MTI expects a lingering slowdown, sluggish rebound

Business Times – 12 Aug 2008

Price fears ease but Q2 growth down to 2.1% on pharma swings and electronic weakness

(SINGAPORE) Concern here over price pressures will likely take a back seat to growth risks in the
months ahead, as global inflation looks to be peaking but no quick economic rebound is expected
anytime soon in the major economies.
A senior Ministry of Trade and Industry (MTI) official yesterday described the Singapore economy -
which grew just 2.1 per cent in the second quarter – as being in a ’stretched-U’ slowdown, with
sluggish growth and probably no pickup for a while.

The Q2 growth – slowest in five quarters – brings GDP growth in the first half to 4.5 per cent, which
also happens to be the midpoint of the newly-downgraded 2008 growth forecast of 4-5 per cent. This
has been narrowed from an earlier estimate of 4-6 per cent.

With weak external demand, the 2008 forecast for Singapore’s non-oil domestic exports (NODX) has
also been slashed – by six percentage points. From growing 2-4 per cent this year, NODX are now
expected to fall by that range. It would be the first contraction in the key trade indicator since 2001.
But ‘this is not looking like a very sharp slowdown’, MTI second permanent secretary Ravi Menon said
at a media conference on the Q2 economic results. ‘So you’re not looking at a V-shape kind of
situation where there’s a sharp plunge and a sharp rebound.’

In other words, there also isn’t ‘the kind of decisive turnaround that you see in previous business
cycles’, he added. ‘It’s probably going to take a bit of time this time around. It looks like this slowdown
will continue into 2009.’

The global economic dynamics will remain fluid over the next 12-18 months, Mr Menon reckons, with recovery hinging on the state of global credit and asset markets.

‘Credit remains tight; financial institutions have become more riskaverse, weighed down by weak balance sheets which will take some time to repair,’ he notes. ‘The (US) housing market has continued to decline and probably has some way to go.’ As a result, consumer sentiment and domestic demand in the industrial economies are dampened.

Against the preceding Q1, Singapore’s GDP fell 6 per cent in Q2 in adjusted, annualised terms. A negative Q3 would spell a technical recession. While MTI does not expect one, Mr Menon said it cannot be ruled out.
‘All you need is an industry or sector to swing wildly and that could happen,’ he said. As it is, the Q2 slowdown is due largely to a sharp fall in biomedical manufacturing as the pharmaceutical companies here switched to products with lower value in the quarter.
If pharma output were excluded, GDP growth in Q2, instead of 2.1 per cent, would possibly have
been almost twice as high. DBS Bank economist Irvin Seah has estimated it at 3.6 per cent.

Electronics output was also virtually flat in Q2 in the face of weak global demand. As a result, the manufacturing sector contracted 5.2 per cent in the quarter. If the downturn persists, there would ‘probably’ be some job losses in manufacturing, Mr Menon said.

MTI expects the electronics industry to remain soft in the second half of 2008. And pharma output is
expected to be hit by competition from generic drugs and delays in new product approvals, even if the
industry’s medium-term outlook is bright. But wholesale trade and the services are ‘likely’ to remain
robust and help shore up economic growth.

And while inflationary pressures have eased, Mr Menon warned that ‘we’re not yet out of the woods’.
So ‘we’re in for a rough ride but we should stay above the water’, he said, adding that GDP growth in
the second half of the year should be ‘broadly similar’ to the first half. Full-year growth will likely come
in within the lower half of the revised forecast, he added.

Most economists here have largely ‘priced in’ the poor outlook in their forecasts, though a few – such
as the United Overseas Bank team – cut their GDP growth forecasts yesterday following the Q2
release.

Even more bearish, Standard Chartered Bank’s economists believe a technical recession here is on
the cards, and see the Singapore economy growing only 3.5 per cent in 2008. They also expect the
Monetary Authority of Singapore to start shifting – from its appreciation stance over the past 10
months – to a neutral bias on the Sing dollar.

S’pore Q2 GDP up 2%

Business Times – 11 Aug 2008

SINGAPORE – Singapore’s economy grew at the slowest pace in five years. The gross domestic product expanded 2.1 per cent in the second quarter, after growing 6.9 per cent in the first quarter.

The Ministry of trade and Industry said on Monday the economy was hurt by a plunge in drugs output and stagnant growth in the electronics industry.

‘The lower growth in the second quarter was mainly the result of a sharp contraction in biomedical manufacturing value-added, reflecting a switch in product mix to pharmaceutical ingredients with lower values compared to a year ago,’ MTI said in a press release.

It also said the economy shrank at a annualised rate of 6 per cent in the three months to June, the second contraction in three quarters.

The latest GDP figure was better than an advance official estimate of 1.9 per cent growth. Manufacturing shrank 5.2 per cent in the second quarter from a year earlier, while construction increased 17.4 per cent.

The service sector continued to grow at a healthy pace, thought slightly slower than in the first quarter. The financial services sector expanded 10.2 per cent while the business services was up 7.5 per cent.

The Ministry said the full-year growth target for 2008 has been cut to 4.0-5.0 per cent from 4.0-6.0 per cent, a downward revision first announced by Prime Minister Lee Hsien Loong in his National Day message on Friday.
It said the revised growth target ‘is consistent with the moderation in economic growth seen in the second quarter.’

It said the outlook for the second half of the year was not expected to improve much with major economies seeing a slowdown that would in turn affect exports from Asia, including Singapore.

MTI said it expected the ‘electronics industry to remain soft in the second half of 2008, reflecting weak demand for semiconductors.
On the short-term outlook of biomedical manufacturing, it said the sector ‘will be weighed down by global trends such as strong competion from generic drugs and delays in approvals for new pharmaceuticals.’

From exuberance to caution

In just 12 months, Singapore has swung from Boom Town to seeing its slowest quarter in five
years.

ONE year ago, economic and business sentiment in Singapore was probably at an all-time high: The
property market was on a roll, banks and finance houses went on a hiring spree, and the economy,
flush with liquidity, looked headed for a fourth year of 7-9 per cent growth.

