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Archive for November, 2010|Monthly archive page

GLP: Foreign brokers love it

In China, Logistics on 30/11/2010 at 5:21 am

Global Logistic Properties (GLP), got  ‘buy’ calls from 4  brokers (3 foreign) last week. It is a “buy” because it is leading provider of logistics facilities in China.

It owns logistics facilities in China and Japan – Asia’s two largest economies – and may expand into other economies (GLP says it is ‘building the leading distribution facility platform in Asia) in the region, stands to benefit from Asia’s strong economic growth. In particular, rise of consumer spending in China will boost profits.

Citi has a target price of $2.78 for GLP. It noted that yields from the sector are typically higher than those from the retail and prime office property segments in fast-developing China, and that the logistics space does not face the high policy risks that GLP’s residential peers are exposed to.

Nomura has a $2.58 price target for the stock. UBS, has a $2.65 price target for the stock.

In addition to these points, DBS says: We derive an RNAV of $2.76 using a sum-of-the-parts analysis that captures the value of its underlying assets as well as potential re-investment opportunities from balance sheet deployment. Our TP of $2.76 is pegged at parity to RNAV. Key risks to investment stem from regulatory and policy as well as global economic conditions.

BTW GIC is its single-largest shareholder.

Which govmin steals from the poor to give to the rich?

In Economy on 30/11/2010 at 5:17 am

No, not the governing PAP here, with its recent bonuses to the civil service or past ministerial pay rises, and increases in VAT by 40% a few yrs back. Remember VAT is the most regressive tax ever devised, the poor paying more of their income for the basics of life (like food and transport), than the rich.

But at the very most, at a stretch, it could be reasonably said that the PAP is pro business, and tight fisted when it comes to welfare. The latter partly moral grounds: “Work makes you free” seems to be its motto.

The governing party in Ireland, Fianna Fail (The dominant party in Ireland ever since the country’s independence in the 1920s, and  in power for most of the last three decades makes the PAP look wimpy ) is the antithesis of Robin Hood: stealing from the poor to give to the rich.

Last week it announced an austerity budget. It had in 2008 guaranteed the deposits and bonds of Irish banks. Investors are afraid that the banks are in serious trouble and that the government does not have the money to pay them. So they are selling Irish bonds, bank shares or avoiding them. As you will be aware bondholders are usually financial institutions i.e. those with money.

Very few other countries have cut spending by 20%, but Ireland is planning to

Cuts in public sector pay will account for 1.2bn euros. New entrants to the public sector will get a 10% pay cut. Jobs will be lost – more than 24,000 of them. There will be cuts in public sector pensions. Read the rest of this entry »

The touch of Midas

In China on 29/11/2010 at 5:45 am

I mentioned Midas Holdings earlier in the year.http://atans1.wordpress.com/2010/05/24/midas-here-be-value/. Then DMG & Parners and Kim Eng were recommending it, if I recall correctly. Looks like it is an S-Chip that proved sceptics wrong.

A CIMB Research dated  Nov 24 has rated it an “Outperform”.

MIDAS plans to expand its aluminium extrusion capacity further to 70,000 tonnes (+40 per cent) by H1 FY12 after its recent capacity expansion. Coupled with strong results from its metro train maker associated company, we see better earnings growth ahead. As a result, we raise our net profit forecasts for FY10-12 by 1-11 per cent. Our TP rises accordingly from $1.14 to $1.26, still based on 15 times CY12 PE, in line with peers. We see stock catalysts from sizeable contract wins in FY11 from Chinese train makers. Maintain ‘outperform’.

Midas has announced plans to add 20,000 tonnes of capacity by H1 FY12 that would bring its total extrusion capacity to 70,000 tonnes. It may locate the new production lines outside its current plant for strategic reasons, and we see southern Chinese cities as possible locations. In view of its expansion plans, we lift our FY12 average production capacity assumption to 60,000 tonnes.

I hear Kim Eng, DMG & Partners, UOB KH are also recommending the stock.

When being Chinese or Indian is a disadvantage

In Uncategorized on 28/11/2010 at 5:24 am

Long sought for wigs and toupees, human hair is now in particularly high demand for hair extension procedures in more affluent countries. Dark hair from India and China is more plentiful, but blond and other light shades are valued for their relative scarcity and because they are easier to dye to match almost any woman’s natural color.

Blond Russian and Ukrainian women in rural areas harvest their hair and sell it. NYT article

Maybe PAP is right abt wealth and happiness?

In Economy on 27/11/2010 at 6:02 am

Measured a different way, the correlation between money and happiness is surprisingly strong.

[Update on November 28] Money, imagination, and computing poer are all that is needed to “prove’ anything statistically. And correlation is not causation.

Why we don’t buy the “explanations” of S’pore Inc

In S'pore Inc on 27/11/2010 at 5:23 am

The ex-head of the civil service and now chairman of the Public Service Commission showed he “got it” when he said at a recent speech in the US to S’pore  scholars: If we strive to be world-class, we will be judged by world-class standards. If we say that we have one of the best governments in the world, the public will expect it to solve virtually any problem Singapore faces.

Taz correct.

But he showed he didn’t “get it” when he went on: Some of our citizens are now beginning to expect the government to do the impossible. Many citizens are now less prepared to give the government room to make mistakes and are less forgiving and more demanding. They tend to regard explanations as excuses. Take the recent floods. To some Singaporeans, saying that floods are natural disasters and Singapore cannot be flood-free, sounds like a cop out. Every time something goes wrong in Singapore, citizens ask: “If our public servants and Ministers are so smart and paid so well, why can’t they prevent the problem from occurring, or solve it for good after it occurs?”

He is assuming that the “explanations” given explained what had happened. He should relook this assumption.

Juz look at some of the recent “explanations” that have been given for goof-ups or incidents that caused public inconvenience. Are we wrong in thinking sume people were trying to avoid responsibility?

When MPs asked why the flat of Mas Selamat’s brother was not watched, they were told by the Home Affairs minister that that Mas Selamat could go undetected in the flat “was not a security lapse’ and that hundreds were probed . Err how abt answering the question, “Why wasn’t the flat watched?”

As to the floods, I could not understand the minister’s and senior officials’ explanations. I only “got it” when, on an inside page of ST, it was reported that more rain had fallen in a few hours than it had for days on end i.e. it was very, very heavy rainfall in a very short space of time. Point taken. But this explanation by a junior official was buried deep inside ST, and I’m sure many would have missed reading it. The front page “explanations” failed to give this fact, or where they did, this fact was lost in the smoke of hot air.

The problem is that the “explanations” given often ignore the question, assume that S’poreans are morons or that we are educated, and refuse to admit that mistakes were made. Perhaps PSC should run courses to train scholars to be less arrogant; to admit to making mistakes; and to write in simple, believable prose? One gets the impression that ministers and civil servants attend courses where they are taught not to ever admit making a mistake; and to avoid answering questions. Read the rest of this entry »

And you expect markets to fly?

