The Singapore Deflation No One Is Talking About

Singapore experienced deflation for two straight months in November and December 2014, but worryingly, many Singaporeans seem unconcerned with this development. Here’s why you should keep a careful eye on Singapore deflation.

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When the Department of Statistics released Singapore’s November consumer price index two months ago, there was a mixture of concerned murmurs and expectant nods from many local economists. For the uninitiated, the consumer price index (CPI) measures the collective price of a variety of consumer goods and services in a country and is used by governments as a tool to measure price and inflation pressures.

For the first time in five years, the Singapore CPI for November dipped into the red (-0.3 percent), dragged down by private transport costs, petrol pump prices, and a softer housing rental market. However, if you removed the costs of private transport and accommodation, core inflation was at 1.5 percent, a 0.2 percent decline from the previous month.

The bleeding in November was stemmed slightly in December with the CPI rising slightly to -0.2 percent, but the negative numbers signalled yet another deflationary month for Singapore. Analysts were expecting these numbers mainly because of the global drop in oil prices and the Monetary Authority of Singapore has acted quickly, reducing the slope of its policy band to slow down the appreciation of the currency i.e. weakening the Singapore dollar against other currencies. This makes Singapore exports more attractive although it means that your overseas holidays will become more expensive. Still, the spectre of sustained Singapore deflation hangs ever-present, especially with the negative 2015 global economic outlook.

READ: A Year Ago, Pope Francis Condemned Capitalism

Why is Deflation Bad

Theoretically, falling prices sound wonderful for consumers since everything is cheaper and your dollar stretches further. While that’s true, deflation is bad for a country if it continues for a prolonged period of time.

When people expect falling prices, they become less willing to spend, which in turn means that they’re less willing to borrow. Taking up a loan means that you’ll be effectively paying more than the amount you borrowed, even though it is the same amount on paper. When no one is borrowing any money, the economy stagnates since there is no financial activity. Most people would rather put their paper cash in a tin as it provides guaranteed returns!

Japan is the most oft-quoted example of a country that has been grappling with chronic deflation for the past decade. At the beginning of the 1990s, the Japanese experienced inflated real estate and stock prices due to easy credit – banks in Japan lent money to anyone who came knocking. Due to this, inflation rose rapidly. In an attempt to keep speculation in check, the Japanese central bank raised interest rates. Prices crashed and have never recovered since then. Corporations, unable to sell their products and services, made cutbacks to their workforce while wages fell. As falling wages chased falling prices, Japan became stuck in a deflationary spiral. Even though the Japanese government has been running a fiscal deficit since 1991 to stimulate borrowing, the country’s economy is still stumbling over the financial obstacles and remnants kicked up by its financially wayward past. Today, Japan has one of the highest debt to GDP ratio in the world – 240 percent.

Why Singapore Is Safe (For Now)

At the moment, in Singapore, the deflationary pressure is mainly affecting goods and services that we don’t regularly consume. Everyday items such as food and groceries are still experiencing manageable inflation. Couple this with the tight labour market (Singapore’s unemployment came in at an admirable 1.9 percent in the third quarter of 2014) and the quick steps taken by MAS to combat global economic pressure mean that Singapore is still relatively safe from the gaping jaws of deflation that’s already biting on the heels of the Eurozone.

For 2015, MAS has forecasted core inflation, a usually better gauge for household expenses, to come in at between 0.5 and 1.5 percent and, for the first time since 2009, expects headline inflation to be between -0.5 and 0.5 percent.

The last time Singapore experienced deflation for six consecutive months, which occurred at the height of the global financial crisis, the country went into a recession. The similarities to the events happening around the world today are eerily similar to that tumultuous period.

The Eurozone is experiencing deflation on a widespread scale, one that economists had been expecting for a long time and that the European Central Bank had been prepared for – the bankers recently launched a quantitative easing programme, essentially injecting close to a trillion Euros into the monetary system in an attempt to stimulate demand. Only time will tell whether this controversial, last-ditch move will work. However, if this move fails to resuscitate a tottering patient on his last legs, then his collapse will trigger a tsunami across the world.

For our country to survive this possible impending financial storm, the key is in making sure that the Singaporean employee remains employable, competitive, affordable, and something that is rarely mentioned, happy. It’s a complicated and difficult equation that, honestly, is almost impossible to solve. And in our relentless push for employability, competitiveness and affordability, our happiness has been sacrificed by many cutthroat companies.

In the past, Singapore’s welcoming business environment was the cornerstone of our success. Companies and investors poured their money and time into our country, creating a lot of jobs for the labour market. For a long time, Singaporeans were happy, which contributed to our meteoric rise. However, our progress has slowed down due to a wide variety of factors and, in the process, our neighbouring countries are catching up quickly.