The signs spelt Boom Town everywhere you looked, and economists predicted that Singapore, restructured and reinvented, would trail only China and India among Asia’s fastest-growing economies for years to come. Whiffs of (near-irrational) exuberance were much in the air. Then, bang! Just days before National Day 2007, a global financial market meltdown threatened the party mood. The balloons popped, but as it turned out, the Singapore economy’s strong first-half momentum was enough to see it through the year. Gross domestic product (GDP) growth for 2007 still turned in at a robust 7.7 per cent.

Twelve months on, the mood is decidedly more sombre. Overnight, it seems, the property bubble (of
‘exuberance’, not so much ‘excess’ this time) burst, the buzz in the finance sector has all but fizzled,
hot hiring has cooled (with even talk of selective retrenchment in some segments), and the economy
has now seen its slowest quarter in five years.

Has there been a crack in the domestic underpinnings somewhere, or is – as is widely assumed – the
small open economy just taking hits from external headwinds?
The much-heralded US economic slowdown has finally come to pass, compounded by a sub-prime
mortgage crisis that continues to wreak havoc through not only the American economy but pretty
much globally, in second or third-round hits.
Slower growth has also set in elsewhere in the developed world, following several years of robust
performance. Not least, a surge in global energy and food prices has pushed inflation to the fore of
policy concerns in just about every part of the world.

And latest analyses by economists list more than several major economies ‘navigating towards (or
through) recession’ – including the US, Canada, Spain, Ireland, Italy, the UK and New Zealand.
Germany, France and Japan are also seen to be teetering on the brink of recession. In other words,
as RGE Monitor notes, a full-fledged G-7 recession in the making.

With this outlook, coupled with ever-present risks of yet another bout of global financial turbulence, it
is interesting to see some fairly upbeat forecasts of East Asian resilience, like the Asia Development
Bank’s (ADB) that expects the region to weather the global economic turmoil ‘relatively well’ and grow
7.6 per cent this year and next.

ADB has the Singapore economy growing 4.9 per cent in 2008 and 5.8 per cent in 2009 – probably a
little more bullish than the consensus here at this point – on the back of strong domestic demand
(driven by business investment) and buoyant exports. It’s not apparent that Singapore’s exports will
be too ‘buoyant’ this year – the official forecasts of 2008 export growth were pared a few months ago,
and still the May and June trade figures proved unexpectedly bad. Economists also generally see
Singapore – given its size, structure and exposure – as the region’s most vulnerable to a global
downturn.

Has the slowdown exposed, or widened, Singapore’s fault lines? Sure, inflation surged through the
economy, price pressures piled up. But apart from ever greater external uncertainties and a fall in
sentiment, fundamentally what has changed in the six months or so between Boom Town exuberance
in 2007 and sombre caution in 2008? Problems such as structural joblessness in older Singaporeans
and a growing income disparity have not and cannot be swept away overnight.

That said, none other than Minister Mentor Lee Kuan Yew has declared that the next five to 10 years
will be Singapore’s most promising yet as it stakes its place among the world’s top cosmopolitan
global cities.

‘We are moving to a new plateau, a new platform. You can see it visibly before your eyes,’ Mr Lee
said last month.

It’s surely a vision to inspire all Singaporeans. But, for all the spin around Singapore’s restructuring
and transformation, enhanced by a huge influx of foreign skills, some believe that its fortunes – and
Asia’s – will, for the foreseeable future, still largely be tied to the global economy. Which also means
that Singapore can and will ride on the next upturn, when – or if – it comes.

Business Times – 09 Aug 2008

Singapore inflation stays at 26-year high

The Straits Times March 25, 2008

Prices jump 6.5%, driven by higher food, transport and housing costs

CONSUMER prices surged 6.5 per cent last month from a year ago, continuing a rate of increase not seen in 26 years.

Food, transport and housing costs were again the main drivers as a confluence of external and internal factors kept last month’s inflation at just a shade off January’s 6.6 per cent.

The figure – released by the Department of Statistics yesterday – was broadly within market expectations. A Bloomberg News poll of 17 economists tipped a rate of 6.8 per cent.

Experts said rising prices will persuade the Monetary Authority of Singapore (MAS) to keep its policy of allowing the local currency to strengthen, to help fight off higher prices of imported goods.

But there is less consensus as to whether the central bank will get more aggressive when it holds its scheduled review next month.

Any tightening of monetary policy will hurt an already slowing economy.

‘February’s consumer price index moderated a touch but still stayed elevated,’ said Goldman Sachs economists Mark Tan and Michael Buchanan, who expect inflation to peak at around 7 per cent in the first half of the year.

Prices of meat and poultry, cooking oils and dairy products clocked double-digit gains, while rice, cereal and fruit cost almost 10 per cent more than they did last year.

High oil prices also made themselves felt in electricity bills and at petrol pumps.

Indeed, transport costs jumped 9.6 per cent, boosted also by higher taxi fares and car prices.

Housing costs surged the most at 8.8 per cent. But this was mostly a pass-on effect from January’s one-off revision in annual home values.

Health-care costs rose 7.4 per cent from higher hospitalisation fees and medical consultation charges – and also as Chinese herbs became costlier.

Standard Chartered Bank economist Alvin Liew said sustained increases in this area are of concern, especially as the population gets older.

He noted that the sector is especially dependent on foreign nurses. Competition for these workers and the rising currencies of their home countries may be driving up wage costs in Singapore.

The statistics department also highlighted foreign maid salaries, holidays, cable subscriptions and cigarettes as other significant sources of inflation.

The Trade and Industry Ministry issued an accompanying statement yesterday, saying the ‘underlying momentum in inflation remained stable’. It expects this to decline ‘during the year’ and is retaining its forecast of 4.5 to 5.5 per cent for annual inflation.

Still, Mr Tan and Mr Buchanan believe the MAS will move next month to allow for a faster appreciation of the Singapore dollar.

‘Slowing growth is an obstacle…but in our view, the easing in fiscal settings revealed in the 2008 Budget and low interest rates will provide a buffer to growth,’ they said.

But Citigroup economist Kit Wei Zheng reckons the MAS will stay put as growth concerns take precedence.

He raised his full-year inflation forecast to 5.4 per cent, ahead of the latest data. But he also slashed his economic growth estimate to 4.7 per cent, from 5.2 per cent, citing worsening United States conditions.