In Uncategorized on 26/11/2010 at 6:12 am

There’s very slow growth and the fear of deflation  in the US, inflation in China, a financial crisis in the Eurozone, tension in Korea and Christmas hols around the corner, so you think that markets will take a pause at the very least.

But local broker Kim Eng thinks not. It sent out a note on Wednesday morning saying: Feeling hot, hot hot! – There have been concerns that the recent rise in Asian bourses has been fuelled by “hot money” coming out of the US on the back of higher liquidity from the Federal Reserve’s quantitative easing measures. With more money flowing into the system, fund managers are looking to piggyback on Asia’s fundamental growth story and local currency appreciation against the greenback as a hedge against the weaker US dollar and inflation. The obvious investment candidates for this “blind money” are Singapore’s blue chips, which offer sound fundamentals and rock-solid balance sheets. A further subplot within this context is the likelihood of funds moving out of Hong Kong and China to be invested into the Singapore property market after recent moves by the Hong Kong government to cool its property market and the possibility of China doing the same for its own. Transaction statistics also are pointing to a larger proportion of China buyers for Singapore properties. The government said it is continuing to monitor the property market and further measures will be taken where necessary if it deems a bubble is forming. For now, we believe that the recent pullback is an excellent entry opportunity to ride this wave of cash. City Developments, in particular, stands out, as it is often identified as the bellwether of the Singapore property market and is looking attractive following its recent pullback.

It’s other stock picks are Keppel Corp, Neptune Orient Lines, Sembcorp Marine, SingTel and UOB. Well you can’t go very wrong with these which include four TLCS even if market collapses. They all got cash and strong balance sheets. And other than the City Dev and UOB, very little borrowings. And UOB and City Dev are conservatively run by the standards of their peers in banking and property dev respectively.

What can go wrong with Reits?

In Property on 25/11/2010 at 5:19 am

Reits’ attraction are dividend yields of 5 — 9% when compared with the paltry 0.125% offered on bank deposits.

So what can go wrong? Plenty as a recent ST article reminds (extracts below). My value-add to the extracts is to suggest that one should add a margin of safety by buying those Reits that trade at a substantial discount to their lasted reported NAVs. This is not possible if one focuses on TLC/ GLC-related Reits, though there is an exception but there are reasons for the exception.  BTW, this might be useful http://reitdata.com/ when thinking of investing in Reits.

… the best way to enhance returns is to resort to bank borrowings to finance their property purchases. That is why they look their best in a low-interest rate environment.

To give an example, let us suppose a Read the rest of this entry »

What S’pore and Ireland have in common?

In Economy on 25/11/2010 at 5:17 am

No not because S’pore is heading for insolvency etc if Tan Kin Lian is to believed http://tankinlian.blogspot.com/2010/11/will-singapore-face-same-outcome-as.html

We and the Irish are dependent on MNCs.

Mr Honohan [the Irish Central Bank governor] … points out that Ireland’s official GDP and unit labour cost statistics have consisently overstated the size of the Irish economy and its productivity respectively – largely because that economy is so dependent on multinationals with headquarters in the Republic, whose high profits acrrue to the overseas owners of those multinationals rather than to Irish residents.

That overstatement of the magnitude of the output of Irish residents, which in some real sense is attributable to those residents, could be as much as quarter, he says. Excerpt from Robert Preston’s blog on BBC Online.

Here, where the economy too is dependent on MNCs, this means that the economy is not as big as the stats imply. And that productivity is even worse than the already lousy numbers show*. The latter isn’t juz Reform Party spin. Remember there is yet another government campaign to raise productivity going on.

Perhaps the fact that the economy is smaller than the stats imply  is why the government seems obsessed by the need to build up the reserves. We will (not might) need the rainy-day money, one day. Question of “when” not “if”.

Read the rest of this entry »

What’s up Doc?

In Uncategorized on 24/11/2010 at 7:08 am

Other than Quantitative Easing II, it’s Korea, Ireland and China that’s worrying markets and causing a flight to safety.

What a ride we have had since September.

Related post :http://atans1.wordpress.com/2010/11/17/markets-we-all-wrong/[update at 9.40am]

Chinese officials to people: Don’t panic

In China on 24/11/2010 at 7:06 am

China’s main economic planning agency has moved to reassure people who fear inflation is getting out of control.

But the Shanghai stock market was down on Monday and Tuesday on fears of more measures to control  inflation  especially that of food. The market fell almost 2% on Tuesday.

The BBC Online article continued: The National Development and Reform Commission (NDRC) said in a statement that the country had “the capacity” to keep prices in check.

There is particular concern about food price inflation, amid suggestions that some people are hoarding commodities.

But the NDRC said the government had adequate reserves of foodstuffs like poultry, eggs and grain to meet needs.

Food prices jumped 10.1% in October from a year earlier, increasing the overall inflation rate to 4.4%, well above the government’s 3% target.

An oil bull still?

In China, Energy on 23/11/2010 at 12:14 pm

Hedge funds cut bullish bets on oil by the most in almost three months amid speculation fallout from the Irish debt crisis and China’s efforts to curb inflation will slow economic growth, sapping demand for fuel.

The funds and other large speculators reduced so-called long positions, or wagers on rising prices, by 15 percent in the seven days ended Nov. 16, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report, released Nov. 19. It was the first drop in four weeks and the largest decline since the seven days ended Aug. 24.

Bloomberg story

And remember that if China uses its energy resources as efficiently as the West and Japan

http://atans1.wordpress.com/2010/09/28/whither-the-price-of-oil/

S’pore Inc: What is BG Yeo trying to tell us?

In Uncategorized on 23/11/2010 at 5:25 am

I was stunned to read the last sentence (underlined for emphasis) of an extract of a speech BG Yeo gave last friday.

Our formal system is inherited from the British. It makes a clear distinction between political appointments and the permanent civil service. In practice, however, principally because the PAP has been the governing party since internal self-government in 1959 and independence in 1965, many aspects of Singapore’s governance resemble the Chinese bureaucratic state which Fairbanks, Needham and other scholars of Chinese history have written about, in particular, the practice of meritocracy in both the political and administrative elites. The induction of administrative talent into the PAP has become a Singapore hallmark, and likely to persist. In the Singapore reality, the formal British system is built upon what is essentially a Chinese political and cultural substrate.

http://www.facebook.com/note.php?note_id=458254268615

My understanding of what he is saying in the underlined last sentence: In Singapore, the civil service only superficially resembles the British model where the civil service is politically neutral. Here the service is not politically neutral. To understand how the Singapore civil service works, we must understand how the Chinese bureaucracy that served the Chinese emperors functioned. To under the imperial bureaucracy, we must understand Chinese history and culture.  Read the rest of this entry »

DBS Pref Share: Yield? Waz that?

In Uncategorized on 22/11/2010 at 3:02 pm

What is the yield on a preference share?