This is the new world we’re living in, and it’s time we face up to the harsh, uncomfortable reality –that we’re losing our edge.

READ: Singaporeans Are Unhappy and Poor. Why?

Deflation Affecting Investors and Non-investors

With all these information, it’s quite clear how Singapore deflation negatively affects not just the stock markets but everyday life in our country. Companies, both listed and non-listed, will start experiencing problems, which will cause panic in the markets. From then on, it’s only a matter of time before your charts resemble the outline of the Himalayan mountain range.

Is there anything that you can do if the deflationary trap gets its claws on the stock market?

If the case of Japan is anything to go by, the only thing you can do is to, well, pray.

When it comes to jobs, Singapore’s labour market, which is already experiencing heated competition from competitive neighbouring economics, cannot possibly withstand the body blows of deflation. Once again, when Japan was sucked into the deflation vortex, wages stagnated. To put things into perspective, real salaries in Japan fell 13 percent and economic output descended to levels that were last seen in the 80s.

The upcoming Singapore Budget 2015 will apparently address the concerns of mid-career, middle-aged Singaporeans “who want good, fulfilling careers”. Behind the scenes, we’re certain the collective heads of the different agencies have already anticipated and planned for the different possibilities and it seems that they’re trying to solve the happiness portion of the productivity equation as well.

In the meantime, keep an eye on the quiet Singapore deflation. It was the precursor to the previous recession and it might be signalling the next one to come.

4 February 2015

https://www.drwealth.com/2015/02/04/singapore-deflation-no-one-talking/?utm_medium=DISPLAY&utm_source=OUTBRAIN&utm_campaign=4C

Singapore Property Sector (REITS)

Singapore Medical Insurance Programme - MediShield

Reforming MediShield to be truly national ― Jeremy Lim

MARCH 27, 2013

MARCH 27 ― Every now and then, Singaporeans come across a media report of a medical bill in the hundreds of thousands of dollars, and everyone seems to know someone struggling financially after a prolonged illness.

In fact, the late Dr Balaji Sadasivan, previously a junior minister in the Health Ministry, while undergoing treatment for cancer commented: “Cancer treatment can be very, very expensive. This is something our health system will have to deal with. It is not surprising if some patients have to sell their house (sic).”

In dealing with the financials of catastrophic illness, Singaporeans are likely most concerned about two issues: The uncertainty of illness severity with an attendant massive hospital bill, and their share of the bill.

On the former, Health Minister Gan Kim Yong has correctly identified that expanding risk pooling is fundamental.

It does not make sense for every Singaporean to try and save for a hospitalisation episode that may never materialise (half of all heart-related deaths are sudden); and besides, most Singaporeans will never be able to save enough to pay fully for a complex and long-drawn illness.

MediShield is the bedrock insurance programme intended to protect against the financial consequences of medical catastrophes. It is the only health insurance scheme created by an Act of Parliament and must be national.

However, MediShield has three limitations that prevent it from being truly national: Exclusion of pre-existing conditions from coverage, non-eligibility upon reaching 90 years of age; and sharp premium increases with age.

How can we revamp MediShield to assure that it is truly inclusive or national and covers every Singaporean?

Three changes are worth exploring. Firstly, expand MediShield to include all Singaporeans regardless of age or pre-existing illnesses.

This is a monumental decision and truly fundamental as it reframes MediShield from being a scheme run on commercial principles (albeit as a non-profit scheme), to one that is founded on social principles.

The current premium calculations are in age bands, excluding Singaporeans with pre-existing illnesses. For a national programme, it is preferable to spread risk across all age groups and all risk groups.

This would result in younger and healthier policy holders paying more, but would prevent premiums for the elderly (who have healthcare bills four times larger than their younger counterparts) from skyrocketing — and, just as importantly, enabling those with prior cancer, heart disease and the like to have affordable insurance.

Secondly, ensure all Singaporeans can afford to pay the premiums. Premiums may still be higher for the very elderly or those with substantial pre-existing illnesses, and government funding for those who cannot afford to pay their own premiums has to come in.

Thirdly, limit the individual’s risk of medical bankruptcy by imposing a cap on what patients have to pay as their share of the total bill. How this quantum is worked out needs to be transparent, though.

The cap will need to be means-tested in keeping with the government’s philosophy of targeting subsidies, but patients need to know before the fact how the cap is determined and what they are expected to pay.

A point to note: Setting caps on what patients pay does not remove the financial risks in and of themselves. It just means someone else — in this case, the government — has to bear the risk. This will have downstream consequences: The government assuming the risks really means taxpayers carry the can.

Social activists advocating for “peace of mind” for all are really asking for the government to do more AND for taxpayers to fund these measures. Is this a price Singaporeans are prepared to pay for a better Singapore? I certainly hope so.

