Singapore Economic News

[Porkbelly]

Thanks buddies for your views!
Appreciate it.

Yes, it certainly will take a lot more to see effects, and by that time there would be
a lot of misery too.
I feel that we have been experiencing such a comfortable life ( well at least 90% of people )
with more quarters in the plus then minus. Even the times of minus were very short lived...
and people's memories are short too.

I just dont understand each time numbers are "poor" or "bad", news reporters, analysts start to
magnify the issue as though there will be economic calamity... particularly in Singapore.

I suppose I am one of those who "... have no fear..." Through out our economic history, we have bounced
back very, very quickly. Was it the result of fantastic managers or a mix of good fortunes..?
Hit with SARs, Gulf Wars, GFC ( which is not felt by most people at street level ).. bounced back each time.
And with accelerated speed too!

And of course, each learned person in equities, bonds, FX, property will say: " ''' This time its different..."


Thanks for your views, again... great forum!

[HyperionTree]

Hi guys, it has been a long time. But Hyperion & Tree is back!

In Feb 2015, Hyperion posted a note on Valuebuddies.com, which predicted the current slowdown seen in Singapore here:
http://www.valuebuddies.com/thread-6228.html

To quote:

Singapore
Recently in Singapore for the last 2 months the economy experience deflation of around 0.1%. This has some implications which are not immediately obvious. If you take the short term SGS bond yields in Singapore which is around 0.7% now and adjust for deflation of 0.1% to get the real bond yields, you get around positive 0.8% real bond yields. If now you assume that long term 10 year inflation is 3% as observe historically, and adjust the current 10 year SGS bond yields which is around 1.9%, you actually get negative 1.1%. In this case, short term real interest rates actually are higher than long term real interest rates. This is call an inverted yield curve which is a leading indicator of an economic crisis. It is likely that there are more sellers of short term SGS than buyers because more people need short term liquidity.

Although the above indicators suggests that Singapore might enter a recession this year, Hyperion and Tree likes to caution readers that the key assumption is that the average 10 year inflation stands at 3%. If this is not true, given that we now face global deflation for economies that are not in trouble, there is unlikely to be a crisis. This is because if say the next 10 years we experience a deflation of 3% a year. The actual adjustment to the current 1.9% 10 year SGS bond yield would be to add 3% and we have long term SGS real bond yields higher than short term real bond yields. Thus there is no inversion of yield curve.

Crucially, another indicator, the amount of loans in Singapore versus deposits was signally trouble few months ago. The amount of loans in Singapore was higher than deposits around July to September 2014. This suggests a general lack of liquidity. For more info refer to:
https://www.dbs.com.sg/corporate/aics/Ge...posits.xml#


As observe from the link the other time this had occurred was during the Asian Financial Crisis in 1997.

In conclusion, the likelihood of a 1997 occurring again is indeed becoming real. Most interestingly, Singapore is an open economy, and thus Singapore is actually a great barometer for the South East Asian economies. Overall, this further suggests that in fact, South East Asian countries are heading for an economic crisis similar to 1997 based on the above 2 indicators.

Today, both of the indicators above are still suggesting Singapore has lack of liquidity especially after recent bond defaults in the Oil & Gas sector.

If the the lack of liquidity persist, unemployment should rise and we would experience another wave of decline in property prices especially in the condominium market. This happens because the stronger SGD reduces competitiveness of SG companies exports. In turn, companies are downsizing very strongly now after 2+ years(2014 to 2016) of lack of liquidity. So people are losing jobs. On the other hand, theory says a stronger SGD will reduce Core CPI inflation and benefiting the middle income group in Singapore. This is the trade off, low inflation or more jobs, when thinking about how strong should SGD be to help Singapore. Since more people are losing jobs now, this  suggests that SGD is too strong and SGD needs to weaken for a recovery to happen.

Possible indicator of Singapore's recovery would be a weaker SGD and headline CPI inflation(turn from deflation to inflation). This would signal that liquidity will return and businesses can recover. Only then, we can expect a significant rally in the STI index or SG stock market.

Tree likes to add a correction to the previous article in Feb 2015 regarding whether SG lack of liquidity signals a crisis in South East Asia countries. Due to SGD being strong, current economic problems in Singapore is only contained in Singapore and it does not reflect the region. In fact, Indonesia and Thailand had recovered since Feb 2015.

Thank you.

