This table from BT shows how important the EU economies are to S’pore. (NODX- Non oil domestic exports)
Err here’s hoping SPH not upset with me. Remember SPH, it’s Christmas.
And why Asia needs European banks: they were big US$ lenders to Asian banks. http://www.breakingviews.com/asian-banks-cant-fill-gap-as-europeans-retreat/1620073.article
Business sentiment is worse now than on the eve of the financial crisis in 2008, according to The Economist/FT survey of over 1,500 senior executives conducted by the Economist Intelligence Unit.
http://www.economist.com/blogs/dailychart/2011/11/global-business-barometer
And in the UK last week, sterling London Interbank Rates (LIBOR) reached their 2009 levels.
Looks like MAS is right to focus on weakening S$ Double dip here we come.
So morgagors may face rising interest rates (interbank rates rise to attract S$ deposits) and a recession (no jobs). True rate rises may be moderate but it all depends on how prudent “homeowners” have been in their budgeting.
I hear that advertising and marketing people are being axed as of this morning.
Commentators like Tan Kin Lian have been saying for ages that interest rates cannot remain at so low levels here and that they must rise one day. Then those homeowners who overleveraged by not anticipating having more in interest would face problems servicing their loans.
Well it seems that higher interest rates are occurring finally because the central bank no longer wants an appreciating S$. It now seems to want the S$ to weaken.
The central bank is forcing the value of the S$ down, making it unattractive to hold S$ deposits. It has reversed its policy of allowing the S$ to strengthen against the US$ because it is afraid that a stronger S$ will lead to weaker exports, slower growth and a recession. It allowed the S$ to strengthen because it wanted to fight inflation, a fight that has yet to be won.
If the central bank continues to allow the S$ to depreciate, then S$ interbank rates will have to rise to attract S$ funds. However analysts are divided on how much further the central bank will force down the S$. Those with property mortgages may hope that MAS reverts to a stronger S$ policy. But then the problem is whether they then still have the jobs to service the loans. A stronger S$ could hasten the recession.
Snigger, snigger.
Update on 29 September 2011 at 2.05am
Maybe as part of a campaign to make us “feel good”, the constructive, nation-building local media are highlighting that stockbrokers are telling their clients that property stocks are trading at a discount to their net asset valuation (where once they traded at premiums) or way below their usual discount net asset valuation.
Hence there are gd buys around.
But there is the fine print that the MSM don’t report or don’t highlight. The brokers point out that they are assuming a slowdown in the economy, not a global recession. Neither they nor MSM highlight that investors are assuming the worst, a global recession, and hence are pricing the stocks at recession values i.e. investors do not believe the values brokers are pricing the assets at because they think the brokers are optimistic.
So if you believe that the world economy is only experiencing a slow-down, go ahead and buy the recommended property stocks. But if you are afraid of a recession, sit tight. The discounts will bet bigger
Proud and happy that S’pore is a safe haven in this crisis?
Think again. The Swiss experience. http://www.bbc.co.uk/news/business-14813825
For S’pore the choice is deflation as strong currency stifles economic activity especially exports in gds and services.
Or if the currency is kept artifically low, asset inflation.
Whatever the case, MAS can continue losing serious money (S$10bn last yr).
Only SDP will be happy, saying, “We told you so”.
Investors want governments to spend, spend to avoid a double dip recession. http://www.bbc.co.uk/news/business-14823501
Up to August, they were worried that governments were profigate. They are still afraid of excessive debt longer term, but they are terrified of a recession in the shorter term.
And we rely on markets to help allocate capital efficiently? Sigh
Markets are fickle and neurotic.
What with the PM promising goodies in the Febuary Budget; the news that the supply S’pore citizenships and PRs was halved ; measures meant cool property prices and more to come if necessary; and with the “removal” of comrade Mah from the PAP politburo, it would seem that a general election is on the cards soon, possibly as soon as March.
But there could be an economic problem brewing, if the worse fears of a Bank of America Merrill Lynch analyst materialise, that could derail any plans for a March GE.
Last week, it was announced that Singapore’s key non-oil domestic exports (NODX) in November had its biggest monthly fall in eight years. The NODX fell 12.9% month-on-month in November, the largest monthly drop since December 2002. Blame it on pharmaceutical exports which are always very volatile.
So analysts are pretty relaxed except for one who has concerns.
