Singapore's expected halving of employers' provident fund contributions this week could be a blow for the republic's unit trust industry, reducing the pool of funds for investment. Market players said that the reduction of the amount employers were duty-bound to top up their employees' compulsory savings each month - to 10 per cent of salaries from 20 per cent - might also slow the pace of fund industry reform. Henderson Investors business development director Alexander Henderson said: 'Undoubtedly [the cut] will trigger a slowdown in the momentum in the move towards CPF [Central Provident Fund] liberalisation.' The reduction is expected to be announced on Wednesday, when the government is to unveil a series of off-budget measures to reduce business costs in a bid to spur economic growth. Fund managers and analysts said that while the effective cut in labour costs should lift companies' profitability, and in turn boost Singapore share prices, it would reduce the sum employees had left to invest in the share market. After priority payments had been made out of their savings each month for mortgages, Singaporeans might invest some of their CPF contributions in authorised unit trusts. Estimates put the CPF's pool of funds at about S$80 billion (about HK$377.64 billion). About $19 billion is placed out by savers in approved investments, but only about $400 million is with authorised unit trusts. The government had hoped that the unit trust share could be boosted by increasing competition, allowing more international money managers to offer approved unit trusts. The CPF board is due to announce this week a long-awaited rise in the number of approved private sector unit trusts in which workers can opt to invest a portion of their CPF funds. However, with CPF contributions falling and stock market investor sentiment weak, the number of new approved unit trusts could be far fewer than originally expected. The board has already named the 24 private sector management companies that will be allowed to launch new or relaunch existing unit trusts under its new more liberalised CPF Investment Scheme. Each is entitled to offer three approved trusts, providing CPF savers with up to 72 trusts to choose from. However, fund managers said that when the CPF board unveiled its list this week, the total could be fewer than 50. Fund managers have been downsizing their plans, with many choosing not to take up their full quota. At least three approved operators have decided against offering any at all in the glum environment. About nine out of 10 CPF members, or 384,000 people, who used CPF funds for unit trust investment purposes, lost money in the year to September last year. Mr Henderson said: 'In the short term, there will be a dampening effect, but this in the long run, it [the liberalisation] is positive because this is a big pot to get into.' Henderson Investors is among those that will be going ahead and offering trusts. Vickers Ballas Securities research head Timothy Wong said the proposed CPF contributions cut would have a 'neutralising effect' on the stock market. The house estimated it would boost corporate earnings by an average of 5 to 10 per cent, which should lift investor sentiment. However, at the same time, consumption could fall as employees felt the pinch, Mr Wong said.
