November 26, 2014

The main buzz in Singapore would be the Sentosa Cove condos going at S$3 million dollar losses as reported in the Straits Times. This comes shortly after Finance Minister Tharman Shanmugaratnam opined in October that “prices were not at meaningful correction” yet.

So is it any wonder that Singaporeans added only 40 ultra high net worth individuals this year? A rate much slower than her peers in the region.

Given this diversion, no one is paying much attention to Singapore’s astounding GDP numbers that came out today led by the manufacturing sector. GDP grew by 3.1% for the 3rd quarter over previous one, much higher than the estimate of 1.2% that economists were predicting.

It is a mixed bag going forward into 2015 as Goldman Sachs cut Singapore stocks to underweight yesterday but Nomura foresees a 15% rise in Asian stocks for next year, with an overweight emphasis on Singapore, Taiwan, India and Korea.

The fear on the street remains the big question mark on OIL and Singapore markets are reeling from the effect of the OW Bunker bankruptcy that has led to some mad scrambling onshore for bunker fuel causing heavily distorted prices and O&G stocks to tumble, the latest being the downgrade of Sembcorp Marine by Kim Eng. We should know by Thursday after the widely anticipated OPEC meeting whether commodities will see some support; however, market expectations are highly pessimistic for any production cuts out of the Middle East.

Whilst lower prices are good for GDP, given that the world spends an average of 5% of their GDP on crude imports, and a 25% drop in prices would add, on average 0.5-1% to GDP. Yet, negative inflation does not go down well for global economies and the Bank of Japan (BOJ) will throw a fit if they do not achieve their 2% target soon.

This really means that with the BOJ and European Central Bank (ECB) on full-scale monetisation, the world is really short of assets to buy and the investment-grade bond market is the best display of that phenomenon as we see names like Alibaba hit the USD bond market with ease.

Sovereigns and state-owned names are also having an easier time than junk credits in bond space with countries like Pakistan, Ethiopia and Kenya tapping bond markets even as markets run out of bids for battered O&G names that Reuters saw noteworthy of mentioning for the case of Singapore, where names like Swiber are seeing a loss of bids less than a month after their last new issue.

What does the oil and gas scene have to do with the Singapore property and shipping for that matter? I think we are currently immersed in a period of consolidation for these industries that have undergone 2-3 years of over investment. An example cited by an oil and gas company, that may be launching their IPO in 2015, is that many of the industry participants have over extended themselves in recent years to order state-of-the-art equipment that is currently generating mediocre returns. Deep-water rigs deployed for use in mid-water drilling do not make economic sense, but companies are desperate to cover cash flows instead of making returns.

The same scenario can be applied to dry bulk shipping where many a ship order will be completed in the next 18 months. Overcapacity is not a problem, strangely, in a world of crashing commodities; tankers and ships are being used for storage of oil and iron ore, floating around out there waiting for higher bids.

Besides OPEC and Sentosa condos going into price wars, the CEO of Maersk has come out to warn of price-cutting activity in the container shipping line with 10 of their 13 rivals running at margin losses but desperate to keep the cash flow going.

I am wary of the repercussions over the next 6 months, as we can be sure that oil investments and ship orders will slow which means we have quite a few companies on SGX that will be issuing profit warnings – especially from companies that are reliant on the ancillary businesses of big oil and shipping.

China’s rate cut did much to shore up Chinese developers and risk assets such as commodities, where we saw the Gold-Platinum spread widen back out to $25 before coming off today.

The fate of Gold hinges on the Swiss gold referendum coming up this Sunday where the nation will vote whether the Swiss National Bank (SNB) should hold more gold as a percentage of their reserves.

There are too many schools of thought on that matter which would put the SNB at odds with the monetising policies of the ECB, BOJ and, until last month, the Fed. It would be highly disruptive for markets if that should happen as the regional Asian central banks are getting ready to pursue easing policies in line with China.

Singapore stands out in their stance that the current monetary policy is appropriate, as Assistant MD of the Monetary Authority of Singapore, Edward Robinson, reiterated today, even as the inflation plunges to a 5-year low in October.

Whilst that should mean that the SGD would continue on its annual path of appreciation, the markets cannot resist the temptation of running the SGD carry trade – to borrow the SGD as funding against higher yielding currencies like the IDR and MYR, countries that are showing more promising signs of growth.

On that note, it is reported today that GIC is investing S$500 million into Indonesian properties and Temasek buying an 8% stake of Indian hair care company, Bajaj.

Finally, it is Thanksgiving holiday this Thursday in the US (same day as OPEC) and the week ahead is littered with several central bank speeches and big economic data that should keep us all on edge in forex markets.  For shoppers, this is a reminder of Black Friday sales and the bargains on those designer bags and shoes.

It’s been 10 days since USD/SGD broke the fateful 1.30 mark and we are holding 1.3030 for dear life. Charts show that the next leg up should be the 1.3150 mark, which I believe is contingent on the USD/JPY and whether we shall see 120 in the days ahead.

That may prove more elusive than we think with BOJ Governor Kuroda in the news saying that the central bank is not targeting forex rates, and Finance Minister Aso warning on the pace of the yen’s decline last Friday.

With more warnings of more polar vortex snowfall in the US for Thanksgiving, worsening riots in Ferguson and of course, the OPEC meeting, Singaporeans can hang on tight to those GDP numbers, surf the net this Friday for Black Friday sales, and see if those condos manage to sell.