A Bank of America Merrill Lynch economist noted that even if pharmaceutical export is removed,”the NODX’s slowdown in November contrasts with the robust export performances of South Korea (+24.6 per cent vs +27.6 per cent in October), Taiwan (+21.8 per cent vs +21.9 per cent in October) and China (+34.9 per cent vs +22.9 per cent in October).”
He raised the possibility of Singapore exports facing structural problems such as the “stronger Singapore dollar and stricter foreign labour policy”, but he said more indicators are needed to confirm it.
My guess is that if the December or January NODX numbers do not show a recovery from November’s numbers, the election will be further delayed. Remember the latest possible date is in early 2012.
A parting Parthian shot: Read the rest of this entry »
Strange tot in light of broker upgrades as reported in BT
But the boss of Rio Tinto (one of the three cos that supplies China with iron ore) is concerned that the global economy is very volatile). He is concerned about a slow down in China. But if Intel’s more optimistic view is correct, let the gd times roll on. Article on the contrasting view of both companies.
And if the economy is so strong,why the slowdown in house sales in June and the slight dip in retail sales? Article reporting this news.
China said on Wednesday that its exports were up 21% in January from a year earlier, while imports were up 85.5%. This suggests that global demand for Chinese made goods is continuing and Chinese consumers are still spending too.
Time to buy equities until it hurts?
Remember the story about the Chinese emperor who sighed when told things were very, very good. He said things can only get worse after they reached their zenith. Remember the view that markets are priced for perfection i.e. nothing will go wrong?
We know markets have a way of confounding conventional wisdom, don’t we? And the whis-kids, scholars, and ex-SAF generals.
Remember that Temasek exited BOA juz as mkts were turning, cutting its losses at the wrong time. Just at the time, John Paulson, the man who bet big against sub-prime mortgages, was buying BOA and other banks.
What are the differences between the Economic Strategies Committee (ESC) report, the February 2003 report by the Economic Review Committee (ERC), and the Economic Committee report in the 1980s?
Well the last two were chaired by one Lee Hsien Loong, the latest was by Mr Tharman Shanmugaratnam, Minister for Finance.
As Lee went on to become PM, could Tharman be the anointed PM in waiting? Could S’pore finally be ready for a non-Chinese PM, despite the recent influx of PRC people. Remember the sage of Singapore, one LKY, told us that the present chairman of Temasek would have made a gd PM in the 1990s: the problem was that the Chinese majority was not prepared to have a non-Chinese as PM.
I never thought much of MM’s comments because many S’poreans thought (and still think) that the boss is one LKY. Anyone else is irrelevant.
Sorry for this aside, back to the reports. What are similar? Same old issues abt productivity, seizing opportunities, lowering costs: you get the picture. The civil servants must be glad that in the 80s, there was already software programmes that allowed docs to be cut and paste.
So what shld we conclude?
One way (and a very generous way) of looking at these reports is that these issues will always be with us. S’pore like the Red Queen in “Through the looking glass”, has to run to keep in the same spot. Life is tough.
Another take is that the governing party are incompetent. They can’t solve issues that they flagged in the 1980s by 2003 and 2009, despite the chairman of two committees becoming PM. An example is the tinkering with the CPF system, not radical reform. One could presume (not me) that SM’s comments about execution could be taken to mean that the PAP ministers, and civil service are incompetent.*
Yet another way of looking at the reports is to conclude that the government’s premises for prosperity have to be rethought. In New York city, home of Wall Street and mega-bonuses, housing is subsidised for middle class renters in certain areas. In fact GIC’s recent loss https://atans1.wordpress.com/2010/01/27/gic-ny-loss-us100m-more/ was the result of the courts overturning rent increases.
And below find something on how the most capitalistic country in the world has a socialist model in one of its favourite sports.
Now I am not suggesting we go socialist like the Americans. What I’m suggesting is that the premises of our prosperity have to be rethought. Now for all I know, we are like the Red Queen; we have to run to remain at one spot. In fact, I think this is the case.
But until S’pore is prepared to rethink its assumptions, we wouldn’t know would we?
———
American football is socialism that works
I mean if in the most capitalistic country in the world: “There are only 32 professional football teams in the United States and strict rules about who can own a team”, the teams share at least half of their revenue from lucrative TV rights, merchandising and ticket sales; have salary caps etc
“As one NFL owner put it ‘we are 32 fat cat republicans who vote socialist’.”