Regards,
Hyperion & Tree

[specuvestor]

Welcome back Hyperion

The link you provided for the post Feb 2015 is incorrect

The 3% 10-year inflation is not a good indicator now because 1) globally we are indeed moving into the New Normal. Inflation expectations as well as equities return has to be adjusted downwards and that has implications across asset classes and policy making 2) Singapore inflation before 2014 was local asset prices driven. SGD adjustment could only adjust for gross margins ie imported goods but not OPEX ie rents. That's why it is unlikely property measures will be loosened soon cause MAS realised it couldn't control asset inflation through monetary policy. In fact the more one strengthens SGD to theoretically "soften economy", the more hot money is interested in SGD assets. That's why the ABSD and the holding period makes sense.

The weaker SGD is not meant to help exports. That's an econs 101 theory that we don't subscribe to since we moved from a manufacturing based economy cause our main export is not goods, even much so after we gave up on HDD industry. We are the intermediary in import and exports, adding value through logistics efficiency, legal structure, port of call / transport hub, high value add-ones to imported goods to be re-exported. Our main local exports that we are / were focusing on are pharmaceuticals and semiconductors which are not that sensitive to FX pricing.

That said SGD will be depreciating because of our deflating environment. Our competitiveness is based on our value add to global trade flows and regional service demands. We are the canary in the coal mine. As I posted here a week ago, I already sense we are in a recession but I don't think it will be AFC. I'm not sure if u lived through that meaningfully (I had started work few years) and I don't see signs of that and I hope I don't see it again.

[HyperionTree]

Welcome back Hyperion

The link you provided for the post Feb 2015 is incorrect

The 3% 10-year inflation is not a good indicator now because 1) globally we are indeed moving into the New Normal. Inflation expectations as well as equities return has to be adjusted downwards and that has implications across asset classes and policy making 2) Singapore inflation before 2014 was local asset prices driven. SGD adjustment could only adjust for gross margins ie imported goods but not OPEX ie rents. That's why it is unlikely property measures will be loosened soon cause MAS realised it couldn't control asset inflation through monetary policy. In fact the more one strengthens SGD to theoretically "soften economy", the more hot money is interested in SGD assets. That's why the ABSD and the holding period makes sense.

The weaker SGD is not meant to help exports. That's an econs 101 theory that we don't subscribe to since we moved from a manufacturing based economy cause our main export is not goods, even much so after we gave up on HDD industry. We are the intermediary in import and exports, adding value through logistics efficiency, legal structure, port of call, high value add-ones to imported goods to be re-exported. Our main local exports that we are / were focusing on are pharmaceuticals and semiconductors which are not that sensitive to FX pricing.

That said SGD will be depreciating because of our deflating environment. Our competitiveness is based on our value add to global trade flows and regional service demands. We are the canary in the coal mine. As I posted here a week ago, I already sense we are in a recession but I don't think it will be AFC. I'm not sure if u lived through that meaningfully (I had started work few years) and I don't see signs of that and I hope I don't see it again.

Hi Specuvestor,

Thanks for identifying the link error. Hahahaha posted wrong link.

Here is the correct link to the Feb 2015 article on ValueBuddies.com : http://www.valuebuddies.com/thread-6228.html

Just for discussion sake please see responses below:

On 10 year inflation:
Hyperion like to add that Thailand experienced deflation almost the same time as Singapore last few years. Subsequently, Thailand normalised to inflation in April 2016 this year. This signaled a return of liquidity on the short end of the yield curve. Overall, the yield curve normalised from inverted in shape to flattened. Thailand has shown strong recovery since April 2016. One possible play on this was actually Thai Bev which is listed on SGX and they reported growth in the beer sales. Although Thai Bev management claims that it is due to their strategy, the overall recovery probably played a big part in boosting consumer consumption in Thailand which help beer sales. Hyperion bought some Thai Banks/Financial company shares in April 2016 and those banks have since appreciated alot.

As such, there is a probability that Singapore may not be in a New Normal and inflation will return just like the case of Thailand. Please note that in this crude model, inflation is used as an indicator that liquidity has returned and not linked to any monetary policy. As this is a real time experiment, in time we can see if there is a New Normal and permanent deflation.

Hyperion's money is that we will have inflation in Singapore and deflation will not be sustainable in Singapore because of the reasons in the crude model.

Regarding "In fact the more one strengthens SGD to theoretically "soften economy", the more hot money is interested in SGD assets.":

Tree likes to add that, if more hot money is interested in SGD assets, there should be no liquidity problem after netting out all push and pull effects of stronger SGD. The data shows that SG has lack of liquidity since 2 years ago due to the inverted yield curve. Even if you discard the yield curve theory because of New Normal deflation for next 10 years, the loan to deposit ratio is also signally that there is lack of liquidity. Thus, there is again a high chance that SGD is too strong. In short, despite money flowing into SGD assets, the flow is not strong enough to offset liquidity crisis. One possibility is the SGD is too strong so not enough is flowing in to provide liquidity, despite some flows.