Minister Gan also highlighted the risks of over-servicing and over-consumption. These are genuine concerns. It would be naive to depend on the “nobility” of individual healthcare professionals who are paid at least in part on a “fee-for-service” model, and equally naive to expect patients to deliberately constrain themselves for the good of society.

What can be done then? Some suggestions build on self-regulation as a professional community, a privilege society extends to doctors.

The Singapore Medical Council is the watchdog for professional misconduct and egregious ethical breaches but what about overall clinical standards of practice? Singapore has a College of Family Physicians for general practitioners and family physicians, and an Academy of Medicine for specialists. These professional bodies can step up to the plate.

Developing clinical practice guidelines and coupling rigorous auditing processes to them to identify errant over-servicing doctors would be a good start.

The government’s electronic medical records system has been in the works for almost a decade now and when fully mature, can enable audits and recognition of negative outliers.

Public hospitals already have departmental structures where doctors in the same speciality peer-review each other’s cases, appropriateness of treatment and outcomes.

These could be built upon by government mandate enabling the college and academy to take these governance practices nationally.

Robust audits will be necessary to assure the government that risks of abuse of insurance schemes can be mitigated, and these can be built up progressively.

The challenges are formidable but the reward, a truly national MediShield makes it worthwhile.

On a trip to Taiwan last year, a young Taiwanese remarked to me: “The NHI (Taiwan’s National Health Insurance) makes me proud to be Taiwanese!” Years from now, what will Singaporeans say? ― Today

* Jeremy Lim has held senior executive positions in both the public and private healthcare sectors. He is writing a book on the Singapore health system.

http://www.themalaysianinsider.com/sideviews/article/reforming-medishield-to-be-truly-national-jeremy-lim/

Singapore to raise property tax rates for luxury homeowners

WRITTEN BY BLOOMBERG

TUESDAY, 26 FEBRUARY 2013 17:54

Singapore plans to raise taxes for luxury homeowners and investment properties, widening a four- year campaign to curb speculation after prices in Asia’s second- most expensive housing market rose to a record. The higher tax will apply to the top 1% of homeowners who live in their own residences, or 12,000 properties, Singapore Finance Minister Tharman Shanmugaratnam said in his budget speech yesterday, without giving a definition of what constitutes a high-end home. The government will also raise tax rates for vacant investment properties or those that are rented out, he said. Singapore joins Hong Kong in extending anti-speculation measures as low interest rates and capital inflows drive up demand and make housing unaffordable. Residential prices in Singapore climbed to a record in the fourth quarter as an increase in the number of millionaires drove up demand. “The graduated property tax on luxury properties may impact investors, particularly corporates and high-net-worth investors,” Petra Blazkova, head of CBRE Research for Singapore and Southeast Asia said in a statement. “It may put pressure on the holding cost of investment properties held by developers and investors.” The property index tracking 39 developers fell 1.2% to a one-month low at the close in Singapore. CapitaLand, Singapore’s biggest developer by assets, declined 1.5% to $3.86. City Developments, the second largest, slid 1.8% to $11.15. HONG KONG Singapore’s latest efforts were announced three days after Hong Kong increased property taxes. The Hong Kong government last week doubled sales taxes on property costing more than HK$2 million ($319,900) and targeted commercial real estate for the first time as bubble risks spread in the world’s most expensive place to buy an apartment. “The property tax is a wealth tax and is applied irrespective of whether lived in, vacant or rented out,” Shanmugaratnam said. “Those who live in the most expensive homes should pay more property tax than others.” For a condominium occupied by the owner in Singapore’s central region with an assessed annual rental value of $70,000, the tax will rise 5% to $2,780, according to the budget statement. If that home is rented out, the tax will climb 21% to $8,500, according to an example highlighted in the statement. Based on a 3% rental yield, that property is worth $2.3 million. Gains in levies for properties assessed at higher rental values will also increase at a faster pace, it said. For a house with an assessed rental value of S$150,000, worth $5 million based on the same yield assumption, the tax will rise 60% to $24,000. The revised taxes will take full effect from January 2015, according to the statement. Singapore is Asia’s most-expensive housing market after Hong Kong, according to a Knight Frank LLP and Citi Private Bank report released last year that compared 63 locations globally. http://www.theedgesingapore.com/the-daily-edge/business/42916-singapore-to-raise-property-tax-rates-for-luxury-homeowners-updated.html

My mission was to establish a clean government — Lee Kuan Yew

September 19, 2012

SEPT 19 — In a region where corruption is endemic, Singapore has remained clean. From 1959 when the PAP first formed the government, we have stamped out corruption. The challenge is to keep corruption free. We have to rid our society of greed, corruption and decadence. When I became Prime Minister in 1959, my mission was to establish a clean and efficient Government against the backdrop of a corruption-ridden region. We set up systems and processes to ensure that every dollar in revenue was properly accounted for: we sharpened the instruments that could prevent, detect and deter instances where discretionary powers could be abused. The Corrupt Practices Investigation Bureau (CPIB), which was under my care, has succeeded in keeping the country clean.