The yield is the return received by an investor who buys the pref share at today’s market price.

Example: Say you applied for and got allocated S$100 of DBS’s latest pref share issue. As this pays an annual interest rate of 4.7%, or S$4.7 a year, the yield is 4.7%. But supposing the market price of the bond falls to S$50. The interest payment (the coupon) is still S$4.7 per year. So for the S$50 investment the investor can get a S$4.7 annual payment, which is a return or “yield” of 9.4%.

Remember that rising (or fears of) interest rates and inflation drives down pref shares prices, which pushes up their yields. So do concerns about the creditworthiness of the issuer.

The above analysis also applies to bonds and Reits.

Update on 24 November. At time of writing, it is trading at $102.52. The yield is 4.58% for the buyer in the market, not the 4.7% that an investor who got an IPO allocation.

Genting S’pore: Time to cash out?

In Casinos on 22/11/2010 at 5:20 am

The price is coming under pressure because 3Q results annced over a week ago disappointed. Brokers were initially afraid to openly call a sell because they had called a sell when it was around S$1. And then had to revise that call as the stock powered ahead. It closed Friday at $2.04 and has been higher.

But sell calls are now coming out despite its strong cash flow and expectations that Singapore may overtake the Las Vegas Strip in terms of gross gaming revenue by 2013.  They see downside risk to Genting’s share price after a 63% run-up year-to-date. And they see no reason to take into account its possible entry in new gaming jurisdictions such as Japan, or the anticipated licensing of junket operators in Singapore.

Global food prices: not time to panic yet!

In China, Commodities on 21/11/2010 at 6:07 am

Still lower than 1980 levels as this chart shows

But big macs are getting more expensive in China. The US policy of QE2 is forcing up the real value of the yuan (via the price of gds, services and food). The more the Chinese defend the exchange rate to prevent the Yuan from appreciating in norminal terms, the more the real value of yuan rises.

The US is still the hegemon.

S’pore Inc: Can PAP go beyond scolding?

In Uncategorized on 20/11/2010 at 5:38 am

Bill Clinton in 1984 said “Because I had been preoccupied with the work of the presidency, I hadn’t organised, financed and forced the Democrats to adopt an effective national counter-message”.

This is something that the PAP should ponder abt. You and the PAP might think it strange that the PAP needs to pay attention to communicating with the voters (shareholders), given that the PAP have the money, spin doctors and the “constructive, nation building” media.

But the machine is broken. The default mode or reflex action, (taking the cue from MightyMind perhaps?) is to scold S’poreans for the mistakes of the government and voters; or the government. The people are always wrong, the government is never wrong.

Recently S’poreans got scolded because only a small number reported fake bombs to the police. If they had any brains, the governing party would have spun it: “S’poreans are so confident of the government’s security measures, that only a small proportion reported what could have been bombs. The government appreciates this level of trust, but pls remember that it only takes one careless mistake (and as the SMRT vandalism case  showed even a GLC can goof) and there will be death and destruction. Security can always be improved. So pls be more vigilant,  less complacent, and be grateful that neither VivianB , nor the Water Minister nor the CEO of SMRT is not responsible for security. Thank you.”

And take the recent bus fare fiasco. Because the spin doctors and MSM were so incompetent, commuters got so upset that a minister had to scold us, “Give the changes a chance before complaining” or words to that effect.

I for one am happy with the changes. True my usual bus journeys cost me 4% more per trip. But because of the way I’m charged, there are a lot of savings. Now I can take a bus to the hawkers’ centre for a quick lunch, and then continue to my end destination, all for the same fare. Likewise for shopping chores. And a quick round-trip to any shopping or eating place costs a lot less.

All the MSM and spin doctors needed to have said was, “Try the system for a while, before bitching”. Instead they told us 70% of commuters will benefit; and most of us found out that we were paying 4% more if we were not changing buses or using a combi of bus and MRT.

And remember that the CEO of SMRT scolded us when SMRT and the authorities were all evading responsibility for the lapse of security at an SMRT  depot. We got told that we had to play our part in security? Like guard the train depots?

Going beyond scolding might make us more willing to put up with the mistakes of ministers like DPM Wong (if the “terrorist” floated out of S’pore undetected, Paki terrorists can float in), Mah Bow Tan (not building enough HDB flats, and infrastructure to accommodate FTs) and VivianB (Kiddie Games, welfare etc).

Who knows, it might make netizens more willing to listen to the PAP’s spin?

Scolding us is bad for you, PAP. Time to move on from a habit that is no longer accepted by S’poreans. [This sentence is an update on 22 Nov 2010. Also corrected some typos and reworked a sentence or two to tighten the prose.]

Time to be bullish on commodities?

In Commodities on 19/11/2010 at 5:18 am

Missed the bull run and planning to use the recent weakness to jump in because China will be roaring ahead soon aftwer tackling inflation, and US monetary policy will mean that commodity prices will have to strengthen just to reflect the weakening US$.

Well sumething to think abt. The Baltic Dry index of shipping costs, which has been used as leveraged play on commodities, has been weakening for some months, even after commodity prices revived on the Fed’s policy of printing more $.

Update on 20th November 2010: On Friday commodities fell, with some industrial metals and oil declining amid concerns that China’s appetite as a commodities importer may wane. It had just raised banks’ reserves. On Thurs commodities had recovered because investors had tot China had finished its tightening.

Property sales also fund our SWFs

In Economy, GIC, Property, S'pore Inc, Temasek on 19/11/2010 at 5:13 am

Did you know that when the government sells state land to property developers, the money flows into the reserves (which are managed by our SWFs)  and not into the Consolidated Fund like other government income?  This is uniquely S’porean. Other countries credit land sales to income.  The government’s rationale is that as state land is an asset, sale proceeds should not be credited to income but to capital (reserves). Makes sense, but that’s not how other governments account for land sales: even HK, and no-one can say that HK is badly run or profligate.

So when HDB “buys” land from the government it is adding to the reserves. As it and government claim that the price an apartment is sold does not reflect this price, they claim HDB makes a loss. But whatever it is (I leave it to others to dispute this claim), the reserves are increased.

So in addition to the surpluses (generated by thriftiness or meanness according to who is talking) and (indirectly via a circuitous route) our CPF monies http://atans1.wordpress.com/2010/11/02/how-we-fund-our-swfs/, sales of state land also contribute to the reserves that GIC, Temasek and the central bank manage.

There was one financial year ending March 2008 ( I think), where the government injected abt S$10 billion into Temasek. This sum was more or less equal to the amount that the government took in property sales for that year. Easy come, easy go as in the following yr Temasek could have lost as much as US$4.6bn (in 2009 March this would have been S$7bn) on Merrill Lynch. And there was the much smaller loss on Barclays (800m sterling?, then worth abt 1.7bn S$). Err not much change left over from injection: only S$1.3bn, “peanuts” as Mrs GCT might have put it, except she didn’t.