Business confidence takes a dive

Business Times – 24 Mar 2008

BT-UniSIM survey shows companies gloomy about next six months, despite strong orders

 (SINGAPORE) Business confidence in Singapore has slumped to its lowest level since end-2004, according to the latest business climate survey by The Business Times (BT) and SIM University (UniSIM).

While sales and profit figures were largely unchanged in the three months to Dec 31, 2007, prospects have fallen dramatically for the next six months, the poll of 128 companies revealed.

This was despite companies reporting a strong pipeline of orders and new business. Some 71 per cent of the firms polled have overseas businesses.

Chow Kit Boey, director of the quarterly BT-UniSIM survey, said: ‘I think the firms may be overly pessimistic because of the grim prospects in the US economy, accompanying volatile and weak stock markets and rising oil prices.’

She said that improved orders and new business numbers suggest that the Singapore economy would not suffer too badly in the first quarter of 2008, given the low growth rate a year ago and the largely successful air show in February.

The quarter marked the 17th successive one with positive net balances in sales and orders as well as new business, she added. ‘This implies that the slowdown could be mild. It appears that the economy could grow at a faster rate in Q1 2008 than in Q4 of 2007.’

Economists polled recently by the Monetary Authority of Singapore (MAS) pared their first-quarter growth forecast to a median 5.7 per cent from 7 per cent previously, slightly higher than the 5.4 per cent recorded in Q4 2007.

The BT-UniSIM survey showed that the business prospects net balance – the difference between the percentage of optimistic and pessimistic companies – fell to 20 per cent, from 39 per cent in the third quarter of the year. This was itself a sharp drop from an average of 57 per cent for the first half of 2007, showing how confidence has crashed in recent months.

The drop was particularly severe among large and local firms, whose net balances dropped by more than half from the previous quarter. But foreign firms were about as confident as they were in the preceding three months and, intriguingly, small firms were much more upbeat – net balance for the segment tripled to 26 per cent from 8 per cent.

The overall poor sentiment was partly balanced by healthy orders and new business numbers. The overall net balance – the difference between those reporting more orders or new business and those reporting fewer – rose slightly to 39 per cent, from 32 per cent in the third quarter.

But conditions varied widely across firms. Small companies reported a net balance of minus-one per cent, though still an improvement on the previous quarter (-12 per cent). Foreign companies  recorded a net balance of 51 per cent, up from 26 per cent previously.

Among sectors, financial and business services was the star performer for the quarter. It had the highest net balances in sales, profits and orders, and new business.

Firms in the construction sector were the most confident of business prospects for the next six months for the eighth quarter running.

Foreign firms recorded the best performances for Q4, with the largest increases in net balances for sales, profits and orders, and new business. Local firms saw the biggest decline, owing partly to weaker profits, said Ms Chow.

And comparing overall and overseas sales, orders and prospects showed that domestic business activities were stronger in the fourth quarter. In the previous three months, businesses found better sales and orders overseas. But small and local firms still saw better prospects from their foreign operations, while foreign and large firms were more optimistic on the local market.

Vietnam is also fast climbing the charts as a favoured investment destination. China and India were the other frontrunners but ‘Vietnam has gained much popularity as an investment destination by almost all types of firms’, said Ms Chow.

The BT-UniSIM survey was launched in 1996 and is now in its 13th year.

Strong demand in Asia seen slowing next year

Business Times – 20 Mar 2008

This poses risks as firm US recovery unlikely: consultancy

 (SINGAPORE) Domestic demand in Asian countries this year look strong, but may slow down in 2009. This may present risks to regional countries as the US economy is unlikely to make a strong recovery next year, according to consultancy firm IMA Asia.

‘Many people in the United States say that (the plunge in global financial markets) will present difficulties for Asia because it would mean a slowdown in its export engine, but this is the second  year of slow export growth for Asia,’ noted Richard Martin, IMA Asia managing director. ‘Last year, export growth was pretty weak; it fell from 2006 for most countries in the region.’

He believes the region will sustain its demand growth for this year. ‘We think domestic demand looks secure in China, and in South-east Asia, we see good domestic growth… we’re pretty confident that domestic demand will carry the region for a second year.’

The issue, however, is ‘what happens next year’, said Mr Martin, who was in Singapore yesterday to speak to IMA Asia’s corporate clients on the region’s economic outlook.

‘By the time we get into the third year of weak exports growth, you’re going to see some difference (in growth) in the region,’ he said, adding that the US economy is unlikely to show a strong recovery in 2009.

And that difference, he said, will boil down to two factors – the level of country risk an economy faces, and the degree of reliance it has on the global market. ‘Economies with relatively high country risk will slow down a lot and have some volatility…we also need to look at the degree of reliance on the global market, not only trade reliance but also finance reliance.’

China, for one, ‘looks fine’ as its export sector makes up only about 25 per cent of its gross domestic product, while the country’s investments are financed from its domestic savings, he said. ‘However, we’ll see quite a different impact in a number of other countries. Hong Kong and Singapore face the prospect that their growths will be halved next year, because they’re highly dependent on global trade and global finance, and it’s the financial sector flows in the bank that are being cut back here.’

‘If it was just the trade cut back, we think domestic demand would keep (both economies) going, but once we cool that off, we could see a significant drop in growth in these economies.’ In view of these factors, Mr Martin advised companies to start revising their plans for next year.

Economists trim S’pore Q1 growth forecast to 5.7%

Business Times – 11 Mar 2008

Q2 may see another dip before rebound kicks in; inflation likely to rise

 (SINGAPORE) Private sector economists have pared their forecasts of Singapore’s first quarter GDP growth to a median 5.7 per cent, from 7 per cent three months earlier.

Economic growth is then expected to dip below 5 per cent in Q2 and Q3 before rebounding in the final quarter for a year-round median of 5.6 per cent, according to forecasters polled by the Monetary Authority of Singapore.

The 19 economists who took part in the survey last month – soon after the 2007 economic results were released – trimmed their forecasts following slower than expected Q4 and 2007 figures.

The economy grew 5.4 per cent in Q4 – well below median forecasts of 7.7 per cent in the December 2007 poll. Year-round GDP growth was 7.7 per cent – also below market forecasts of about 8 per cent.

According to the latest poll findings, Singapore’s 2008 economic growth will ‘most likely’ come in between 5 and 5.9 per cent – a full point below the range most expected in the previous poll.

