Singapore Economic News

[Big Toe]

Admitting to whether one is doing well(or otherwise) has little to do with sharing.
In any case, the best ideas are usually ignored when shared.
The worst ideas are usually the most popular.

Also there are no perks or advantages to saying one doing well.

1. In real life/business, people who do well usually do not need to say it.
2. If one is doing well, many will try to copy, when there are copies and competition, one tend to do less well.
3. Doing well is relative, in terms of wealth and status, when compared to Warran buffett, mark zuckerberg, etc
most of us are nowhere near.
4. So a better measure of whether one is doing well is whether one is happy. Whether you enjoy your work/life.
5. There are some businesses and jobs that would instantly improve my financial position(which is less than ideal at the moment), but i struggled with myself to get on with those businesses and jobs. Committing a lot of my time to something that I dont look forward to is doing a disservice to oneself. If it is something one enjoy doing, chances are that one would fare much better.

But of course easier said than done, I have also seen people who think they like cafes and opened one, pouring in hundreds of thousands.
And it did not work out despite their best efforts. Most people under estimate the skills needed, the amount of work and level of difficulty in running a retail business.
But at least they tried , and there is no shame in trying and failing.

[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, 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

Hi Hyperion

You have been saying there is inverted yield curve cause you are basing on short term rates minus inflation and long term rates minus 3% assumed long term inflation?

If you look at the broad money measure of M3, it has been growing 10% since 2Q13 and thereafter to 0% 12 months later. We all know the macroprudential measure back then. It is now growing 6.2% in Aug16. Banks LD ratio is moving up from 80% last decade to 85-90%, but I wouldn't yet call it a crunch. I would be more worried on the composition of the loans that's driving the rise in loans. The flattest the yield curve had been past 10 years was end Dec 2006 where it was flat at 3%

I'm not sure Singapore liquidity is low. If we look at the Bloomberg- JPM Asian Currency index, SGD has appreciated more than the neighbours due mainly to CNY appreciation, which is also why I think SGD has room to depreciate. If MAS had been aggressively appreciating the SGD against NEER then SGD interest rate would rise and liquidity tightened but SIBOR 3 months has been low at 0.4% until it started to factor in Fed rate hike in 2015. The higher interest rate is inline with the Fed and not self-induced.

Thailand inflation has been moving down since the junta took over and hovering less than 1% since 2015. There are sociopolitical reasons for Thailand but also risk perception adjustments for ASEAN markets due to the lower than expected US rate hikes.

Singapore is a canary in the coal mine due to our sensitivity to global and regional trade flows. Thailand and other ASEAN countries will feel the impact in 2017. I think the ASEAN markets will not be spared but I only see a cyclical recession coming and not AFC by any measure. The practical application is actually that this is one of the few instances which I think Asset Allocation will make a big difference in investment returns. Personally I think post Clinton win will be a good time to adjust investment and for those who believe in fully-invested-no-matter-what, it will be an interesting experience vs what we learn in textbooks.

[laowangnextdoor]

doomed ?


Sent from my iPhone using Tapatalk

[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

Hi Hyperion

You have been saying there is inverted yield curve cause you are basing on short term rates minus inflation and long term rates minus 3% assumed long term inflation?

If you look at the broad money measure of M3, it has been growing 10% since 2Q13 and thereafter to 0% 12 months later. We all know the macroprudential measure back then. It is now growing 6.2% in Aug16. Banks LD ratio is moving up from 80% last decade to 85-90%, but I wouldn't yet call it a crunch. I would be more worried on the composition of the loans that's driving the rise in loans. The flattest the yield curve had been past 10 years was end Dec 2006 where it was flat at 3%

I'm not sure Singapore liquidity is low. If we look at the Bloomberg- JPM Asian Currency index, SGD has appreciated more than the neighbours due mainly to CNY appreciation, which is also why I think SGD has room to depreciate. If MAS had been aggressively appreciating the SGD against NEER then SGD interest rate would rise and liquidity tightened but SIBOR 3 months has been low at 0.4% until it started to factor in Fed rate hike in 2015. The higher interest rate is inline with the Fed and not self-induced.

Thailand inflation has been moving down since the junta took over and hovering less than 1% since 2015. There are sociopolitical reasons for Thailand but also risk perception adjustments for ASEAN markets due to the lower than expected US rate hikes.

Singapore is a canary in the coal mine due to our sensitivity to global and regional trade flows. Thailand and other ASEAN countries will feel the impact in 2017. I think the ASEAN markets will not be spared but I only see a cyclical recession coming and not AFC by any measure. The practical application is actually that this is one of the few instances which I think Asset Allocation will make a big difference in investment returns. Personally I think post Clinton win will be a good time to adjust investment and for those who believe in fully-invested-no-matter-what, it will be an interesting experience vs what we learn in textbooks.

Hi Specuvestor,

Thanks for your comments.

Yes. Inverted yield curve is based on short term rates minus inflation. Since inflation is negative (or rather deflation), it makes the short term rates higher. Also, the assumption here is that the long term inflation is 3%.