So this combination of surpluses, CPF money (indirectly via a circuitous route), and state land sale proceeds, have resulted in our SWFs having 179.5% more in assets than S’pore’s 2009 estimated GDP.

The Norwegian’s much larger fund (US$471bn) is only 23% more than Norway’s GDP. Abu Dhabi’s fund (at US$627bn) is 627% of its GDP. For those interested, I used FT’s US$248bn for GIC and US$133bn for Temasek. As to GDP numbers, I used CIA Fact Book as reference. (BTW, I’ve not taken into account the amt of foreign reserves that MAS manages because I could be double counting if I do. For the record, MAS says its reserves as at end 2009 are US$188bn).

So we got plenty of $ to make housing more affordable*. And there is no need to change constitution, or cut other expenditure.  Juz change the accounting rules on land sales.

BTW, I am working with an illustrator so that it is easier to visualise the connections between CPF, surpluses, Consolidated Fund  etc http://atans1.wordpress.com/2010/11/02/how-we-fund-our-swfs/ . Hope to post something one of these days. [Update on 4 December, the cartoon]

*Even after taking away our public debts; 8th in the world at 113.10% of GDP. [Update at 10.30 am]

Paulson, Soros selling out of their bets

In Banks, Gold on 18/11/2010 at 5:32 am

As of the end of the third quarter, John Paulson had reduced his stake in Bank of America by about 30 million shares, to 137.8 million shares. And he cut his holdings in Citigroup by about 82.7 million shares, to 424 million shares. He had been buying BoA in early 2009 juz when Temasek was cutting its losses, losing in the process “US$4.6 billion loss on a US$5.9 billion dollar investment” according to a CNBC report.

Looks like he is no longer bullish on US banks.

George Soros sold over half of one million shares of  SPDR Gold Trust to finish the quarter with 4.7 million shares. John Paulson maintained a 31.5 million share holding of the exchange traded fund through the quarter.

John Paulson remains bullish on gold while Soros is trimming his stake and laughing all the way to the bank. Remember he called gold a bubble in the making, and jumped into it earlier this year.

Markets: everyone wrong?

In Uncategorized on 17/11/2010 at 5:38 am

Those cowards (like me) sat out August to November because thaz when historically major falls happen in the equities market. We looked like ball-less eunuchs we were as markets gained 5% and more after Fed annced QE II.

Those who bot in after the Fed annc. looked liked geniuses or at least proved that fortune favours the brave.

Well it seems we were all wrong. Aug – Oct are not always the only bad months. November could be too. And juz because Aug – Oct turned out better, it doesn’t mean clear skies ahead, with the wind behind us.

‘Tis labor lost thus to all doors to crawl,
Take thy good fortune, and thy bad withal;
Know for a surety each must play his game,
As from heaven’s dice-box fate’s dice chance to fall.

In this instance, no-one foresaw the roll of the dice whereby that the Germans would raise the issue of hair cuts for bond holders juz now. The eurozone countries had agreed to draw up rules for eurozone countries who needed to default by 2013.

The Germans started started two world wars in the 20th century. They now gunning to tame the investment community.

Update on 18 November 2010

Between Nov 5 -11 November, Merrill Lynch surveyed 218 US, European and Asian mutual retail and hedge fund managers managing a total of US$634 billion. In contrast to their pessimism when markets were depressed in the summer, the vast majority had become bullish on emerging and developed market equities and commodities.

They were dead wrong as of today.

S’pore Inc: Learning from Apple that people’s tastes matter?

In Uncategorized on 16/11/2010 at 5:51 am

Since olden times, S’pore Inc. has been saying that it wants to do product innovation. As the latest initiatives* giving yet more incentives for product innovation seem to indicate, the focus on product innovation seems to have not worked. Time for government to “move on”?

Maybe we shld talk to Apple?

Apple … focuses only on product innovation, not scientific invention. “Apple does research insofar as it advances their laser-focused product aspirations,” observes Michael Hawley, a computer scientist who worked for Mr. Jobs at NeXT, a pioneering but commercially unsuccessful computer company.

Read the rest of this entry »

DBS no can lose on preference share issue

In Banks on 15/11/2010 at 5:21 am

But investors can lose possibly serious money. The reasons?

The DBS  4.7% preference shares are perpetual. This means you will not be able to get yr principal back unless the bank exercises a call option in 2020. The call option means that if in 2020, interest rates are lower than today’s pathetic rates, DBS can repay investors and borrow at a lower rate.

BUT if interest rates are say 10% (they are on average 0.6% today)  and rising, DBS will not redeem the shares. Holders are then stuck forever (but getting the 4.7%  per annum interest) unless they sell in the market.

When one sells in the stock market, the amount paid will reflect the prevailing interest rate and the creditworthiness of DBS. If interest rates have risen from the 0.6% average, you will lose part of yr principal. If interest rates are around 10%, one could possibly easily lose 10% of the face-value of the amount bought.

By buying this preference share, investors are betting that for the next 10 yrs, interest rates will trend lower. DBS is betting that interest rates will rise.

And remember DBS has form in selling a product that loses investors money. Investors in its HN5 Notes lost everything while investors in Lehman’s minibonds at least recovered 50% of their investments. And Lehman went bust!

BTW potential investors may want to recall what DBS did to investors of its HN5 notes http://atans1.wordpress.com/2010/08/06/what-abt-high-notes-sm-goh/

Lawyers never lose

In Uncategorized on 14/11/2010 at 11:35 am

For some Florida residents, the price of getting out of foreclosure will include taking on a second mortgage — payable this time to their lawyers.

S’pore Inc: gd policies not enough leh?

In Corporate governance on 14/11/2010 at 5:23 am

In 1994, Bill Clinton had a problem. The Democrats had lost control of Congress. So he made a speech. In the speech there were two sound bites that can be used in the coming GE, one by the Opposition and one by the PAP.

I hope that one of the major opposition parties, RP, SDP or WP,  will use a variant of this: “You can have good policy without good politics, but you can’t give people good government without both”.

This Bill Clinton sound bite encapsulates what the opposition parties and various do-gooders have been trying to tell us over the years, but lacked the eloquence or wit to put it so pithily. The result? The PAP  got to frame the issue: “Gd policies is the only thing that matters”.

The message from the Opposition should be: “S’pore needs good politics. Good policies are not enough. Good governance needs good policies and good politics. Without us there can never be good politics.” So simple, leh.

Note that being a good politician is not easy. Ronald Reagan did not connect with working class Americans just like that.

From 1954 to 1962, he worked for GE as host of a weekly television programme, General Electric Theate. He had to travel to 139 GE plants meeting more than 250,000 employees.

In his memoirs, he wrote “Looking back now, I realize it wasn’t a bad apprenticeship for someone who’d someday enter public life…the GE tours became almost a graduate course in political science.”

Next week, this time, a longish quote from Bill Clinton that the PAP should ponder. BTW It’s not “It’s the economy Stupid”. I promise you a great laugh. So click on.