But apparently, not everyone is too bearish. Forecasts for Q1 growth actually hit 8.8 per cent at the top end and average 5.8 per cent, only one point above the lowest estimate.

The second quarter is expected to see the year’s lowest growth of around 4.4 per cent, before a pickup to 4.8 per cent in Q3 and 6.8 per cent in Q4, according to the median estimates.

Meanwhile, the 2008 consumer inflation rate is projected to rise to 5 per cent on average. Some economists see it hitting 7 per cent in Q1, with the median forecast a bit lower at 6.3 per cent.

As for the exchange rate, the forecasts see the Singapore dollar strengthening to 1.32 per US dollar by year-end, though the estimates centre around 1.38, close to the current rate.

Goldman Sachs’ view on the Singapore economy is probably fairly typical of the market’s at this point.

The investment bank’s regional economists recently cut their forecasts of Singapore’s 2008 GDP growth to 5.5 per cent, from 6.4 per cent, ‘on the back of increased external risks’, chiefly a global slowdown led by a US recession.

But they expect the domestic growth engine to keep ‘chugging along’, supported by easier monetary conditions and an expansionary fiscal stance.

Investments push S’pore growth again

Business Times – 11 Mar 2008

But the biggest problem facing policy-makers is inflation; if it doesn’t stabilise, we may see more drastic steps

SINGAPORE has enjoyed exceptionally strong and stable gross domestic product (GDP) growth in the last few years. For many years after 1997, Singapore’s economy had suffered volatile growth even as it was buffeted by a series of shocks – the Asian crisis, the bursting of the information technology (IT) bubble and then the Sars episode.

None of them was of Singapore’s making but the city-state suffered sharp downturns in each case. It may seem that a small, open economy like Singapore’s cannot avoid being hurt by external shocks.

However, Singapore had enjoyed prolonged periods of high-growth prior to 1997 and had seemed immune to these shocks. What changed after the Asian crisis?

In our view, the big change was in the role of domestic investment activity. Prior to 1997, Singapore relied heavily on high rates of investment that were sustained over decades. This was key to the  citystate’s strategy of continuously moving up the value chain – from a British naval base to a low-end manufacturing and shipping hub, and then to a major electronics producer.

The last model broke down in the late 1990s. For many years after the Asian crisis, the city-state floundered for a new strategy and investment activity became erratic. Consumption demand was in no position to compensate, with consumers worried about falling asset values and an uncertain environment.

The lack of a domestic demand dynamic meant that exports became the mainstay and, as shown in the chart opposite (see Chart 1), the economy became susceptible to external shocks.

All this has now changed as Singapore’s government and business leaders have set themselves to the task of transforming it into Asia’s ‘Global City’.

As a result, we are now seeing enormous investment projects that include the two integrated resorts, the Formula One circuit, the Gardens by the Bay, the new business district, additional MRT lines, the Orchard Road upgrade and so on.

Residential investment too has picked up as the city prepares for an accelerated pace of immigration.

Thus, in 2007, we saw fixed investment rise by 20.2 per cent which in turn drove the 7.7 per cent increase in GDP even as net exports slowed.

Note that private consumption plays a passive role with its share continuing to fall (38 per cent of GDP in 2007 compared to 45 per cent in 2001). Thus domestic demand is driven largely by swings in fixed investment.

So what does Singapore invest in? In 2007, residential construction rose 26 per cent, non-residential construction went up by 44 per cent, investment in transportation jumped 30 per cent and machinery rose 10 per cent.

In other words, Singapore is still investing in manufacturing but the focus has shifted towards  creating a 21st century commercial/intellectual hub for Asia.

Looking ahead, most of the projects mentioned above are likely to run for at least another two years.

Most of them are fully funded and are likely to continue, irrespective of external events.

There have been press reports that Singapore is facing a credit squeeze that may jeopardise some projects. We see no sign of this with bank credit expanding at over 20 per cent year on year (see Chart 2).

It is possible that some people have not been able to access money but, given the explosive growth in loans, it can hardly be due to the reluctance of banks to expand.

It probably just reflects the strong demand for funds rather than the lack of supply. Thus, we feel that investment momentum will remain strong in 2008.

However, as we also expect exports to weaken due to the faltering US economy, we forecast that GDP growth will slow to 5.8 per cent this year; still a very strong level.

Despite our expectation that growth will slow in 2008, the biggest problem facing policy-makers is inflation. Consumer price inflation jumped to 6.6 per cent year on year in January. As shown in the chart above ( see Chart 3), this is an unprecedented level for this traditionally low-inflation country.

Housing-related costs have jumped especially high, but most other categories are also seeing large increases. This is now a major political issue and is being hotly debated in the media. So, will inflation naturally decline as growth slows?

In our view, slower growth in Singapore and in the world may take off some of the inflationary edge by the middle of 2008, but there is a more fundamental domestic problem. The economy is currently running at full capacity. The unemployment rate is down to 1.6 per cent (see Chart 4) which is the lowest since the Asian crisis.

Similarly, the office occupancy rate has jumped from 82 per cent in December 2003 (see Chart 5) to 93 per cent in December 2007, again levels not seen since 1997.

Thus, a GDP growth rate of 5.8 per cent is good enough to keep inflation on the boil. In a sense, this is the flip side of the investment boom that we are witnessing now.

Singapore’s government is well known for its ’supply-side’ approach to policy-making.

Characteristically, much of the response to the inflation pressure has been in terms of allowing faster population growth through immigration, encouraging more construction and so on.

Eventually these will expand capacity to keep up with growth. However, there is a more immediate need for a cyclical policy response. This has come in two ways.

First, the postponement of some large long-term public projects. Second and more importantly, the willingness to allow the Singapore dollar to appreciate at a faster pace. At the time of writing, the Singapore dollar stood at 1.39 to the US dollar. We expect it to hit 1.35 in less than six months.

If inflation still does not stabilise, we feel that we may see more drastic steps that may include a lowering of the Goods and Services Tax (GST), which has been hiked to 7 per cent.

The writer is chief economist for Deutsche Bank AG in Hong Kong

A growth engine for the economy

Spore’s aviation players have been riding the wave of growth in the sector, but there are challenges, and opportunities too

OVER the years, aviation has become the lifeblood for Singapore’s economic growth. This is despite the fact that the sector’s direct contribution to gross domestic product (GDP) is rather small – at around 5 per cent.

