Singapore Equity and Bond Market Buzz and Round Up

All of a sudden, hope lives.

Blackstone buys up Sentosa, preparing to wait 5 years for their profits. 90% CDL’s South Beach development has been leased out and Oxley is going to Dublin to help them repay their bonds.

Hyflux, Swiber and gang all announcing contract wins. Mergers and takeovers are happening as Olam buys into cocoa.

And the STI will close the year higher after erasing its year to date gains mid last week.

From the 19th of Jan 2015, lot sizes for equities will be cut to 100 shares from 1,000 shares which means we shall see a lot more retail participation going ahead, which will be a good thing for all those companies that will be missing corporate governance adherence deadlines.

Not so much concerned about equities as much as we know that GDP growth does not look too promising, according the latest MAS survey of professional forecasters, we should worry about the recent run up in the USDSGD that is affecting short end rates in a big way, noting a new 4 year high in the 6M SOR fixing today at 0.69077%, breaking the last 2 year high of 0.68 back in 2012.

On that, we have a clean break in the 1 year interest rate, to levels not seen since 2010 at 0.735% and our 2 year rates have been holding above 1% for the past 2 sessions, also at a 4 year high. For that, we should not expect it to crash much lower.

 

Singapore is bucking the trend if we compare the 1 month changes with other countries.

Interest Rates Swaps for US, EU, Singapore, Malaysia and China

I am guessing that the move is a purely trading move that stems from growing market expectations that the MAS will be loosening “monetary” policy in the near future. Given that Singapore uses an exchange rate policy, the loosening would be in the form of weakening the SGD in its trade weighted basket.

The expectations of a weaker SGD would result in investors rushing to hedge in the SGD fwds which is the reason for the higher 6M SOR rate that has affected the shorter tenors of the interest rate swap curve.

The SGD Neer has more or less stagnated in the past months (graph till Nov) which gives investors less reason to buy into the currency, especially after safe havens like Switzerland introduced negative rates last week to weaken their franc.

SGD Neer Index

The Malaysian ringgit has weakened in stride today, along with the SGD, both losing 0.3% against the USD over the weekend.

This suggests rebalancing into the year end as funds allocate into other currencies like the won, rupiah, peso and rupee.

But historical correlations suggest that it should not bode too well for the stock market if the move is sustained and I would be expecting the authorities to inject liquidity into the system over the year end and give investors some time to underweight ourselves on the bonds.