Question Mark – Singapore, An EM ?

”     Sept. 2 (Bloomberg) — Singapore stocks tumbled by the most
among developed markets last month as investors pulled cash from
Southeast Asia on concern about the future of global stimulus.”

Caught between a rock and a hard place, Singapore’s market has suffered along with the rest of the region since 22 May, underperforming her 1st world counterparts. If I were an outsider, it would quite easy to be perplexed by what has happened to this AAA rated state that ranks alongside the global big wigs in her state of the art economy.


Singapore bonds are ugly too.

Random list of 10Y yields

UNITED STATES 2.8281              2.04           0.79
CANADA 2.616              1.97           0.65
MEXICO 6.434              4.96           1.48
POLAND 4.548              3.30           1.25
UNITED KINGDOM 2.857              1.90           0.95
GERMANY 1.91              1.43           0.48
SWITZERLAND 1.082              0.65           0.44
NORWAY 3.085              2.19           0.90
AUSTRALIA 3.993              3.27           0.73
INDONESIA 8.515              5.70           2.81
THAILAND 4.268              3.30           0.97
SINGAPORE 2.68              1.56           1.12
MALAYSIA 3.89              3.13           0.76

Perhaps it is easier to forget the ratings and group everything into one. All for one and one for all ! The reason being……

“The Chiang Mai Initiative Multilateralization (CMIM) Agreement.

The CMIM become effective on 24 March 2010. The history behind its inception I find fascinating.
The Finance Ministers and Central Bank Governors of ASEAN plus China, Japan and Korea and the HKMA announced the signing of the Chiang Mai Initiative Multilateralization (CMIM) Agreement where the core objectives of the CMIM are to address balance-of-payments and short-term liquidity difficulties in the region and to supplement the existing international financial arrangements.
The CMIM started with a total size of USD 120,000,000,000 which will provide financial support through currency swap transactions to the CMIM participants facing balance-of-payments and short-term liquidity difficulties. Each CMIM participant is entitled, in accordance with procedures and conditions set out in the Agreement, to swap its local currency for USD.
This web link  summarizes clearly the CMIM agenda which is a key extension to the CMI :” Taken from BOA

All in the same boat.

My personal take is that Singapore stands out from an investment perspective. When the going is good, Singapore takes on double dose as its currency strength draws investors along with its economic growth story. When the going gets tough, it is double whammy because the currency story is gone and growth is gone. Pretty much the same as the rest of EM.

“We don’t see a lot of catalyst for the market to recover
at this stage,” Daphne Roth, Singapore-based head of Asian
equity research at ABN Amro Private Banking, which oversees
about $207 billion, said in a telephone interview on Aug. 26.
“As investors start to price in rising interest rates,
Singapore’s high-yield REITs become less attractive.”

“Singapore is getting hit from two sides,” Nader Naeimi,
Sydney-based head of dynamic asset allocation at AMP Capital
Investors Ltd., which manages more than $130 billion, said in a
telephone interview on Aug. 23. “Firstly, it’s being lumped
together with other Southeast Asian markets like Indonesia and
the Philippines. Secondly, investors are selling high-yield
Singapore REITs as bond yields are rising.” Source : Bloomberg

In the context of the EM crisis.

“A step toward normalization of interest-rate spreads – which quantitative easing has made exaggeratedly low – should not be cause for panic. The fallback in bond prices does not yet portend a repeat of the Latin American debt crisis of the 1980’s or the Asian financial crisis of the late 1990’s. Indeed, some emerging markets – for example, Colombia – had been issuing public debt at record-low interest-rate spreads over US treasuries. Their finance ministers, while euphoric at their countries’ record-low borrowing costs, must have understood that it might not last.

… there is ample reason for concern. For one thing, it is folly to think that more local-currency debt eliminates the possibility of a financial crisis. The fact that countries can resort to double-digit inflation rates and print their way out of a debt crisis is hardly reassuring. Decades of financial-market deepening would be undone, banks would fail, the poor would suffer disproportionately, and growth would falter.”Source : Ken Rogoff, Project Syndicate

As far as I can see, Singapore has been lumped in with the rest, the USDSGD has room to still head higher and equities to come off lower as the month wears on even if we get a brief respite this week. We have turned the corner and the macro themes are in place, no excuses left.


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