But the industry’s impact on the well-being of the republic was amply demonstrated in 2003, when economic activity was badly hit by the Severe Acute Respiratory Syndrome (Sars) pandemic which saw aviation grinding to almost a halt.

If anything, the sector’s importance has grown since.

Last year, Singapore Changi Airport recorded annual passenger throughput of 36.7 million – an all-time high, representing a 4.8 per cent growth over 2006. With Terminal 3 now in operation, Changi’s total capacity is now 64 million passengers.

But such traffic is only part of the picture.

Singapore is also a critical hub for air cargo, handling some 1.9 million tonnes of airfreight last year.

Despite a marginal slowdown of 0.9 per cent compared to 2006, mainly due to the softening demand for electronics in the United States, as well as the growing preference by manufacturers to ship their products by sea instead of by air, the republic’s dominance in air cargo remains well established.

Aerospace industry

Singapore is also one of Asia’s largest and most comprehensive aerospace repair and maintenance centres, controlling some 25 per cent of total Asia market share and employing some 19,000 technicians, engineers and specialists.

The Singapore aerospace industry grew by 10.4 per cent to a record $6.89 billion last year. Value added was up 8.5 per cent to $2.69 billion, while the number of people employed by the industry grew by 8.2 per cent to 19,000 in 2007.

The industry, which encompasses manufacturing and maintenance, repair and overhaul (MRO), remains one of the fastest growing sectors in Singapore, attracting almost $500 million in investment last year.

Indeed, Singapore’s MRO cluster is already globally competitive, and in no small measure due to the efforts of IE Singapore.

The agency responsible for trade and commerce has been moving aggressively to help Singapore’s aviation cluster improve its global market share by identifying new growth areas, by marketing efforts, direct introductions and government-to-government lobbying.

For example, IE helped Singapore Technologies Aerospace (STAe) to establish its key MRO presence in Panama by introducing the company to key decision makers like Panama’s Minister of Commerce and Industry Alejandro Ferrer.

Singapore’s dominance of the Asian aviation and aerospace has been due to a combination of lucky geography and sheer grit. Air traffic in the Asia-Pacific region has grown significantly in recent years. And this growth has accelerated with the emergence since 2001 of low-cost airlines in Asia.

Some industry experts call this the commodatisation of air travel. Essentially, this means that air travel has become a mass market, with people who never envisaged getting on board a plane 10 years ago actually seeing it as a natural mode of intercity travel across Asia. This has resulted in more growth for the region’s airlines, more aircraft orders, more routes being opened up, and more airport infrastructure development.

Singapore’s aviation players – Changi, the MRO industry, the suppliers and the air logistics specialists – have been successfully riding this wave. But success also brings with it challenges. One of these is the challenge from competition.

Oil-rich nations of the Middle East are aggressively expanding their aircraft fleets, and have been making headlines with large aircraft orders at international airshows. Some US$23.5 billion in new airports infrastructure is coming onstream by 2012, providing capacity for 316 million passengers annually and taking total airport capacity to 399 million.

Meanwhile, China and India, which are enjoying phenomenal growth in aviation, are collaborating with existing global players to gain a foothold in the fast-growing MRO sector.

Along with the challenges come opportunities. The demand for new aviation infrastructure means more business opportunities for well-placed players.

For example, China, India, Vietnam and countries in the Middle East will see frenzied building of new airports over the next five to 10 years. The Beijing government alone will spend S$28 billion over the next five years on 42 new airports, while in India the government has issued a mandate for upgrading infrastructure at four metro airports, seven greenfield airports and 35 nonmetro airports.

In the Middle East, 10 leading airports will spend some US$24 billion to build new facilities and expand existing ones.

Not surprisingly, Singapore has been cranking up its game in the face of such formidable challenges.

Critical role

IE Singapore helped form the 14-company strong Singapore Airport Consortium (SAC), which includes Changi Airport International and Singapore Airport Terminal Services.

Initiated in 2004 under IE Singapore’s iPartners Programme, this consortium combines the experiences and expertise of Singapore players to jointly offer complete suites of products, services and solutions to airports beyond Singapore. Services offered include airport investment, design, building, management and maintenance and training.

SAC has over the years made inroads into China, India and even the Middle East and has become an effective vehicle for marketing Singapore’s aviation capabilities and for lobbying for Singapore interests in airport projects.

In early 2007, IE Singapore introduced the SAC members to PAE, an American infrastructure company with significant presence in Vietnam that had worked on airport projects there. In recent years, SAC members have partnered PAE in new airport masterplanning for various airport projects in Danang and Ho Chi Minh City.

Going forward, agencies like IE, A-Star, the Economic Development Board and others expect to play even more critical roles in growing Singapore’s lead in Asia-Pacific aviation and aerospace.

And their roles will become increasingly critical as the industry faces new challenges from rising fuel price, a potential slowdown arising from the US credit crunch and an anticipated huge supply surge as planes ordered over the last two years are delivered.

Source: Business Times 6 Mar 08

Key S’pore economic indicator takes another dip

PMI now just above threshold between expansion and contraction

(SINGAPORE) The purchasing managers’ index (PMI) slid for a third straight month in February, with declines in export orders and output. But the electronics index edged up, even though orders were also weak.

With its latest 0.2-point drop, the PMI – a barometer of the manufacturing economy – is now down to 50.3, just above the 50-point threshold between expansion and contraction.

The electronics PMI, which had fallen in the preceding three months, surprisingly added 0.4-point to 51.2 – despite declines in key indicators such as new orders and output.

The overall PMI covers 12 manufacturing industries, including electronics.

The Singapore Institute of Purchasing & Materials Management (SIPMM) polls purchasing executives from some 150 companies every month to produce the index.

While a fall in the readings usually spells decline, February’s lower figures might also be due partly to the shorter month (rather than totally reflecting weaker demand) as the comparisons are with the preceding month, rather than year-on-year.

Still, past readings show that not every February PMI is down, and March – a much ‘bigger’ month – has also yielded lower readings.

Lau Geok Theng, associate professor at the National University of Singapore Business School and vice-chairman of the SIPMM council, reckons the slight dip in the February PMI reflects some uncertainty as markets react ’suspiciously’ to official measures taken to keep the US economy from falling into recession.

