Singapore Outlook 2014 : Back To School

I decided not to do my usual elaborate stats for my outlook this time.

My style is to do up the tables of past year market performance as the starting point, giving myself the necessary perspective to make my decisions for the year ahead.

Yet this year, it struck me that statistics would be redundant on a different stage. For over 5 years of QE is coming to an end and using an obsolete template to project the future could result in making potential delusionary  assumptions.

Yesterday happened to be the first day of school for the kid and off we went this morning. Parents were not allowed because he will be turning into a teen this year. And its back to school for him as a junior after graduating from primary school.

My radical view is that it will be back to school for Singapore in 2014. Back to the drawing board after many good years with the economy heading into the maturity plateau, abound with structural changes. I believe that a predilection to assume policy status quo and stick to old habits would be slightly naive.

Unfortunately, that is all we have been and will be reading about. I am no economist nor strategist yet I realise that reports continue to be complacently singing the same old tune that things are good.


2013 has been a pretty heavy on the regulation front, on top of the market rigging scandals which have vanished without a trace after the penalties, ban on online chats and a new fixing regime. And Dodd Frank has made every single Thai and Vietnamese bank realise how inadequate they are and rushing to hire Singaporeans to fix their “__” (fill in the blanks) systems.

For the retail side, a plethora of loan curbs that bigger companies are exempted from which led to a flood of high risk bond issues. That looks like a Catch 22 if you ask me, retail savers denied loans which allows them to save for them to invest in corporates borrowing to their hilt ?

Penny stocks went for a joyride to be followed by freefall led by a consortium of related companies. It does pay to stay out of the radar for the rest of the field and a lesson to be learnt in managing stock prices better for without attracting too much attention against the temptation of an instant windfall. Free markets anyone ?

And yes, I lied. I did do up the tables because I cannot live without them.

Year In Review

* denotes the auction cut off yield for new issues auctioned in the quarter.

Not a pretty picture for the bonds after historical lows in yields were set in 2012. Yet SGS performed decently for the year with even an initial attempt to rally in the early part before the meltdown in the 4th quarter.
Losses were limited overall on supply constraints as the banks hogged the short ends whilst the long ends were supported by insurers heading into the new risk-based capital framework.

Table : Outstanding Singapore Government Securities
SGS 2013

Auctions not such a sure thing this year. 06/2021 SGS turned out to be the second worst performing bond on the year for its yield level which is stuck in the middle of nowhere and thus, exuding little appeal in its dump fest before the auction and again in the final quarter of the year.

Table : SGS Auctions for 2013

auction 2013INTEREST RATES

One look at the 1Y interest rates and with property curbs in mind, we can guess it is an attempt to cushion.
Sometime in March, MAS released a monograph on monetary policy operations and it would appear that rates may not correlate with the currency which is disruptive analytically.
Thus the curve went off on its own tangent, half decided between taking the cue from US and developed markets whilst being affected by the EM crisis, making it a tough nut to crack.

Table : Singapore Interest Rate Changes For 2013



It’s biggest yearly decline in over a decade, losing over 3% against the USD.

Graph : 5Y USDSGD price



SGD weakened against the 2 main currencies of her NEER basket, namely, the EUR and the USD which is made up for by the rest with the exception of CNY, GBP, KRW and CHF.

Table : SGD vs its assumed NEER basket

sgd neer


Yawn. Not rocking the boat.

Table : Monetary Policy Statements over time



Into negative zone but not a worry. One major rig order and the numbers will be straightened even as China surpasses Singapore in rig building orders.

Graph : GDP QoQ



Complacently healthy lest we forget the casino effect in 2009/2010.

Graph : GDP YoY



Banking and financial services still winning the game. The trading hub business is making a come back amidst the regional uncertainties and Singapore is fighting hard for a share of the regional commodity business, setting a record for iron ore clearing besides its stranglehold on rubber.

Graph : GDP breakdown by sector



I do not why people bother to pay attention to CPI numbers when local coffeeshop prices are up >10% and the world has moved on to the “chained CPI” (moving down the foodchain = eat dogfood if burgers are too expensive) logic. After attempting to read a little on the various CPI numbers around the world, I realise that the concept of CPI does not really exist with every country on a different CPI platform.
But that is what most regulators insist on basing their policies upon and so Singapore looks pretty contained and cannot be otherwise because CPI is falling everywhere else in the world (except India and gang).

Graph : Core CPI


CPI Year on Year

Graph : CPI YoY


There we almost have it all.

2014 : Back To School

It is a fresh year for a fresh start. Singapore shall be the tumbleweed in the wind, buffeted about by the regional election uncertainties and the global developed markets nurse back to health. In-house, Singapore continues her fierce housekeeping on all fronts from education to labour to healthcare to housing and transport. Will we have a surprise for the financial sector ?

Almost like going back to school, the learning curve will be a sharp and steep one in times when no mistakes will tolerated unless you have a powerful central bank.

I am expecting the SGD to remain strong against the regionals especially the 3 Asian countries going for elections – Thailand, India and Indonesia, until they emerge ala Malaysia style last year with aplomb.

The odds of a recession remain low but it is impossible to see capital spending taking off with the risks of China, Japan and Europe derailing. Europe is the most underestimated risk after its stupendous performance last year but political divisions could potentially emerge. Japan is already hailed as a failure but her stock market keeps hopes up yet they only can print but cannot hide. Singapore is at risk for her dependency on global economies with her saving grace as a banking centre for the world’s richest.

Therefore my radical view, for the readers who have stuck through my ramblings till now, is for a mean reversion to the 6 year average for the USDSGD (1.33, 6 year average, current 1.2713), the STI (2,848, 6 year average, current 3,145), bonds(10Y SGS 2.18% average, current 2.56%) and most interest rates, leaving out real estate (because it is a sensitive issue).

A not so confident and shaky view is for the short term rates to remain suppressed for the first quarter, at least or even longer, despite MAS’s warning in Nov that rates cannot stay low for too long. The main beneficiaries will be the existing loans pegged to floating but immediate beneficiaries will be for new high risk bond issuers. (My opinion is that we will  have a default/debt restructuring this year to spook the markets.)

For the SGS market, I made some comments on the auction calendar last year and my views hold – it will be a bond friendly year.

A minor risk would be for the authorities to allow for a real estate market correction, then all bets are off. It cannot be written off because the bitter pill is best taken in between elections and not before or shortly after. The other risk would be a potential monetary policy overhaul or re-direction but I rate that chance as almost non existent.

The primary justification is embarassingly simplistic – that all things revert to mean. I used the 6 year time frame because it encompasses the few months pre-Lehman. Economic growth is not booming in the face of further tapering looking rather more like a spluttering start, if anything, BUT it SHALL NOT stall by the wills of every single global leader, their gods and central bankers. Regulatory changes will hit with Basel 3  and its equivalents looming, risk based capital structures, Dodd Frank and the ECB audit of banks, amongst other supervisory measures, thus providing support for high quality sovereign bonds.

Revisit the mean or, back to school or, chickens will go home to roost or, if we want, nothing lasts forever, it is my whacky call for the year.

Good luck !

Ps : Economists are forbidden to comment !