As the BBC report goes on to say, “[I]n other sports leagues the burden of rapidly rising player salaries has broken smaller clubs, leaving larger ones to dominate the landscape. Think of Premier League football in the UK or US professional sports such as basketball, baseball and ice hockey.”
*This sentence was added on 5 February at ant 10.30 am.
Forget abt L, U and V shaped recoveries.
Like Gaul, the world economy is now divided into three parts.
An L-shaped long-term low growth recovery in Europe; a U-shaped slow growth recovery in the United States; and a sharp “V” in emerging economies like India, Brazil and China.
As Singapore exports to all three, but esp to the first two (“ang moh tua kee”), we will have a “L” and “U” shaped recovery at the same time, depending on the sector.
Translated to listcos, those who export to the US (say Latitude. a furniture maker) will have gd prospects, while those that depend on Europe (can’t think of any) will stagnate.
Temasek has big holdings in two Chinese banks: 4% of Bank of China and 6% of China Construction Bank.
So this is worrying: “For the banks themselves, the lending splurge threatens to undo significant progress made in recent years in reducing ratios of problem loans to total lending.” Part of of an IHT article.
It goes on:
“A decade ago, Chinese banks staggered under a load of bad debt, reported by the Bank of China at nearly 40 percent of their total lending in 1999. In 2000, the nonperforming loan rate for the major commercial banks in China stood at 29 percent, according to official statistics and in the view of many Western analysts who questioned Chinese accounting standards, it was probably far higher. Nonperforming loans are defined as those on which repayments are more than three months in arrears.
‘The government vowed to bring the rate down to 15 percent by 2005, and by the end of 2007 it had dropped below 7 percent. One factor behind this reduction was the need for Chinese banks to attract investment from private and foreign sources.
‘This steep decline to single-digit levels would seem to tell a heroic tale of a banking system that solved its problems, but not all analysts take it at face value. Skeptics say the cleanup was largely based on sleight of hand, involving specially established asset management companies, speculative bonds and fuzzy government guarantees that together did little more than kick the problem down the road.
‘Even the least cynical analysts acknowledged that lower ratios partially reflected the dilution of bad loans in a vast sea of new lending, some of which would go bad but was still too recent to register as nonperforming.
‘Yet such doubts and qualifications notwithstanding, few deny that some degree of bad debt reduction was genuine and that overall loan quality among Chinese banks has improved from the worst of times.
‘Now, however, new concerns are emerging over the state of Chinese banks and their balance sheets. Zhou Xiaochuan, governor of the People’s Bank of China, the country’s central bank, spoke publicly of such worries in early January, and hinted at a lending slowdown.
‘Large credit flows, “will not only go against the objective of economic structural adjustment, but will also pose bank lending quality risks,” Mr. Zhou said in a magazine interview.”
Note that the Bank of China said on Friday that it plans to sell up to Rmb40bn ($5.86bn) of convertible bonds toto boost its capital base and allow it to meet stricter regulatory and capital requirements following.In 2009, Chinese banks lent a total of Rmb9,600bn, more than double the volume of new loans made in 2008.
Note also that the announcement came just after the authorities acted to check surging loan growth by ordering some banks, including Bank of China, to temporarily suspend the granting of new loans.
As you will be aware, Beijing is worried about rising inflationary pressures and the quality of new loans, the by-products of its expansionist economic policies.
Update 25/1/09
BOC told analysts it may raise additional capital by selling new shares in Hong Kong, in addition to the U$5.9bn Chinese convertible bond sale.
.
CapitaLand is obviously not a bear on China.
CapitaLand has done a deal in China spending more than the S$2.7bn (US$1.9bn) it raised in November through an IPO of CapitaMalls Asia, its shopping centres subsidiary. (I had tot then lowering China exposure was the unstatedreason for the IPO.)
It bought for US$2.2bn seven sites located in Shanghai, Kunshan and Tianjin, taking the group’s Chinese portfolio to 36% of assets from 28%. It wants to increase its China exposure from 28% of assets to 45%. Hong Kong’s Orient Overseas International shipping group was the seller.
Funnily, this at a time when even the Chinese government is talking of a property bubble in China what with residential prices in the 70 main cities accelerated in November to the fastest pace in 18 months.
“Qi Ji, China’s vice-minister of housing and urban-rural development, has told the Financial Times that house prices have reached levels that were “obviously too high”, particularly in large coastal cities,” reports the FT.