The CPIB was established by the British in 1952 to tackle the increasing corruption. However, little was done because the CPIB lacked the necessary resources and legal powers. When I took over in 1959, I strengthened the laws and the organisation of CPIB.

We tightened the law on corruption. Wealth disproportionate to a person’s earnings would serve as corroborative evidence when a person is charged for corruption. The CPIB was placed directly under the Prime Minister. And if the Prime Minister were to refuse giving his consent for the CPIB to make any inquiries or to carry out any investigations into any person including the Prime Minister himself, the Director CPIB can seek the concurrence of the President to carry on with the investigations. In other words, nobody is exempt.

Over the years, Singapore has established an effective anti-corruption framework. Leaders must be above suspicion. They must insist on the same high standards of probity of their fellow ministers and of the officials working for them. We do not tolerate corruption. CPIB has since developed a formidable reputation for its thorough and fearless investigations. The bureau has successfully dealt with a number of corrupt senior government officials including Ministers, Members of Parliament, senior civil servants and prominent businessmen. This is testament to CPIB’s independence. The bureau can discharge its duties in a swift and sure, but firm and fair manner.

The most dramatic case was that of Teh Cheang Wan, then minister for National Development. In November 1986, he was investigated by the CPIB for accepting two bribes totalling US$1 million (RM3 million). In one case, it was to allow a development company to retain part of its land, which had been earmarked for compulsory government acquisition, and in the other to assist a developer in the purchase of state land for private development. These bribes had taken place in 1981 and 1982. Teh denied receiving the money and tried to bargain with the senior assistant director of the CPIB for the case not to be pursued. He had offered to pay back SG$800,000 in exchange for immunity. The cabinet secretary reported this and said Teh had asked to see me. I replied that I could not until the investigations were over as I could become a witness. A week later, on the morning of December 15, 1986, my security officer reported that Teh had died and left me a letter:

Prime Minister,

I have been feeling very sad and depressed for the last two weeks. I feel responsible for the occurrence of this unfortunate incident and I feel I should accept full responsibility. As an honourable oriental gentleman, I feel it is only right that I should pay the highest penalty for my mistake.

Yours faithfully,

Teh Cheang Wan

CPIB has been and is a tenacious and effective instrument against corruption. The bureau and its officers have contributed to Singapore’s standing, giving confidence to investors that has led to our progress and prosperity. We must remain vigilant and ensure that Singapore continues to be regarded as one of the least corrupt nations in the world, with a clean public service and businesses that abhor corruption. — TR Emeritus

* Former Minister Mentor Lee Kuan Yew, who was Singapore’s first Prime Minister, wrote a preface for the Corrupt Practices Investigation Bureau 60th anniversary commemorative coffee table book.

http://www.themalaysianinsider.com/sideviews/article/my-mission-was-to-establish-a-clean-government-lee-kuan-yew/

Singapore becoming 'less attractive' for expats

Singapore becoming 'less attractive' for expats
Singapore’s reputation as a destination of choice for expats in Asia has been hit by a triple whammy this month

Singapore is now a more expensive destination for expats than Hong Kong Photo: E.J. Baumeister Jr. / Alamy

By Justin Harper

11:48AM GMT 12 Dec 2011

Two measures by the government last week have made the city less attractive to non-Singaporeans – the biggest being a 10 per cent hike in stamp duty for any foreigner wanting to buy property in the city.

Stamp duty was only three per cent at its highest rate, so this move is seen as a strong curb to discourage foreigners from buying homes in Singapore.

Foreign purchases made up 19 per cent of all private property transactions in the second half of 2011. This compares to just seven per cent for the first half of 2009. Low interest rates, political stability and a strong economy have all led to a surge in property investment from wealthy foreigners.

Ku Swee Yong, chief executive at Singapore-based estate agency International Property Advisor, worries that “we leave foreign investors with a bad taste in their mouths.” He said: “Many foreigners are here to work and settle their families down and they need to own one home for shelter over their heads."

Last week the government also scrapped a scheme that lets graduates of foreign universities stay in Singapore for one year while they look for work.

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The Manpower Ministry previously granted an employment pass eligibility certificate (Epec) to foreign university graduates in the hope to encourage high-calibre students to enter the labour force. But it said the scheme was not meeting its targets.