These include the proposed US$145 billion economic stimulus package and the recent 0.75-point cut in US interest rates to 3.5 per cent.

There is also a ‘wait and see’ attitude as businesses deliberate over the outcome of the upcoming election in the United States and other countries such as Malaysia, as well as in Pakistan where elections were held last month, so as to assess long-term directions and plans, he said.

According to SIPMM executive director Janice Ong, citing anecdotal evidence, local manufacturers remained cautious last month but were still expecting a surge in demand.

The PMI readings show big increases in the raw material inventory sub-indices, but marked decreases in the finished goods figures. But the latter remains above 50 points, indicating an accumulation of unsold goods.

Source: Business Times 5 Mar 08

If the US goes into a recession…

How will a US slowdown or recession affect your organisation and industry, and the Singapore economy in general? What can businesses do in the event of a slowdown?

THE US recession had already started since December 2007. I predict that the federal funds rate will drop to one per cent by September 2008. After that, we will most likely witness a rebound and rally in the market.

If the recession is more prolonged, it would at most extend by another six months to March 2009.

Investors must remember that our present recessionary cycle is very different from the US recession between July 1981 and November 1982. In one way, it is similar to the 1981-82 one because the recession hit financial institutions such as banks and savings and loans particularly hard.

The significant difference lies in the fact that we now have the sovereign wealth funds stepping in to prevent these financial institutions from closing down. In addition, we have wealth distributed from oilrich countries in the Middle East.

Singapore is positioned to ride through the stormy weather in style! In these unique circumstances,

Singapore has invested in three of the world’s most exciting banks, namely UBS, Citigroup and Merrill Lynch. We have also lined up world-class activities to ensure a continuous influx of tourist arrivals to boost domestic consumption:

• Q1 2008 – Singapore Flyer
• Q3 2008 – Singapore Grand Prix
• Q3 2009 – Las Vegas Sands Marina
• Q3 2010 – Singapore 2010 Youth Olympic Games
• Q4 2010 – Resorts World Sentosa.

These activities will allow us to meet the challenges ahead. In the event of a slowdown, Singapore businesses should take advantage of this period to upgrade themselves through higher education, visiting other countries for opportunities and consolidating.

- Clemen Chiang

CEO

Freely Business School

Singapore can weather storm

SINGAPORE had been largely dependent on the US for its export market. However, in recent years, Singapore has successfully diversified its export markets to include China and India. In addition, its ongoing projects such as the integrated resorts, the hosting of the first Formula One night race and, most recently, the hosting of the 2010 Youth Olympics, would provide plenty of opportunities for the local market especially in the construction and services industries.

Hopefully, the ongoing IR projects and the tourism dollars being projected for the F1 race in

September would be sufficient to tide us over the US slowdown.

The only other economic factor that will pose a challenge is high inflation due to the double whammy of higher prices for both petroleum and food.

As an IT security company with headquarters in the US, with Singapore as its Asean and India headquarters, we will be able to sustain our growth by tapping the current ongoing projects in Singapore, as well as growing revenues in countries such as India and Vietnam.

While striving to increase our business revenues, we have to strive even harder to keep  overheads such as travel, entertainment cost, rental and even remuneration packages to a bare minimal.

Therefore, Singapore is likely to be spared the economic meltdown in spite of the slowing US economy, as we have been taking steps to minimise our dependency on the US market. This is one giant leap of faith by the Singapore government in the right direction. In the words of Prime Minister Lee Hsien Loong: ‘We have dared to bring our dreams into reality.’

- Benjamin Low

Managing Director, South-east Asia and India

Secure Computing

I THINK a lot will depend on how protracted the US recession will be. If the US slowdown lasts for two quarters, as some economists believe, then I think the Singapore economy might not be significantly affected. Singapore is now less dependent on the US than before and is quite well plugged to the Asian twin growth engines of China and India. The Singapore economy has growth momentum on its side, with many projects like the IR, F1 and now the Youth Olympics, to stay resilient. However, if the US recession turns out to be severe, then not just Singapore but the global economy will be affected.

The steel industry, on the other hand, is going through interesting times. While 2007 was a good year for the industry, 2008 is beginning to look like an equally good if not better year. Demand for steel is going from strength to strength, not just domestically but globally.

In Singapore, demand for steel will see a further boost with more public projects in addition to the existing residential and office projects. Singapore is expected to construct a new University Town to host the Youth Olympics and there are planned expenditures to further expand our rail and road infrastructure in the coming years.

Globally, besides China and India which are consuming a lot of steel, the other two BRIC countries – Russia and Brazil – which used to be net exporters of steel are now instead buying steel. Russia – which benefited from the buoyant oil market – and Brazil – which benefited from the rise of both hard and soft commodities like iron ore and wheat – are undergoing an infrastructure boom.

With the rise of commodities, there is also strong demand for steel in the shipbuilding sectors to build vessels to carry the commodities.

- Wee Piew

CEO

HG Metal Manufacturing Ltd

A SLOWDOWN in the US economy will undoubtedly have an impact on the logistics sector and UPS, but we are confident that we will continue to grow by generating greater synergy between our businesses. Being an open economy, Singapore is naturally more susceptible to external shocks.

However, the Singapore government has been successful in attracting investments, which will provide some buffer from an external slowdown. This, complemented by growth in other regions, particularly the Asia Pacific, will provide impetus for the economy.

Asia was a key growth area for UPS in 2007, and looks set to continue this year. Growing intra-Asia trade and strong demand from China and India will continue to drive trade in the region. By aligning our supply chain and parcel delivery businesses, UPS will ensure greater synergy and more competitive offerings for our clients across Asia.

Despite the challenges and a moderated economic growth forecast, UPS is positive that the

Singapore economy is resilient and diversified enough to withstand the effect of a US slowdown.

- Mary Yeo

Managing Director

UPS

EXPERTS agree that the US economy is closer to the bottom than the top. Given this, we all must brace for ways of coping in the event of a full-blown US recession. As experience has shown us, a downtrend does not mean we are in for a crash. I would say that those of us in the direct selling industry can be resilient to an economic crunch for as long as we are able to grow and expand distributorship.