Yes, yes: I know CapitaLand is into commercial space, offices and malls (Apartments are tagged on on the top). But recent US experience shows that the damage in the residential sector can affect the commercial sector.
Note that China super bull, Jim Rogers, is avoiding recommending property to investors: in 2008 he was negative about Chinese property.
Hedgies, make a bet that CapitaLand is wrong?
Remember the government’s “growth shares”? The idea was to give us a share of Singapore’s prosperity. Many Singaporeans (self included tot it was too Mickey Mousey and that’s insulting Mickey)
A famous US economist has a better idea.
With a GE coming, maybe the governing party, or one of opposition (none of that “alternative” rubbish) parties (or an alliance of them) can come up with a variant for Singapore — where the state does not need funding.
“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.
Not quite correct because the money that GIC and Temasek invest comes from government surpluses. As about 43% of Singaporeans don’t pay income tax, this means that the surpluses are generated by 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.
Now MM Lee’s view is that Singapore needs the reserves should anything go badly wrong. He could have quoted the example of Kuwait, which surprising he has not. When Kuwait was invaded by Iraq, the reserves were used to help pay for the war. And afterwards for the reconstruction of the country. He could have cited Iceland and Dubai (which again he hasn’t) as countries that got into trouble because they ran out of $.
BTW, 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.
For the technically minded, 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 is) part of that 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 the government is correct, but so what is the retort? The financial effect is the same as if our CPF monies are invested abroad.
Finally, 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 from less than optimal government spending.
So the quote at the beginning of this piece has elements of the truth.
So Sands is to be delayed: it will now open in the second quarter of 2010 instead of the first. And there is speculation about a delay by Resorts World.
These delays albeit minor may have implications on the timing of GE and the growth of the tourism sector, a key driver of the economy.
CIMB in a recent report is very bullish on Singapore (but then which broker isn’t?).
An important reason are the casinos: “The two resorts are expected to produce economic multipliers, should tourist arrivals rise from 9m in 2009 to 12m-13m in 2010. Directly, the positives would filter down to other industries such as food & beverage, hotels and interior designers.”
So continued delays (even minor) and the BT report that “Las Vegas Sands (LVS), which is in the midst of applying for its casino licence for Marina Bay Sands (MBS), may not have the help of junket operators when it opens in April”, could be problems not only for the casinos but also for the economy.
For the record, Bank of America Merrill Lynch analyst Melvyn Boey estimates VIP clients will account for about 50% of the business at the Singapore casinos. But of these VIP clients, only about 30% might be expected to be brought in by junket operators with most being ‘in-house VIP clients’. Now 30% of 50% sounds a lot to me, though he says it is “insignificant”
(Some background on why junket operators may give Singapore a miss. The boss of Sands was quoted by BT, “First of all, I don’t think the junket reps (representatives) are going to apply for licences. There may be one or two – but the government has said they don’t want the Macau style junket reps that take a very large percentage of the gross income.”)
So all the more reason for a General Election in March (after the goodies in the Budget) rather than later in the year when conditions may not be so good (“Events, dear boy, events”). The government is believed to be planning an election in 2010 despite MM Lee’s well known reservations to calling an early general election (an election need not be called until sometime in early 2012).
Remember there was a lot of speculation when LHL became PM that an early election would be held? Speculation which only ended when MM said he saw no reason for an early election.
So the probability of an early GE in March is another reason to stay invested. Traditionally STI trends upwards when there is speculation of a general election.
Poll of Wall Streeters.
Let’s hope their bullishness is correct though if we go by their views in Dec 2008 and 2009, and March 2009 …
Are they just extrapolating current trends?
MM was quoted as saying, “If the country is going to go down, then economy will go down, people’s incomes will be down, unemployment will be up, then property values will go down.”
He is being modest. We have had a recession, but property prices have been on the rise . He should have said, “We ensure property prices go up even in a recession.” [In 2009, prices of resale flats rose by 8.2% and this in a recession :Addition on 29 Jan 2010]
A few months ago, a terrace house few doors away from my home was sold for $1.45m. The previous transaction along the row was a few years ago at $900,000. This had followed a transaction in 2000 0r 2001 at $950,000.
Well another house along the row is now on the market for $2m.
Thank you PAP.
Note the links were updated on 4 Jan 2010 for various reasons.
Thoughts of a Cynical Investor 