In the third setback for the city state, Singapore has also overtaken Hong Kong as the more expensive city for expats to live in – the first time this has happened in more than 10 years, according to the latest cost of living survey conducted by ECA International.

Within Asia, Singapore is now the sixth most expensive city to live in while Hong Kong has dropped to ninth. Tokyo is still the costliest location for expats.

George Hackford, a British expat who has lived in Singapore for more than five years, said: “From my point of view, I have seen 'real' inflation rise steeply in the past two or three years. This is mostly in the areas of luxury goods, which are often bought by expatriates.

"Rents have obviously increased substantially but so too have items such as alcohol, groceries and taxi fares. In general, prices of imported electrical goods such as computers and cameras have also inflated strongly. It seems to me that published inflation rates seem to be out of kilter with real prices.”

http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/8950483/Singapore-becoming-less-attractive-for-expats.html

Singapore eases monetary policy, warns of inflation

Posted on 14 October 2011 - 09:27am

Last updated on 14 October 2011 - 02:29pm

SINGAPORE (Oct 14, 2011): Singapore's central bank loosened monetary policy slightly on Friday in the face of global economic weakness but not as much as markets had expected, stressing inflation was expected to remain elevated in the near term.

The decision to allow the Singapore dollar to appreciate at a more modest pace sent the local currency up as much as 0.7% in early trade, and highlighted a policy dilemma for Asian central banks as they face both slowing growth and persistent price pressures.

"MAS will continue with the policy of a modest and gradual appreciation of the Singapore dollar NEER (nominal effective exchange rate) policy band in the period ahead," the Monetary Authority of Singapore (MAS) said in its half-yearly policy statement.

"However, given the expected moderation in core inflation, the slope of the policy band will be reduced, with no change to the width of the band and the level at which it is centred," MAS added.

The Singapore dollar traded around 1.2745 against the US dollar, up from 1.2770 just before the announcement and 1.285 earlier in the Asian day.

"MAS slightly surprised with a less bearish stance. The market expected more easing," said Goh Puay Yeong, Asia FX strategist at Credit Suisse in Singapore.

Singapore manages monetary policy by letting the local dollar rise or fall against a secret basket of currencies of its main trading partners to boost growth or control imported inflation. Its currency is the world's 12th most actively traded.

Growth trends in the highly open economy and its monetary settings are a bellwether not just for demand from developed markets but may also give hints on policy in China, whose managed float of the yuan is believed to be modelled on the Singapore dollar.

Chua Hak Bin, an economist at Bank of America Merrill Lynch, said the MAS statement suggested headline inflation will remain high at 5 percent or above in coming months.

"That is probably the reason why the MAS is probably a bit more constrained in easing to a neutral bias," he said.

MAS said in its policy statement that "headline inflation will be elevated for the rest of this year before easing, especially in the second half of 2012".

Singapore also reported on Friday that its economy grew 1.3% in the third quarter on a seasonally adjusted and annualised rate, beating forecasts for an expansion of 0.8%.

This meant the city-state narrowly avoided a recession as its economy had contracted a revised 6.3% in the second quarter.

However, third quarter growth was due primarily to a surge in biomedical production that more than offset the continued decline in electronics. On a sequential basis, Singapore's services industries contracted 0.7%.

Output from the biomedical sector can be highly volatile.

Singapore's decision to loosen policy follows numerous economists' downgrades of global growth forecasts for this year and 2012, and Indonesia's surprise decision earlier this week to cut interest rates by a quarter of a percentage point.

All 13 economists polled by Reuters before the policy statement had predicted Singapore would loosen policy in some way as global demand cools, although only one expected MAS to switch to a neutral currency bias.

Singapore slightly tightened policy in April by sanctioning an immediate rise in the value of its dollar, saying headline inflation will likely stay elevated. – Reuters

“Singapore Seen Overtaking Malaysia 45 Years After Lee’s Tears”

Don’t be a sore loser, Dr M — Lee Wei Lian
UPDATED @ 10:06:15 AM 12-11-2010 November 12, 2010

NOV 12 — Really Dr Mahathir? Really? Singapore will overtake Malaysia just because it focuses on economic growth and has no fair distribution of wealth between the races?

Tun Dr Mahathir Mohamad’s cringe-worthy response to news that Singapore is poised to surpass Malaysia and become Asean’s third-largest economy by the end of this year really makes him look like a sore loser who makes excuses and won’t own up to shortcomings.

“Singapore will overtake Malaysia because its focus is just on economic growth,” Dr Mahathir had told Bloomberg in a story headlined “Singapore Seen Overtaking Malaysia 45 Years After Lee’s Tears”.

“There is no social restructuring goal such as fair distribution of wealth between races as we have in Malaysia.”