Asia Financial Crisis

Tree added that due to the distortion by strong SGD, the economic crisis may only be contained in SG. This means lack of liquidity in SG does not mean lack of liquidity in other Asean countries so there is no Asia Financial Crisis, just a Singapore crisis. Malaysia show signs of overheating recently but the case of Malaysia is due to other reasons. In fact, Indonesia is recovering very strongly since Feb 2016, followed by Thailand in April 2016. Thus there is no lack of liquidity in the region, just in Singapore.

However, it would be premature to assume this economic slow down in Singapore is less severe than AFC because there are signs showing that the impact potentially will be huge and drag out over a longer period. The two indicators above were suggesting a problem for 2 years and yet SGD was strengthen during those years and only started to weaken this year. The issue is whether economic policy is worsening the slow down.

Thus, Tree is expecting a depreciation of USD SGD FX pair within 10% range for a bull run to start in the Singapore stock market.

Possible Scenarios
A prolonged liquidity crisis has the following possible development sequence:
1. Company lack money.
2. Fire some expensive staff.(note that wages have peak in Singapore since 2015 especially in the financial services sector in Singapore).
3. Staff lose job so live on savings while trying to pay of condo loans.
4. After 9 months, some staff runs out savings, so starts to sell condo.
5. A fire sale starts in the condo market in Singapore.
6. A downward feedback loop starts for condo market.
7. 3 big banks face huge bad debts.

What happen next is worse case will require a bailout, best case is just depreciation of USD SGD FX and removal of housing measures. Please note these are all hypothetical and may not happen exactly as discussed.

What to do?
If inflation returns and SGD weakens significantly, Hyperion suggests buying financial sector stocks to ride the recovery in the liquidity. As such, while local financials look cheap now, it is still too early as a liquidity crisis will cause more defaults and nobody knows for sure how much bad debts will appear especially in Condo segment. Hyperion's concern is whether banks have factor in the case that the borrower losses his income, or his income halves. No point stress testing at interest rate of 3% when the guy losses his income and can't even pay principle back.

Till then, sit tight for the ride down now.

Thank you.

Regards,
Hyperion & Tree

[BlueKelah]

@'HT are you using the third person narrative to sound smart? I remember another forummer called oldman who liked to "oldman this and that". And two characters H&T as well sounds like a Chinese 相声 comedy club. But that's just me

Agree somewhat with your detailed analysis. However IMHO the recent bump in emerging markets is more likely just simply due to China using infrastructure fund to stimulus. This was supposed to support their ecoNomy for next three years but they bopian had to use it in half a year. This has caused their top tier cities real estate to overheat again but has barely maintained their GDP at above 6.5%. China die we all jialat simple as that. Just a matter of when.

sent from my Galaxy Note 7 using tapatalk (boom!)

[Big Toe]

Looking at the STI(which somewhat represents the state of our economy) over the years.
10 years ago in 2006 we are about the same level as where we are now.
Except the brief period where there was severe recession/bear market between 2009-2010, the STI was trading mostly higher than what it is today.

What this means is that most people who bought into the index is having mediocre gains or maybe some losses over the period.
If my memory serves me correct, almost all countries(except maybe japan and hong kong) fared better than STI(in many cases very much better). Indonesia, Philippines, US, etc etc

While the property market had minted many millionaires during the past 10 years, cant really say the same for the stock market here. Couple with a slowing economy and a possible weakness in the SGD against the greenback, things are not looking great. Given a choice, I would rather not have any investment that would be directly linked to the local economy right now. But unfortunately I do

[BlueKelah]

Looking at the STI(which somewhat represents the state of our economy) over the years.
10 years ago in 2006 we are about the same level as where we are now.
Except the brief period where there was severe recession/bear market between 2009-2010, the STI was trading mostly higher than what it is today.

What this means is that most people who bought into the index is having mediocre gains or maybe some losses over the period.
If my memory serves me correct, almost all countries(except maybe japan and hong kong) fared better than STI(in many cases very much better). Indonesia, Philippines, US, etc etc

While the property market had minted many millionaires during the past 10 years, cant really say the same for the stock market here. Couple with a slowing economy and a possible weakness in the SGD against the greenback, things are not looking great. Given a choice, I would rather not have any investment that would be directly linked to the local economy right now. But unfortunately I do

Have faith in SG man. SG is one of the very few country who is a net creditor country!! SGD go down stock market will boom! SGD stay high, foreigner from Asia will pour money in.