It is likely that stronger SGD has caused a crunch as the yield curve is inverted since deflation begins. The interesting part about this idea is that it is against the conventional model that nominal interest will increase if SGD becomes stronger. Instead, the model is predicting that when SGD strengthens only REAL interest rate will increase and since nominal is low, you will see deflation as a side effect.

It is likely that there is a liquidity crunch as more companies are defaulting now and unemployment seems to be on a rise. Also, this theory was posted before any defaults were observe or unemployment observe in later part of 2016. So there is some predictive power to warrant further consideration.

Thailand experienced deflation almost the same time Singapore experienced deflation. Subsequently in April 2016, Thailand has experience inflation and in next few months the stock market recovered as liquidity returned. 

Yes, Tree notes that the 3 local banks have been reporting LD ratio below 100%. However, as a whole the local domestic banking unit has LD ratios above 100%. The statistics can be calculated from MAS website. The link below in 2014 also substantiates:
http://business.asiaone.com/news/red-fla...s-deposits

The data is interesting because there are two possible interpretations:
1. Local banks' are too conservative and should lend more now since it is a good opportunity to earn interest.
2. Local banks' accounting of loans is funny because it does not match the whole industry. So the banks LD ratios are not as reliable.

Some events recently backs up point 2. Recent comments by DBS CEO seems overconfident. In Feb-March 2016, he said that no O&G problem. Suddenly next few months DBS was hit by Swiber. While Swiber is a small percentage of the loan book, his response was that DBS will not stop lending to a customer and that no one could know before hand they will default. Given the liabilities at Swiber, it is clear that it will be in trouble so his response is interesting. Secondly, would you not wonder why he choose to continue lending, throwing good money after bad? Are there more cases like this? Is the LD ratio reliable? Only time will tell.

Also, news of OCBC looking to sell United Engineers, during this period, is concerning because the price they will get for UE may not be as good. So why do they want to sell now? Do they have enough liquidity? Again, only time will tell.

Tree likes to point out it is still an experimental theory so if it works, the above predictions (SGD depreciates causes economy recover and STI runs) will come true and then probably it should only then be taken seriously. Further, if it works, you won't see ASEAN crisis because the managed SGD NEER is obfuscating the signal and only Singapore has liquidity crisis. In some way, Thailand and Indonesia is recovering strongly to suggests that there is no ASEAN crisis. Let's see which prediction comes true after 2017, 1)ASEAN crisis and Singapore as canary, or 2)Singapore not a canary, and no ASEAN Crisis. Tree's money is on Singapore not a canary and no ASEAN Crisis.

Let me know what you think?

Thank you.

Hyperion & Tree

[specuvestor]

Hi Hyperion

1) by assuming 3% long term inflation, you are not a believer in the New Normal then

2) SGD strengthens or weakens should be based on NEER and not USD per se. MAS tried to strengthened SGD to tighten liquidity but failed and hot money continued to come in when US lost AAA status. CHF was also massively pressured to appreciate. Fact that SGD was not forced to do a binary appreciation like the CHF is testament of our monetary policy and non-internationalisation. It was macro prudential measures that capped the SGD asset appreciation. Compare that with HK now, albeit in a currency board regime, and see if a strengthening HKD is USD dampened the property market there

3) what it means in the July 2014 article is that foreign banks DBU LD ratio is more than 100% which is not surprising. They are always short of SGD. what is surprising is the decline in SGD deposit which corresponds to the M3 growth going zero I mentioned above. It was also a function of US interest rate expectations cause bond prices peaked around then as well

4) OCBC has been restructuring since selling FNN. I have stated my piece on the DBS thread. Liquidity is not the same thing as confidence / credit. You can have cheap credit but no confidence in the corporates. That's what happened during the initial stages of US and EU QE which the lending mechanism broke down because banks were unwilling to lend but shove all the liquidity into central bank reserves

5) my prediction is neither the above. There will be a cyclical ASEAN recession and Singapore is leading the charge. Recession as defined by 2 quarters of negative QoQ growth. There is no ASEAN or liquidity crisis even with Brexit which I already think the markets are underestimating

Thanks for sharing your thoughts

[Porkbelly]

".....But analysis also showed that "three-fifths of the effects" from these moves have yet to be transmitted through to the economy.

"Thus, the cumulative effects of these policy adjustments will continue to provide some support to GDP (gross domestic product) growth and ensure price stability over the medium term," said MAS.

http://www.businesstimes.com.sg/governme...-up-growth

No visible signs yet.

[cfa]

Most are aware the real business conditions are very bad, many SMEs are struggling to keep themselves afloat . O & G related have to go thru consolidation or perish in no time .

[Art or Science]

No significant pick-up in Singapore's GDP growth in near term: MAS

http://www.channelnewsasia.com/news/sing...33094.html

[soros]

I was wondering if the Indonesian Tax Amnesty Law has transferred the "free capital" invested in the Singapore economy back to Indonesia ?

http://www.conventuslaw.com/report/what-...esian-tax/

[corydorus]

What I understand due to the Amnesty, all the ill gotten wealth also become legitimate ... if so ... it really set a precedence of corruption ?