Two things really bug me here — why didn’t Dr Mahathir acknowledge Singapore’s world-class policies many of which are worth emulating and why didn’t he do a post-mortem on his own as a leader who is accountable for Malaysia’s past performance that contributed to the present situation? After 22 years in power, he should be able to come up with a better reason of why Malaysia is getting its ass whooped by Singapore than “they don’t have fair distribution of wealth between races”.

World Bank figures show that in 1980, the year before Dr Mahathir came into power, Singapore’s economy was less than half the size of Malaysia’s — US$11.73 billion vs US$24.94 billion.

By the time it was mid-way through his administration though, Singapore — with less than one-quarter our population and with very limited land and no natural resources — had already reached a stunning 87 per cent of Malaysia’s economy in 1991 — US$43 billion vs US$49 billion.

In 2002, the year before he left office Singapore’s GDP was at 87 per cent that of Malaysia’s — US$88 billion vs US$101 billion.

The ringgit, meanwhile, did a backward somersault in its spectacular dive from near parity with the Singapore dollar in 1980. By 1991, one Singapore dollar bought RM1.50. And by 2002, one ringgit was worth only about 50 Singapore cents. So basically, our currency shrank to half the value of the Singapore dollar during Dr Mahathir’s time. But that’s because they don’t have “fair distribution of wealth between races” right?

The toxic rivalry Dr Mahathir feels with Singapore in general and its former PM Lee Kuan Yew in particular is well known. The Bloomberg headline encapsulates the situation near perfectly — “Singapore Seen Overtaking Malaysia 45 Years After Lee’s Tears”.

Given the economic evidence, saying Dr Mahathir lost does not even begin to describe it. In more adequate gamer parlance — he got pwned and made to look like a noob. But still, that’s no reason to give excuses.

There is a saying — there is none so blind as those who will not see. Being asked the reasons for tiny Singapore overtaking Malaysia and replying that they don’t have “fair distribution of wealth between races” just doesn’t cut it.

I only hope Datuk Seri Najib Razak is capable of a better response.

In the meantime Dr Mahathir, enough with the excuses and try not to be a sore loser.

* Petaling Jaya-born Lee Wei Lian is a senior writer with The Malaysian Insider.

http://www.themalaysianinsider.com/breakingviews/article/dont-be-a-sore-loser-dr-m-lee-wei-lian/

Singaporean Investor sentiment high

Oct 20, 2010
Investor sentiment high
By Aaron Low
About 52 per cent of respondents in the survey believed their share investments will rise, compared with 46 per cent three months ago. -- ST PHOTO: BRYAN VAN DER BEEK

INVESTORS in Singapore are betting that the red-hot stock market will keep rising but they believe prospects for the property market have dimmed, a new survey said.

It found also that overall investor sentiment, which has been positive for the past 18 months, rose by five per cent in the three months to Sept 30, compared with the previous quarter.

About two-thirds of respondents here said their investments had brought in positive returns while around 63 per cent expect a higher return in the next three months. Such a positive outlook has been fuelled mainly by the strength of the stock market, which recently hit a 29-month high.

About 52 per cent of respondents in the survey believed their share investments will rise, compared with 46 per cent three months ago.

The survey was done by financial services firm ING Group, polling 3,755 affluent investors across 12 Asia-Pacific countries, including China and Singapore.

Remisier Desmond Leong attributed the bullish sentiment to the psychological effect of watching the stock market's march upwards. 'You may have doubts initially about its rise but when you see the market moving up, you jump in too.'

http://www.straitstimes.com/BreakingNews/Singapore/Story/STIStory_592933.html

Singapore's surprise currency shift

Singapore's surprise currency shift
October 14, 2010 - 1:59PM

Singapore unexpectedly signaled it will allow faster currency gains to curb inflation even as the economy shrank, with slowing global growth hurting demand for drugs and electronics. The local dollar rose to a record.

The Monetary Authority of Singapore said today it will steepen and widen the currency's trading band while continuing to seek a ``modest and gradual appreciation.'' Gross domestic product shrank at a 19.8 per cent annual rate in the third quarter from the previous three months after climbing a revised 27.3 per cent in April to June, a separate report showed.

``The implication is that Singapore is less worried about growth and more worried about upside risks to inflation,'' said Robert Prior-Wandesforde, head of Southeast Asian economics at Credit Suisse Group AG in Singapore.

The decision follows pressure from the US and Europe on emerging-market nations to let their exchange rates appreciate to help rebalance demand in the global economy. It also comes as China, the country blamed by US Treasury Secretary Timothy F. Geithner this week for prompting other countries to restrain their currencies, starts allowing faster gains in the yuan.

Singapore's dependence on overseas trade, with non-oil exports equivalent to more than half of GDP, makes it vulnerable to swings in global growth.