Still, it remains critical to re-think business decisions having to do with the proper marshaling of resources, especially for small and medium-sized businesses which will be the hardest hit. The basics, of course – stick to budget, monitor business closely, keep collection coming in, and tighten financial control.

Others would be wrongly cutting costs by way of reducing employee incentives. I believe, on the contrary, that we must encourage pay for performance incentives.

At Best World, our strategy is two-pronged: to continue to grow company sales and to optimise employee productivity. I believe that even in bad times, we must reward people as long as they are clearly able to contribute better performance to grow the company bottom line.

This year, we have restructured our company bonus system by basing it on company profit instead of gross sales. I see this as a win-win situation, a mutually beneficial manner of giving everyone a stake in the growth and viability of the business during these critical times.

- Dora Hoan

Group CEO

Best World International Ltd

VISIONARY business leaders are already using technology to enhance sales growth, drive incremental efficiencies and deliver excellent customer service. In challenging economic times, companies must keep their eyes on the horizon while smartly managing short-term turbulence.

For example, EMC is helping companies of various sizes invest in IT infrastructure solutions that squeeze more value from flat IT budgets. Reducing the physical space needed for IT infrastructure, as well as lowering the power and cooling costs to support the infrastructure, becomes even more important in tightening economic times.

In a slowdown, it is also important – although not easy – to remain focused on product and service innovation. As a company, EMC will spend more on R&D than ever before to ensure we bring new innovation to our customers globally.

Having seen Singapore’s economic indicators, and the recent Budget, I am confident that the country as a whole, and the local and multinational companies based here, are well positioned to deal with any changes to the world economy.

- Steve Leonard

Senior Vice-President, EMC Corporation; and President, EMC Asia Pacific/Japan

EMC Corporation

THE US is in recession and I suspect this one will be protracted and will impact the rest of the world. Emerio is an IT outsourcing company with an emphasis on support and consequently, we expect our business to grow faster as US companies will need to do even more with less!

As far as the Singapore economy is concerned, there would be a short-term impact but I am confident that with Singapore’s ability to re-invent itself, we will be able to counter it and emerge stronger. A focus on Asia – not just China and India but also the rest of Asia – should see us sailing through this period.

- Harish Nim

CEO

Emerio Corporation Pte Ltd

See downturn as opportunity

THERE is too much attention paid to whether ‘an economy’ is in recession. My view is that different sectors have remarkably different dynamics which argue against a generalised view. For example, it is fairly clear that financial services, construction and probably the durable goods sector in the US are ‘in recession’.

However, agriculture, aerospace and international tourism are booming. I have been surprised at the strength of the recent retail numbers. At any point, some sectors are likely to be in recession and others booming. Asia is no different.

A lot of attention has been paid to whether or not the Asian economies and the US economy are decoupled. I’ve seen little high-quality data associated with this debate; analysts seem to quote data showing the declining percentage of exports from Asia going to the US. This is a fairly shallow understanding of decoupling.

Second, the level of coupling will, of course, vary significantly by sector. For example, I have been surprised by the extent that Chinese and Singapore-based banks have taken write-offs on the US sub-prime products – which just goes to show that ‘coupling’ can occur in mysterious ways.

I believe a number of key sectors in the US will go through a fairly deep recession. The US is a more flexible and responsive economy than most OECD economies, and will therefore restructure and recover more quickly then other countries such as Japan, Germany and France. This is one of the great strengths of the country.

The nature of most Asian companies is that they would rather lose money then downsize, though this is a generalisation. If Asian companies find markets in the US are being crimped, they will aggressively pursue other markets. A Chinese toy manufacturer will not undertake layoffs because of a US slowdown. They will ask: Where else can I sell these toys?

As a result, whether Asia is currently decoupled from the US, at the end of this down-cycle Asia will be more decoupled from it than before. But it won’t happen automatically or smoothly; Korea and India are simply not going to accept Chinese toys as easily as the US. The optimistic case is that these frictions result in new resolve for the World Trade Organization and consistent global trading rules. Of course, there are pessimistic cases.

For companies, there is the classic advice: Cut costs and find new sources of revenues. I’m a consultant – of course I would say this! Just as important is to have a clear sense of history – who were the winners and losers in your sector in the last downturn? What did they do to gain share and maintain their financial performance?

The worst thing you can do is just hunker down and wait for the next upturn. Get your management together and figure out how to convert the downturn into an opportunity. If you don’t have some great ideas – hire a consultant!

- Charles M Ormiston

Director

Bain & Company

IT IS widely misunderstood that a slowdown or a recession will affect every company that is doing business with the US. This may not be the case as there are some recession-proof industries. I consider the aftermarket tyre industry to be such an industry. A slowdown in the auto industry affects the sales of new vehicles – but existing vehicles still need tyres to ply on. Within the tyre industry, the major brands may feel more heat than the budget brands. There is a tendency to shift from an expensive branded product to a non-branded economical product in such an environment.

I have seen a surge in business recently which strengthens my belief that the market is shifting its purchasing pattern. As such, I do not think that the companies operating in the ‘budget brand’ category in the after-market auto industry will be affected. In fact, this is the time to go after business which was not accessible in the past. Now is the time that customers are actually looking for value.

As a precaution, however, it is imperative that businesses start spreading their chips into other markets and protect their existing business by investing in business/credit insurance, which will cover them adequately in case of any default.

- GS Sareen

President and CEO

Omni United (S) Pte Ltd

MY ASSESSMENT is that a US slowdown will have a material impact on Singapore only if it is prolonged and severe. This is due to our sound economic fundamentals, diversification of our economy away from manufacturing and electronics, as well as our location in a high-growth region with a large middle-class market and educated workforce.

In times of market volatility, we foresee growth opportunities over the next few years given large foreign investment flows into the region, booming regional economies that contribute to rising mass affluence, as well as higher demand for wealth planning from fast-ageing societies.

As an Asian specialist, the DBS Group is well-placed to seize these opportunities because of our experience and sound understanding of the regional markets.

Businesses caught in the slowdown can look into ways to better manage their costs, explore other potential avenues for growth, possibly in new untapped markets, consider flexible work arrangements and raising staff productivity.