Anywhere else you invest will be the same story, global growth is pretty bad everywhere. And if its a country with economy doing well, their risk of correcting more is even higher.

Just have to be selective in picking ur value stocks and keeping ur elephant gun loaded with lots of spare bullet in the bag. I have quite a few doing pretty well despite the low STI and should weather the coming recession well 

[Big Toe]

Never never admit one is doing well.

Dont worry about me, Out of 1000 listed companies i study i will probably go into greater detail and study a handful of them, paying greater attention on the industries I am familiar with. Out of the handful I will probably pick one(sometimes none). Out of that one I picked, I will determine what would be an appropriate price to pay. After the appropriate price is determined, sometimes I buy immediately if value is compelling, and accumulate along the way. If price is not ideal, will wait for months, years... I started about 2 decades back, have to admit, making money was easier then.

The point is, I am careful especially now when i am older. Cant afford to make major mistakes. And even from the greatest effort on my part, in some cases, things may not always turn out right.

[CY09]

Never never admit one is doing well.

Dont worry about me, Out of 1000 listed companies i study i will probably go into greater detail and study a handful of them, paying greater attention on the industries I am familiar with. Out of the handful I will probably pick one(sometimes none). Out of that one I picked, I will determine what would be an appropriate price to pay. After the appropriate price is determined, sometimes I buy immediately if value is compelling, and accumulate along the way. If price is not ideal, will wait for months, years... I started about 2 decades back, have to admit, making money was easier then.

The point is, I am careful especially now when i am older. Cant afford to make major mistakes. And even from the greatest effort on my part, in some cases, things may not always turn out right.

Very good point by Big Toe. No deal can be a good deal.

As retail investors,  we can always walk away from not investing; We should only invest in whatever we calculate has a compelling value. On the SGX, many companies are in the O& G and support related space and many are now suffering from the down cycle of o&g (learnt the hard way from my investment in Penguin). Furthermore, good companies in other sectors such as QAF/Raffles Medical are already stuck at high multiples. And economy wise, govt infrastructural spending is propping up our growth

Guess walking away from investing is probably good for now. After all, we wont get fired by retailers for not investing money at all. The issue is seeking decent returns for spare cash

Here is a pretty good summary of what our economy faces:

http://www.todayonline.com/singapore/out...oonwalks-0

[BlueKelah]

Never never admit one is doing well.

Dont worry about me, Out of 1000 listed companies i study i will probably go into greater detail and study a handful of them, paying greater attention on the industries I am familiar with. Out of the handful I will probably pick one(sometimes none). Out of that one I picked, I will determine what would be an appropriate price to pay. After the appropriate price is determined, sometimes I buy immediately if value is compelling, and accumulate along the way. If price is not ideal, will wait for months, years... I started about 2 decades back, have to admit, making money was easier then.

The point is, I am careful especially now when i am older. Cant afford to make major mistakes. And even from the greatest effort on my part, in some cases, things may not always turn out right.

Very good point by Big Toe. No deal can be a good deal.

As retail investors,  we can always walk away from not investing; We should only invest in whatever we calculate has a compelling value. On the SGX, many companies are in the O& G and support related space and many are now suffering from the down cycle of o&g (learnt the hard way from my investment in Penguin). Furthermore, good companies in other sectors such as QAF/Raffles Medical are already stuck at high multiples. And economy wise, govt infrastructural spending is propping up our growth

Guess walking away from investing is probably good for now. After all, we wont get fired by retailers for not investing money at all. The issue is seeking decent returns for spare cash

Here is a pretty good summary of what our economy faces:

http://www.todayonline.com/singapore/out...oonwalks-0

@Big Toe : Haha I used to be superstitious about not saying this and that. But experience shows me that luck doesn't follow what one says. More importantly when you are doing well you should share your ideas to benefit others. And conversely if doing badly, also share so that others dun have to make the same mistakes.

@CY09 : Arguably it does depend on strategy to say its good deal or not. For some who are building passive dividend income portfolios which depend on compounding, their preference may be to be fully vested rather than timing the market, in which case any time is a good deal.(My strategy does involve an element of timing so it will be a good deal so long as the STI corrects from current levels another 10% at least. Its never a good deal for me when the market is rising , I will be busy selling to those buyers who think its a good deal

IMHO recession is coming soon, watch the COE and Property prices. Kinda was wishing China would go to pieces first though...