BTW,  in a previous incarnation, I was one of the strategists that roamed China in olden times looking for a warlord willing to listen and pay. So PAP and anyone else who can pay: I’m for hire. Thing Chuko Liang or Fan Li or Sun Pin.

Chinese property investors are weird

In Property on 13/11/2010 at 5:19 am

This could have implications here if they start buying into new condominium launches here.

It seems they buy new properties, and then leave them unoccupied, eschewing rental income. Why?

The explanation, according to a Tsinghua University economist, Patrick Chovanec – corroborated by locals – is that Chinese people regard apartments as they would cars: brand new is good and top price; used is bad and lower price.

Apparently, the moment someone moves into a property, its price falls, because it’s no longer pristine.

So property investors have little desire or incentive to rent out their properties, because to do so would be to cut the re-sale value. Better to keep them empty in the hope that a rising market will deliver capital gains.

Which means there’s nowhere to live for those who have only the means to rent rather than buy – and large (but unquantified) numbers of homes are empty. The BBC’s Robert Preston

http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/11/china_boom_or_bust_2.html

If they buy into new condo launches and leave the apartments empty, there will be a shortage of rental apartments. Mah Bow Tan will have to write more articles.

Nuclear power: will property prices implode?

In Economy, Energy, Property on 12/11/2010 at 5:23 am

In 2008, I attended a seminar where a very senior Shell analyst dismissed the possibility of nuclear energy as an option for S’pore. He said that if a nuclear plant was sited on the NE side of S’pore, the safety or protection zone would stretch somewhere to the SW side of S’pore, in Jurong.

So with all the recent talk of building a nuclear power plant, I was surprised that there doesn’t seem to be anything said or written on safety issues.

For example what are safety zones and their extent?

Googling brought me to the website of the US Dept of Homeland Security: Local and state governments, federal agencies, and the electric utilities have emergency response plans in the event of a nuclear power plant incident. The plans define two “emergency planning zones.” One zone covers an area within a 10-mile radius of the plant, where it is possible that people could be harmed by direct radiation exposure. The second zone covers a broader area, usually up to a 50-mile radius from the plant, where radioactive materials could contaminate water supplies, food crops, and livestock.

So a 10-mile (16-km) zone is needed to prevent us from being exposed to direct radiation. To give you an idea of the distances involved, Changi Airport is 20 km from Orchard Rd. So if the plant were at Changi Airport, the zone would include Toa Payoh, AMK, Bishan, Marine Parade and some pretty posh places along Dunearn Rd and Bukit Timah Rd. And although the Istana is not within the 16 km radius, radioactive particles don’t know where the 16-km mark is. It all depends on weather conditions how far they will travel. Hence the wider zone given by the analyst from Shell: he added a margin just to be cautious. Read the rest of this entry »

CWT: Brokers still bullish despite getting costs wrong

In Logistics on 11/11/2010 at 10:39 am

CWT’s Q3 2010 earnings of $5.5 million was below brokers’  estimates, with the costs for its Freight Logistics and new warehouses being responsible.

Their views can be summed up in DMG& Partners comments:

While we remain positive over its long term prospects with new offices set up for its Freight Logistics, new warehouses being built and Singapore’s strong economic recovery, we are trimming our FY2010 and FY2011 core earnings estimates by 9.6 per cent and 12.4 per cent respectively, to account for higher startup costs.

Q3 2010 revenue was up 22.8 per cent year-on-year (y-o-y) to $192.7 million, but earnings fell 9.2 per cent y-o-y to $5.5 million on the back of rising freight costs, the phasing out of the government’s resilience budget scheme, startup costs incurred for new undertakings such as operations in Europe and new major customer accounts and steel logistics business adversely affected by a drop in demand from the marine industry.

CWT recently set up new offices in Hong Kong, Indonesia, Portugal, Slovenia and Croatia and extended direct service coverage to Ukraine, Ghana and Nigeria.

Following the recent boost in its presence in Europe, we believe expanding in South Africa remains as CWT’s focus, as this will enable it to capture trade flows of soft commodities such as coffee and tobacco, between Asia, Africa and Europe.

Demand for logistics facilities is likely to grow in view of its correlation to economic and trade growth. CWT is building more warehouses (Hub 3 and one at Pandan Road) to capture rising demand. Err what happens if there is an economic slowdown caused by currency wars or a slowdown in the US.

StanChart has no plans to buy DBS

In Banks on 11/11/2010 at 5:28 am

The CEO of StanChart’s SE Asian operations said recently that Standard Chartered had no plans to spend the proceeds of a £3.3bn (US$5.3bn) rights issue on a significant acquisition in Asia. The bank planned to expand in the region largely through organic growth, rather than acquisitions.

The bank was not looking for any “transformational transactions” in SE Asia, although it might seek to acquire small businesses specialising in sectors or products that would add to its operations.

This would rule out a bid for DBS. Many had speculated (self included) that the bank might be preparing to spend part of the rights issue proceeds on a large acquisition. A very few (self included) speculated that DBS was a target, given that DBS is so badly managed and Temasek is a controlling shareholder in both.

DBS reminds me of StanChart in the 70s and 80s, when the latter got almost everything wrong. Only in the 90s did it get its act together. For younger readers, in the 60s Hongkong Bank and StanChart were roughly the same size, even though the former was already the leading bank in HK.

Standard Chartered bought two smallish S’pore-based businesses

– an aircraft leasing business in 2008; and

– a small factoring business earlier this year.

In 2008, it bot the private banking business of American Express in £430m.

High-yield, low pay-out stocks are best

In Uncategorized on 10/11/2010 at 5:40 am

[Update-- read the first comment. Credit Suisse could be wrong]

In Singapore, investing in high-yield, low-payout stocks was the best-performing strategy over a period of 15 years says Credit Suisse. “Outperformers” are telco M1; rig builders Keppel Corp and Sembcorp Marine; transport group ComfortDelGro Corp; property developer Allgreen Properties; and conglomerate Sembcorp Industries.

These stocks have dividend yields of up to 6.3% (as of end October) a year and only pay out as little as one-third of their profits as dividends.

Other high-yield, low-payout stocks it mentions are Fortune Reit; and property companies MCL Land and United Engineers. These have dividend yields of over 3% a year but pay out less than a quarter of their earnings as dividends.

Why?

– “High-yield, low-payout essentially means you are buying yield stocks that are trading at a low price-earnings ratio’, or value stocks”. This strategy tends to outperform others in rising markets except in the bubble phase.

– A “low payout implies that these companies are retaining cash for growth which also helps long-term performance”. I never tot of this. Silly me.

– If things go wrong, the dividend yields could be sustained if part of the retained earnings were put into reserves (bit like S’pore’s reserves). This is my tot, not Credit Suisse’s.

Is the government making the same mistake?

