AIO Finance Analysis

Implications for the stock market

No cheer from the budget. Unlike 2007, we do not expect the budget to have any impact on the stockmarket, given the remote possibility of a corporate tax cut. The upcoming budget is likely to be pro-individual, given ongoing concerns of rising inflation and the fact that pro-business measures had been employed over the past few years.

Focus will be on the 4Q and final GDP growth rate for 2007, as well as its forecast for 2008, to be released this Thursday. With the deteriorating growth environment, there’s downside bias to our current growth forecasts of 6.5% for 2008, vs 7.5% for 2007 (preliminary estimate).

Budget has no impact on the stock market in previous years, except for 2007

We tracked the performance of the stock market for pre and post budget rallies. 2007 was the only year where there’s evidence of a pre-budget rally (+3.5%) and post budget rise (+1.5%) in the STI index, spurred by the cut in corporate tax rate and rise in employer CPF’s contribution which was positive for the property market.

Prior to 2007, the budget failed to inspire the market, while and in the bear years of 2001 to 2003, the stockmarket slided after the budget.

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Source: Extraordinary Profits