Currency climbs

The island's currency rose 0.8 per cent to $S1.2932 per US dollar as of 10:37 a.m. local time. It earlier reached $S1.2893, the strongest since 1981 when Bloomberg began compiling the data, and has gained 8.4 per cent this year, making it the third-best performing currency in Asia excluding Japan. Today's climb of as much as 1.06 per cent was the biggest since June 21.

The Australian dollar was buying $S1.285 in recent trading.

Yuan forwards were near a two-year high today. Twelve-month non-deliverable forwards were at 6.4510 per US dollar, reflecting bets the currency will strengthen about 3.3 per cent from the spot rate over the next year, according to data compiled by Bloomberg. The forward contracts have risen 1.5 per cent this month.

The Monetary Authority of Singapore uses the currency rather than a benchmark interest rate as its main tool to manage inflation. All but one of 14 economists in a Bloomberg survey had expected the central bank to forgo a more aggressive strengthening in the Singapore dollar, a decision that may have helped support overseas sales by manufacturers including Hi-P International Ltd.

``Singapore is the most vulnerable Asian country to the slowdown in the global trade cycle,'' Prior-Wandesforde said. ``The widening of the band initially will be seen as hawkish but longer-term may actually be used in a more dovish direction as and when the economy slows quite sharply.''

Property curbs

At its April monetary policy review, Singapore's central bank said it would shift the local dollar to a stronger range to trade in and sought an appreciation thereafter, the first such combined move in its history.

Singapore in August announced measures to cool the property market, including increasing down payments for second mortgages and imposing a stamp duty on property held for less than three years to curb speculation.

``Domestic cost pressures are rising, given the high level of resource utilization in the economy and tight labor market in particular, as well as the diminishing boost from the cyclical uplift in productivity seen earlier this year,'' the central bank said today. ``The balance of risks is weighted towards inflation going forward.''

Korea holds

The steeper slope will allow a faster pace of appreciation while the wider band will address the increased volatility in the market, said Kit Wei Zheng, a Singapore-based economist at Citigroup Inc. He said today's policy change was ``effectively a form of monetary tightening and reflects concerns about domestic inflation.''

In contrast, the Bank of Korea left borrowing costs unchanged for a third straight month today as an appreciating won threatens export growth in Asia's fourth-largest economy.

Singapore's inflation accelerated to an 18-month high of 3.3 per cent in August. The central bank forecasts price gains may quicken to about 4 per cent by the end of 2010 and ``stay high'' in the first half of 2011, it said today.

The island's policy move contrasts with Asian nations from Thailand to Japan, which have taken steps in the past month to cool an appreciation in their currencies that is threatening exports. Japan intervened last month to ease gains in the yen and Thailand said this week it will remove a 15 per cent tax exemption for foreigners on income from domestic bonds, joining South Korea and Brazil in seeking to slow inflows as capital floods into emerging and Asian economies.

Singapore's GDP rose a record 18.3 per cent in the first half, the trade ministry said. Prime Minister Lee Hsien Loong has said the economy may ``moderate'' in the coming months, citing risks from Europe and the US

``Singapore is typically a bellwether for the region's export outlook and it is the first to show cracks as global growth slows,'' Alvin Liew, an economist at Standard Chartered Plc in Singapore, said before the report. Threats to Asian growth include ``the fading impact of stimulus packages, stubbornly high unemployment rates and austerity measures that are likely to crimp consumption in the West,'' he said.

Manufacturing cools

Singapore's economy grew 10.3 per cent in the third quarter from a year earlier, compared with a revised 19.6 per cent expansion in the previous three months, the government said. The median forecast in a Bloomberg News survey of 24 economists was for a 10.8 per cent gain. The 19.8 per cent annual rate of contraction last quarter from the previous three months compares with the median forecast for a 15.7 per cent decline among 19 economists surveyed.

Manufacturing, which accounts for about a quarter of Singapore's economy, climbed 12.1 per cent from a year earlier in the three months through September, after surging a revised 46.1 per cent in the second quarter.

The construction industry gained 6.7 per cent, while services grew 10.2 per cent. The city's two casino resorts run by Genting Singapore Plc and Las Vegas Sands Corp. have attracted millions to its gaming centers, while employment growth is boosting spending at malls and restaurants.

The government reiterated its prediction for GDP to rise 13 per cent to 15 per cent in 2010. That pace would put Singapore in the running to be the world's fastest-growing nation in 2010.

Bloomberg News

Singapore GDP expands at record pace

Singapore GDP expands at record pace
July 14, 2010 - 3:28PM

Singapore’s economy expanded at a record 18.1 per cent pace in the first half of the year, spurring the nation’s currency and adding to evidence of Asia’s resilience to the European crisis.