In Economy on 10/11/2010 at 5:26 am

I was reading this blog entry abt the cost between shipping overland and by sea when I came across this:  This divergence between the cost of shipping overland and the cost of shipping by sea has long shaped the planet’s economic geography. It’s why so many of the rich world’s major cities are located along waterways and why large port cities came to be dominant manufacturing hubs despite their high land costs. During the 20th century, overland shipping costs fell sharply, enabling a dispersal of manufacturing activity from expensive centre cities. But the costs never equalised …

Think of Hong Kong (now HK/ Shenzhen because HK’s manufacturers moved to Shenzhen); and Guangzhou City, Chungching and Shanghai. They are ports and dominant manufacturing hubs.

So how come S’pore never became a dominant manufacturing hub? I mean we have the port

– World’s Busiest Transhipment Hub – about one-fifth of the world’s total container transhipment throughput, and 6% of global container throughput.

– One of the World’s Largest Refrigerated Container (Reefer) Ports – over 6,500 reefer points; handled about 1.1 million TEUs of reefers in 2009.

– Excellent Connectivity – 200 shipping lines with connections to 600 ports in 123 countries. This includes daily sailings to every major port in the world. ( According to PSA’s website)

And we are very MNC- friendly.

Come the next GE, I hope the RP or SDP ask this question when the PAP and the MSM trumpet the PAP’s many achievements. One wonders why the governing party did not engineer this combination of port and big manufacturing hub?

During the 60s, 70s and early 80s, S’pore was one of few countries globally that was MNC-friendly, an advantage we lost in the late 80s, and in the early 90s because of reforms in China, Latin America and Eastern Europe. As it was cheaper to manufacture in these places, the MNCs moved on. Remember the disk drive industry, once S’pore’s single biggest employer? And the MNCs are now moving on from China to places like Vietnam and Indonesia.

Could it be that we did not as Ngiam Tong Dow (one of Dr Goh’s lieutenants) implied, “grow our own timber”? (Or words to that effect.) The govmin neglected local industry, preferring to drive growth via the MNCs?

It did not realise that an MNC’s loyalties are to its shareholders, and to a lesser extent to the city, or region where its HQ is located? So it is no surprise it is always “moving on”.

If local businesses had been better supported (like in Japan, Taiwan, Korea and China), even if they became MNCs and moved on, they would have likely kept highly-skilled work here (like they did in above countries), in addition to their HQs. In Germany, even as MNCs and SMEs moved on to produce overseas, they kept very skilled work in Germany.

Did it goof by not trying to build local industry while attracting MNCs?  It struck such a balance in banking, allowing the local banks to grow, while attracting international banks to set up operations here.

It isn’t just history.

Could it be with its emphasis on attracting MNCs to do their R&D here, the governing party is repeating the mistake (if it is a mistake) on overrelying on MNCs?  Granted trying to do advanced R&D without the MNCs is very difficult, and we lack the local businesses that have the R&D expertise.

Update on 11 November] And yet S’pore’s GDP is now bigger than that of M’sia. The PAP must have done more the critics are willing to credit it with.

The origin of “move on”?

In Uncategorized on 09/11/2010 at 6:31 am

The phrase “let’s move on” and its variants (like “moving on”) has long been associated with the governing party even though it has not moved on (i.e. out of power) since 1959. Among countries that hold free elections, only UMNO in M’sia (since 1957) has been longer in power. And LKY has not moved on. He is still in the PAP.

I cannot remember who in PAP first used or popularised the phrase, or even when it was first uttered.

If the phrase or a variant was first uttered or popularised by MightyMind, then perhaps the late Mrs Lee Kuan Yew may have drawn this verse to her husband’s attention, inspiring his use of “move on”.

The Moving Finger writes; and, having writ,

Moves on: nor all thy Piety nor Wit

Shall lure it back to cancel half a Line,

Nor all thy Tears wash out a Word of it.

As we know she loved the classics of English Literature, she is likely to have read the Edward Fitzgerald translation of the  Rubaiyat of Omar Khayyam, the Persian astronomer, poet and sufi master. To be fair to her husband, he may have been aware of the poem. It might have been taught in RI.

(The  Fitzgerald translation is a classic of English literature, and a favourite of mine. I must admit that I’m so stupid that I did not associate the PAP phase with this verse until earlier this year. And it’s a poem I read regularly, and I can recite some verses from memory.)

Sometime back, an editor from MediaCorp’s freesheet, did a piece saying S’pore must name sumething- anything- after her, while another Today reporter tried to link her to a book on orchids: the links were a link too far.

I think the continued use of “move on” is a worthy tribute to her, if she gave MightyMind the idea to use or popularise the phrase. Where would S’pore be without “move on”?

HSBC’s view of emerging mkts

In Africa, China, Economy, Emerging markets on 09/11/2010 at 6:04 am

Mkts are flying what with Aug- Oct passing without a mkt collapse and the Fed pumping money into the system. Time to join the party. I’ve sat on the sidelines so far this yr, so I’ll sit on my hands a bit longer. Must admit its hard not to want to do something.

The CEO of HSBC, said late last week, there were likely to be “some bumps in the road ahead” in developing countries, especially in China. Reminder: HSBC generates most of its earnings growth in Asia.

“Our latest data from emerging markets points to a slowdown in the rate of recovery,” he said in a statement. But the bank added that it still expected growth in the region to outpace that of the developed world for the foreseeable future.

He gave a positive outlook for the rest of the year, saying that “the global economy is in better shape than many expected a year ago.” But that “while fears of a double dip in the West may be overplayed, the passage from downturn to upturn is clearly taking longer than previous cycles.”

HSBC said pretax profit in the third quarter was “well ahead” of the period a year earlier, as reserves for bad loans reached its lowest quarterly level since early 2007. Its lending business in the United States accounted for the biggest share of improvements. Business in October was “in line with third-quarter trends,” HSBC said. HSBC does not give detailed earnings figures on a quarterly basis.

The investment banking unit of HSBC also reported a drop in trading. HSBC said performance of the business was “robust although trading activity was lower.”

S’pore Inc’s coming general meeting

In Corporate governance, S'pore Inc on 08/11/2010 at 5:25 am

S’pore Inc’s board of directors regularly rant at the US practice of allowing the media to play a major role in the governance of the US, the world’s hegemon. But funnily this board makes sure S’pore Inc follows American practice when it comes to the power of the board and management of corporations vis-a-vis its citizens i.e. shareholders.

Unlike the British practice in the law governing companies (which S’pore follows in company law), the US practice makes it difficult to remove directors and challenge or overturn management decisions. Shareholders often have only an advisory role in the company they own. If they are not happy with the board or management, they can quit the company (sell the shares) if company is listed.

Doesn’t this sound like the corporate governance of S’pore Inc? Not happy, be a quitter. You can’t change the board or management.

The only realistic outcome of the coming general election is for the board and management to feel the anger or dis-satisfaction of the shareholders, if these feelings are real and not just astroturfing by anonymous Internet posters.

