation zone that would raise risks to unacceptable levels.

• How does the local bourse compare with its regional peers?

Regional stock markets can be tiered into (1) those trading at high valuations, such as China and India, where investors are very bullish on growth prospects, (2) those trading at low valuations such as Korea, and to a lesser extent, Taiwan, where investors are concerned about exposure to slowing U.S. consumer spending, and (3) other stock markets in between these extremes.

Singapore is included in the last category. Within this category, Singapore sits at the higher end of the valuation scale. There could be bouts of switching as investors focus on laggard markets. This would become more significant if expectations for Korea and/or Taiwan substantially improve. However, disappointment of expectations elsewhere could continue to favour more allocation to Singapore given the domestic drivers of growth.

• What are your views on China-related stocks?

Valuations are somewhat stretched for certain sectors, leaving little room for earnings disappointment. Emphasis on curbing excessive investment could also lead to potential policy surprises. As a result, the outlook for China-related themes could be more mixed than in the previous year.

• Finally, what are the key risk factors which investors ought to be wary of?

Some risks that investors might want to note are external factors like U.S. consumer spending being too weak, inflationary pressures being too strong, and potential escalation of U.S./China trade friction.

For Singapore, valuation at the stock level is the basic issue, given the reporting season and potential risk of a market pullback with a growing number of Singapore stocks being technically overbought near term.