Wither Singapore

Illustration 1: S’pore Outstanding Car loans (monthly) 2004 to present …  why the 10% spike in 2012 after years of decline?


You lose respect for money once you decide to buy a car in Singapore.  US$120,000 gets you a regular Toyota Corolla Altis (made in Thailand) without any frills and zero fancy options loaded.  Governments around the world normally impose taxes on cars, alcohol and tobacco as good tax revenue sources, but Singapore is the only country in the world with its Certificate of Entitlement (http://en.wikipedia.org/wiki/Certificate_of_Entitlement), “COE” scheme that together with high taxes on cars’ values drive the final purchase prices to insane levels.

This opinion piece on the markets (*Asianmacro only shares view points on the markets and on potential trades to make money) is not meant to be a rant nor discourse on the poorly designed COE scheme and the lack of foresight of the Singapore authorities in concorting a deadly cocktail of low interest rates, curtailed supply of COE and permitting close to 100% LTV vehicle financing by financial institutions; coupled with a public transportation system of subway and buses that had been strained beyond its original capacity with frequent catastrophic breakdowns (http://blogs.wsj.com/searealtime/2011/12/16/singapore-subway-breakdowns-raise-ire/).  This resulted in critical transportation chokes due to the ”hub and spoke” public transport model whereby different nodes cannot bypass and get to another node if there is any failure along key routes which drove people to aspire to private modes of transportation, i.e. car ownership.

From illustration 1 above, the important thing to note is outstanding car loans had been falling since 2004 ($12.7 billion) to 2011 ($11.4 billion).  This is despite the motor vehicle stock rising from around 400,000 to 600,000 in the same period.  Interestingly, there was a big 10% spike higher within a year, 2012 to bring the outstanding car loans almost back to the highs of 2004 at $12.5 billion (http://sg.finance.yahoo.com/news/car-loan-amounts-hit-10-041956137.html).

You may analyse this whichever way you want, the fact remains that people have to lever up more to maintain the same lifestyle ceteris paribas, everything else remains constant, as car prices have doubled from 2011 to 2012.

Illustration 2: Dramatic 100% rise in outstanding Hire purchase loans within 1 year from 2011 onwards


Hire purchase (HP) loans refer to loans usually taken from finance companies and small financial institutions or in-house financing arms of retail stores in Singapore for household white-goods items to lifestyle products like furniture to computers and audio-visual / entertainment systems.  Interest rates can border on usury and consumers who rely on HP usually do not have stable income but aspire to a certain lifestyle that they can barely afford bar the minimum monthly payment that they must make to service that loan.  From illustration 2 above, outstanding HP loans had fallen from ~ $280 million in 2008 to around ~ $120 million in 2011.  This probably can be due to the financial crisis onset in 2008 that saw everybody cutting back consumption to the bare minimum.  Did the economy grow so quickly with positive income effects that HP loans spiked almost 100% within 1 – year from 2011 to reach $210 million by end-2012? We can only speculate that the rampant inflation and exorbitant living costs could have nudged people into HP loans just to maintain the same level of lifestyle as before.

Every statistic, data, figures on the Singapore economy and country do not look promising.  The Monetary Authority of Singapore (MAS) will be having its semi-annual policy meeting shortly in mid-April 2013.  {http://www.mas.gov.sg/~/media/manual%20migration/Monographs/exchangePolicy.pdf}.  MAS like Singapore is like an old dog with no new tricks.  This FX policy is a historical relic from couple of decades ago when inflation was mostly imported and not the domestic driven inflation that is rampant now due to many government policies that resulted in them.  If we see MAS continuing on a strong SGD policy still, then Wither Singapore.  If MAS reverse its strong SGD policy of many years, it will be monumental and sell SGD till the cows come home !

*Asianmacro is a beach bum managing his own wealth.  Besides deciding what to have for lunch (or hitting the gym sometimes), he is mostly found listening to loud music while trading and investing for himself.  While every care has been taken in preparing the information in and/or materials, such information and materials are provided “as is” without warranty of any kind, either express or  implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials. The opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. In no event will Asianmacro be liable to you for any direct or indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached herewith.  Asianmacro may already have or intend to have a trading or investment position in the financial instruments or products referred to in this communication.  This is not intended as an offer or solicitation for the purchase or sale of any financial instrument and Asianmacro may also have interests different from or adverse to your interests.