Either the Reform Party or the SDP (I give up on WP and the Chiams, and NSP is too small, and asking RP and SDP to cooperate may be unrealistic) should try to work on an index to show how badly S’poreans have done since 19991 (when present SM became PM) and 2004 (when LHL became PM). Remember Ronald Reagan became president by asking if Americans were better-off than when his opponent became president. No hope of change here, but such an index can help people decide if they are angry or dis-satisfied. And whether they want to send a message.

(They may not want to if they have landed property or HDB flatshttp://atans1.wordpress.com/2009/12/15/property-prices-mm-lee-is-too-modest/ bought years ago

Seriously, we need some hard numbers because as the Polish philosopher Leszek Kolakowski said: there was never a shortage of arguments to support any doctrine one wanted to believe in for whatever reasons. He called this insight the law of the infinite cornucopia.

Apple: before Jobs return and since

In Uncategorized on 08/11/2010 at 5:19 am

I was cynical abt the worth of gd visionary leadership until the FT reminded some months ago that before Steve Jobs returned to Apple in 1997, the company was worth US$2bn: and at time of FT’s comment, Apple was worth more than Us$200bn.

As mkts have gone up since then, Apple’s value would have gone up further

Wow!

M’sia more meritocratic than S’pore?

In Uncategorized on 07/11/2010 at 5:16 am

LKY, the husband of “Peanuts” Choo, and any number of M’sian Chinese PRs (who generally refuse to become S’poreans) tell us S’pore is a more meritocratic place than M’sia.

So how come the authors of the Legatum Prosperity Index citing a 2009 Gallup poll report that 93.6% of M’sian believe that their society is meritocratic, while only81.2% of people In S’pore  believe our society is meritocratic.

BTW the Legatum people are not anti-S’pore. They rate S’pore 17th in world and 3rd in Asia ahead of Japan and HK, while M’sia is only 43rd.

Is there value in drinking coffee?

In Uncategorized on 07/11/2010 at 5:15 am

Apparently not.

Caffeine is very, very addictive. We drink coffee to cure withdrawal more than for stimulation.

Citigroup wins life-or-death fraud case

In Banks on 06/11/2010 at 6:16 am

A working-class NY City jury took only four hours to throw out claims that Citigroup tricked a British financier over the purchase of EMI.

Investors pushed the price up 3% after the result was announced because the financier had claimed US$8 billion plus punitive damages.  If he had won, Citigroup would have been in serious trouble. The money was not “peanuts” and the loss of reputation was not minor. GIC (they still own a big swag of Citi) and other shareholders might have ended up with a worthless investment.

Hence the surprise that Citi was prepared to fight the case rather than settle.

S’pore Inc: first and fourth world corporate governance

In Corporate governance, S'pore Inc on 05/11/2010 at 5:26 am

Interestingly S’pore Inc practices “betterest” and “baddest” corporate governance at the same time.

When it comes to CEO succession, we follow best corporate practice (and that of North Korea, China, and the Roman Catholic Church).

There is gd succession planning for the post of PM (CEO), and cabinet posts. People are talent spotted and groomed and tested. Some have remained as junior ministers, while now and then a cabinet minister is sent packing. Though sadly such best practice is not infallible: it led to the hubby of Peanuts Choo becoming PM, resulting in the “lost 14 years”, when S’pore lost its way. But to the fair to the system, at that time an Indian was thought by someone as not acceptable to the Chinese majority, while another candidate didn’t want the job. So what to do?

But we have a rotten practice when it comes to ex-CEOs. In any well run listco, does the ex-CEO retain his place on the board of directors? The answer is no, not unless he also happens to be the controlling shareholder.

The presence of the ex-CEO will be taken as a sign of no-confidence in the new CEO. Or that the new CEO is weak. Or both. Or that it is all wayang kulit. The ex-CEO is the puppet master. and the new CEO is his puppet.

In the cabinet (S’pore Inc’s board), we have two-ex PMs and now one ex-DPM. Err what does this say abt the PM? Or what the ex-PMs think about him?

If S’pore Inc were listed in London or NY, what would the shareholders have done?

Funnily this worst practice is not practised at S’pore Inc’s lower levels: e.g. in the admin service and SAF. When senior officers make way for new fresh blood, the former don’t hang around in posts where they can monitor their successors.They are given new posts: like a general becoming a investment director at Temasek.

Reason to be cautious?

In Uncategorized on 05/11/2010 at 5:23 am

Markets are bullish because of the Fed’s US$600m quantative easing programme. It’s supposedly gd for all asset classes. FT’s Lex urges caution

Take bonds. As Smithers & Co points out, buying bonds while spurring inflation raises the price of bonds while lowering their real value – the definition of a bubble. And bonds look ludicrously overvalued already: for long-dated Treasuries to match their historic real annual return of 3 per cent requires inflation to average less than 1 per cent for the next 30 years.

US equity prices are also more than twice the level long term cyclically adjusted price-to-earnings ratios say they should be. Record high corporate profit margins (and budget deficit cuts down the road that must be funded via private sector cash flows) suggest such a premium is indefensible.

Perhaps the biggest potential wrong call, is whether the Fed should even be trying to raise inflation. Because the US is growing less quickly than the emerging world, its real exchange rate should be declining. Relatively low US inflation is an efficient way to do that. The Fed clearly disagrees. Investors betting the same way are risking more than their portfolios.

China plays on S&P 500

In China on 04/11/2010 at 5:26 am

The Economist has constructed a “Sinodependency index”, comprising 22 members of America’s S&P 500 stockmarket index with a high proportion of revenues in China. The index is weighted by the firms’ market capitalisation and the share of their revenues they get from China. It includes Intel and Qualcomm, both chipmakers; Yum! Brands, which owns KFC and other restaurant chains; Boeing, which makes aircraft; and Corning, a glassmaker. The index outperformed the broader S&P 500 by 10% in 2009, when China’s economy outpaced America’s by over 11 percentage points. But it reconverged in April, as the Chinese government grappled with a nascent housing bubble.

I’ll try to get the names of other companies on this index.

This kind of “guardian or trustee”meh?

In Corporate governance, S'pore Inc on 04/11/2010 at 5:24 am

If any

– unhappiness with or criticism of any policy is met with “kind to be cruel”, “it contributes to economic growth stupid”, “don’t be ungrateful”, anger or hostility;

–  govmin goof-up is met with spin* and then by “move on” if the spin is not believed; and

– stayer who raises questions abt national identity is met with hostility,

is this govmin, a government to look after our lives like a guardian or a trustee?.

Is S’pore a place whose political system [ ] is fair, honest, accountable, and stable … which can produce an honest and effective government; and which can deliver the kind of buzz which Singaporeans want for their country?

Only the PSC chairman gets it: If we strive to be world-class, we will be judged by world-class standards. If we say that we have one of the best governments in the world, the public will expect it to solve virtually any problem Singapore faces. Some of our citizens are now beginning to expect the government to do the impossible. Many citizens are now less prepared to give the government room to make mistakes and are less forgiving and more demanding. They tend to regard explanations as excuses.