Gross domestic product expanded at a 26 per cent annual pace in the second quarter from the previous three months, after a revised 45.9 per cent gain in January to March, the trade ministry said today. Growth in the first half was the fastest pace since records began in 1975, prompting the government to predict GDP will rise 13 per cent to 15 per cent in 2010.

A year after Singapore exited its worst recession since independence in 1965, tourists are arriving in record numbers, companies have increased hiring and vessels are leaving the city’s ports carrying more cargo. The island’s strengthening economy has added to an Asian rebound that prompted central banks to raise interest rates in recent weeks, even amid concern that Europe’s fiscal woes will slow the global recovery.

''Singapore will be among the fastest-growing countries not just in Asia, but the world, this year,'' said Song Seng-Wun, a regional economist at CIMB Research Pte in Singapore. ''Price pressures are already evident and we expect the central bank to be watching if inflation expectations are raised because of these numbers.''

The nation’s growth has already prompted the central bank to allow the currency to strengthen to temper inflationary pressures. The Singapore dollar is used instead of interest rates to conduct monetary policy.

Currency gains

The island’s currency added 0.4 per cent to S$1.3761 per US dollar, bringing this quarter’s gain to 1.4 per cent. The benchmark Straits Times Index rose for a fifth day, climbing 0.7 per cent and is set for the highest close since April 30.

The cost of insuring Temasek Holdings Pte’s bonds from non- payment using credit-default swaps fell 4 basis points to 43 basis points, the lowest level since June 21, according to Royal Bank of Scotland and CMA prices. Temasek, a state investment company, is often used as a proxy for Singapore sovereign credit risk.

Growth last quarter was more than the median estimate for a 23 per cent increase in a Bloomberg News survey of 12 economists. Singapore’s full-year growth has not exceeded 13 per cent since 1972, when the economy was about a twelfth of last year’s size, according to the statistics department.

Significant momentum

Singapore’s growth suggests ''that the regional recovery retained significant momentum in recent months,'' Brian Jackson, a Hong Kong-based senior emerging markets strategist at Royal Bank of Canada, said in an e-mail after the GDP report. ''We continue to forecast further gradual policy normalization across the region over the rest of the year, including moderate appreciation in the Singapore dollar.''

Policy makers in neighboring Malaysia have raised interest rates three times this year, matching the number of increases by India’s central bank. In Taiwan, Governor Perng Fai-nan moved the key rate 12.5 basis points higher last month and the Bank of Korea unexpectedly increased its benchmark last week.

''With growth likely to remain above trend for the rest of the year, the Monetary Authority of Singapore may be inclined to maintain the policy of gradual appreciation at its October policy meeting,'' Wai Ho Leong, a regional economist at Barclays in Singapore, said in a note after the report. He raised Singapore’s 2010 growth forecast to 14.5 per cent and predicted the currency may climb to S$1.35 per US dollar in one year.

Slot machines

The two casinos run by Genting Singapore and Las Vegas Sands opened in February and April this year after Prime Minister Lee Hsien Loong’s government scrapped a four-decade ban to help double tourism revenue by 2015. The resorts have attracted millions of visitors to their slot machines and baccarat and roulette tables.

The economy grew 19.3 per cent in the second quarter from a year earlier, compared with the median estimate for a 17.3 per cent gain in a Bloomberg News survey.

''Growth in the trade-related sectors was bolstered by healthy global trade flows, while the openings of the integrated resorts and higher visitor arrival numbers contributed to the growth in the tourism-related sectors,'' the trade ministry said in a statement. ''The financial services sector also grew strongly, supported by increased foreign-exchange trading and domestic bank-lending activities.''

Austerity programs

Still, Singapore’s dependence on global trade may mean it’s unlikely to escape the impact of any renewed slowdown. Governments in Europe are embarking on austerity programs to cut budget deficits and households in some of the world’s largest economies are holding back spending, clouding the outlook for the rebound.

''In the European Union, domestic demand remains depressed as concerns over the sovereign-debt crisis persist,'' the trade ministry said. ''The implementation of fiscal austerity measures in some of the economies may further weaken their domestic demand. The weakening of the euro against key trading partners will also dampen import demand in the European Union.''

Signs of a slowdown in the US jobs market have affected consumer confidence, and ''sluggish final demand'' from the world’s largest economy as well as Europe has led to a moderation in manufacturing in Asia, the ministry said.

Singapore’s non-oil domestic exports will probably gain between 17 per cent and 19 per cent in 2010, from a previous projection of as much as 17 per cent, the trade promotion agency said today. Overseas shipments rose 28.7 per cent in June from a year earlier, after increasing a revised 24.3 per cent the month before, the government said.

Bloomberg