If the ruling party doesn’t get it (and talk of a military coup if there is a freak election result), and we can’t change the system, isn’t it time for us to be rational abt the value of being S’porean, and “move on”?

I’ve “moved on” mentally. The antics of the PAP (esp that of SM), and two leading Opposition parties, the WP and Chiams, annoy and sadden me . The WP thinks passivity is the answer, while the Chiams are saying, “We run the SPP and SDA”.

Feel free to call me a quitter-in-residence. Hotel room and service gd here, even if I can find better value overseas.

If the daughter of SM and “peanuts” Choo can “move on”, why can’t or don’t you?

*Maybe the spin meisters have not kept up with the literature on risk. Such things may be inherent in the complexity of the world and no one person or group can be blamed. Warning: piece is 6 pages in three columns per page. But it’s a great, disturbing read. And talking of spin, which moron allowed the release of these without the methodology (sample size etc) details? I mean these stats seem to be a tad too convenient.

Here’s wondering abt Citi

In Uncategorized on 03/11/2010 at 7:29 am

I was reading that  Citigold, part of Citi, has launched a new service in which relationship managers will be assigned to clients with investible assets of between $200,000 and $1 million. Presumably the job of these RMs is to flog financial products and are paid largely via the commissions they generate.

If you are approached by someone from Citigold, you might want to ask them about Citi’s side of the following tale.

The actor who played JR in the very popular 80s tv series Dallas (yikes shows my age) recently won US$11.1m++ from Citi. The arbitrator held that Citi’s broking arm had breached its fiduciary duty to him. This sum includes US$10m in puntitive damages.

Related post

http://atans1.wordpress.com/2010/10/28/when-dealing-with-yr-rm-broker-or-other-financial-low-life/

Hedge fund for the “little people”

In Casinos on 02/11/2010 at 9:43 am

Man Group Plc, the world’s largest publicly traded hedge-fund manager, is for the first time marketing to individual investors in Singapore a fund which uses computer programs to identify trades in futures markets.

Singapore investors can put a minimum of S$20,000 ($15,503) in Man AHL Trend, Bloomberg reports.

Man Group says it spent three years discussing the fund with Singapore’s regulator, and is looking at ways it can market it in Malaysia and other countries in the region.

Let’s hope for the sake of everyone, that this doesn’t turn out to be another DBS HN; minibonds; and Merrill Lynch Jubilee and Morgan Stanley Pinnacle notes. I am always concerned when complicated products are retailed to the unwashed masses.

How we fund our SWFs

In CPF, GIC, S'pore Inc, Temasek on 02/11/2010 at 5:42 am

This piece is an attempt* to answer,”If Singaporeans are not “hard-driving and hard-striving”, where did GIC and Temasek get so much money to lose?”: a posting on a Temasek Review article in late 2009.

The answer parroted mindlessly by the government is that government budget surpluses mean that GIC and Temasek get money to invest with.

A more detailed explanation has to start with how the surpluses arise.

As about 43% of the working population  don’t pay income tax, and VAT and other taxes are relatively low: one way the surpluses are generated is by a government being thrifty (government’s view) or mean (view of many netizens).

Economists in the private sector, and the Reform Party (the sec-gen was once an economist and he has a first-class degree from Cambridge) have argued that rather than accumulate large surpluses that are then invested abroad, the government should spend more building up Singapore’s human capital. By spending more on things like education, healthcare and consumer protection, the returns generated will be better than the returns on overseas investments.

This is an argument that has excellent academic credentials. China is often asked by eminent economists ,”Why do you export so much when you, in return, use the surplus lend to the Americans so that they can buy more from you?” The economists advise that China should invest more locally.

The government’s view is that Singapore needs the reserves as an emergency fund should things go badly wrong. The late Dr Goh Keng Swee talked of spending the reserves in a recession (as has happened recently). Dr Goh and others could also have quoted the example of Kuwait. When Kuwait was invaded by Iraq, the reserves were used to help pay for the war. And afterwards for the reconstruction of the country. They could also have cited Iceland and Dubai as countries that got into trouble because they ran out of $, when they could not borrow any more.

The second reason why surpluses occur is that our CPF monies are invested in special government bonds. The $ from the bonds flow into the government’s Consolidated Fund together with revenues from taxes etc. All government expenses are paid out from this fund. If there is a surplus (as there usually  because the government is thrifty or mean depending on who is doing the talking) part of that surplus can go to GIC and Temasek. The government argues that because all the monies in the fund  is fungible (cannot be separated), one is wrong to argue that CPF monies are invested abroad.

Technically and legally the government is correct, but so what is the retort? The financial effect (though not the legal consequences) is the same as if our CPF monies are directly invested abroad.

And these special bonds are the reason why S’pore is up there on a  list that the local media does not ever publicise. S’pore has the 8th highest public debt to GDP ration (113.10%) in the world. Greece is 7th with 113.40. Other countries on the list above us are Zimbabwe  (champion), Japan (second), Lebanon and Italy. Iceland is 9th (106.7) while Ireland is at 36 (57.7).

(Aside, could this high debt to GDP ratio be the reason why the govmin wants to force-feed GDP growth through immigration? I may explore this issue in future and I hope RP will explore the issue as something the electorate should be educated upon.)

Singapore is unique among the countries with the largest sovereign wealth funds. The other SWFs are effectively funded from oil revenues. In the case of Singapore, it could be reasonably argued, by government critics, that the funding results from the “hard-driving and hard-striving” Singaporeans who are forced to save and lend the money to the government; and from less than optimal government spending.

So the quote at the beginning of this piece has elements of the truth. And worse: one could reasonably argue that the government makes something for itself from “hard-driving and hard-striving” S’poreans.  One noted local economist has said that the government is effectively pocketing the difference between the returns it gets from investing abroad and the returns it pays on our CPF accounts: a carry trade arbitrage. Borrow low and invest for higher returns.

*What with an election coming, I tot I should revise (and repost) a piece I did in December last year. The revision has been pretty extensive.

Another IPO, another seller gets the finger

In Uncategorized on 01/11/2010 at 6:45 am

It looks as though GIC and Temasek are not the only shareholders that got bad advice from their investment banks.

The AIA float soared 17% on its HK debut. This made it worth US$35.8bn, even more than the US$35.3bn that Pru had offered for it, but which upset Pru’s shareholders who tot it too much. They killed the deal.

But the IPO put a value of only US$33.3bn on AIA. As the US government owns most of AIG, the parent of AIA, one can argue that US taxpayers juz lost US$2.5bn.

Pricing IPOs is difficult but getting it wrong by 17% is way off. A 5% premium would be fair to investors and the seller.

Related posting

http://atans1.wordpress.com/2010/10/22/our-swfs-juz-lost-spore-s685million/

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