- Deborah Ho

CEO

DBS Asset Management

AS THE world’s third-largest IT services provider, Fujitsu Asia provides solutions for customers in the Asean markets of Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam – but not the US. Therefore, as long as the IT demand in our target markets remains healthy, we needn’t fear that a US slowdown or recession will impact us negatively.

The Singapore economy in general should also continue to do well because we are not as dependent on the US economy as compared to, say, five years ago.

Most indicators suggest that the IT demand will remain very strong this year. For example, a recent Gartner survey of about 1,500 chief information officers (CIOs) worldwide revealed that IT expenditure is expected to surge by about 8.3 per cent in Asia this year – far outstripping the 3.3 per cent rise in the global average.

The report also identified that in 2008, the focus areas among Asian CIOs include IT infrastructure, application rollouts and other areas. The implication here is that, despite the possibility of a US slowdown or recession, Asian companies are still prepared to invest in technology to prepare themselves for future business growth.

This makes sense because it can take months or even years for an IT investment to progress from conceptualisation to rollout.

Hence, companies that delay making vital investments during a downturn could be unknowingly disadvantaging themselves when things are back on the upswing. After all, without added headroom – which IT investments can provide – for scaled-up operations, companies might be unable to capitalise on the business opportunities that an economic recovery presents.

I always believe that adversity and opportunity exist togther. A slowdown in the US may pose some challenges, but it indirectly provides an impetus for companies to prepare themselves for future growth, which is merely a matter of time. And leading IT companies like Fujitsu Asia can help companies with such preparation efforts.

- Noboru Oi

Group CEO

Fujitsu Asia Pte Ltd

WITH the US being the world’s largest economy, economists and analysts have said that any signs of slowdown could impact everyone, especially those economies or industries highly dependent on the US. Some have warned that the effects of a drop in consumer spending could impact the Asian electronics manufacturers.

That said, we see resilience in the global economies. Where there are challenges, we also see some opportunities. All the more, businesses need to focus on creating value for their customers to maintain their competitive edge and strengthen their position in the industry.

For Excelpoint, we believe that it is critical to focus on executing well to strategy, maintain a strong cash position to capture opportunities, and be prepared to make adjustments where necessary to mitigate any risks. We will continue to invest in emerging markets where our customers have ventured into, and collaborate with them and our global partners to capitalise on opportunities in those markets.

Important, too, is the continued emphasis on innovation. We want to be able to research and develop new applications and technologies with the aim to offer our customers a wider range of solutions. This will help us emerge as winners in the industry in the long run.

- Albert Phuay

Chairman and Group CEO

Excelpoint Technology Ltd

WHILE we believe that a potentially bearish US economy will have a global impact on  Organisations and markets, this is an opportunity for many companies to take a hard look at how their operations can be optimised for efficiencies and how new businesses can be gained by looking beyond traditional means of getting to their customers and the marketplace.

There is a growing trend where deploying innovative technologies such as virtualisation and open source are helping businesses achieve these goals by optimising how information technology is supporting their existing business. Increasingly, businesses are also looking at more cost-effective and efficient channels to get to the business partners, customers and the marketplace by making information technology supplement their existing route to market.

We are confident that this is one way that businesses can save money and grow their businesses and give them a better chance of weathering not just this slowdown but any slowdown.

- Ong Chee Beng

Managing Director, Singapore

Sun Microsystems

IT IS still premature at this point to predict the extent of the US slowdown and to project how it will affect the Asia Pacific, and Singapore. However, with globalisation and lessons learnt from the Asian crisis, countries like Singapore are now more hedged against fluctuations from the US economy with greater investments in fast-growing markets like China and India.

I believe when one door closes, another window opens. In times of cyclical downturns, it is the onus of business leaders to proactively seek new opportunities (perhaps investing in emerging markets in the Asean region) to diversify risks and chart future growth. Many companies like us would have laid the groundwork in recent years, coupled with a long-term strategy, enabling us to ride out cyclical downturns, resulting in business continuity and growth prospects for the future.

- Bryan Low

Vice-President and Managing Director

AMD South Asia

A US downturn will almost certainly have a negative impact on Singapore’s economy, and it is unlikely that the childcare industry will be spared. At Cherie Hearts, for instance, we expect that a number of parents could look to alternative childcare options, such as home-based care by grandparents.

The best course of action that businesses can take in the face of an economic slowdown is to invest in training and development, as well as R&D. This will be our best bet in preparing ourselves to ride the economic growth once the dark clouds blow by. Cherie Hearts, for one, will be stepping up efforts on staff training, as well as curriculum research and development.

- Sam Yap SG

Group Executive Chairman

Cherie Hearts Group Int’l Pte Ltd

S’pore will be insulated by Asia

A RECENT study by technology research house Gartner shows that despite the US slowdown, Asian firms still plan to increase their annual IT budgets by about 8.3 per cent in 2008.

I believe that companies’ priority this year will be on technologies that directly improve their business performance. CA will continue to create and refine software that can help firms simplify and unify their IT operations, and which deliver tangible business value.

With regard to Singapore, the projected growth in Asia’s emerging economies should insulate us somewhat from the US slowdown, although many firms will still come under pressure to control costs.

This means that organisations should work on better tapping into their current resources. Besides using technology to streamline their operations, they should look harder at integrating technology with their people and processes. Best practices and consultancy services to achieve this are readily available, and businesses should proactively check them out.

- Brenton Smith

Managing Director and Area Manager, Asia South

CA

THE slowdown in the US may dampen business confidence and hurt our export-led economy but we will more likely be impacted by rising inflation and rapidly increasing business costs.

Many businesses are linked to regional and global customers, thus removing our reliance on just one country for trade. We are moving into Middle Eastern economies. We already have strong business links with the Chinese and Indian markets and these should help cushion the impact of the US slowdown. However, what seems to be at the forefront of many companies’ concerns is the more pressing problem of rising wages and a shortage of talent.

- Dhirendra Shantilal

Senior Vice-President, Asia Pacific

Kelly Services

FROM a geographical perspective, companies need to anticipate an economic slowdown in the US and switch activities and priorities towards growth regions like Asia. In Asia, because of the integration of global markets, developing countries will also be impacted, but this will be overshadowed by the domestic drive that we are seeing in countries such as China, India, and Southeast Asia.

Regarding the IT industry, there is no doubt that it will be impacted too. According to a recent IDC report, global technology spending will experience slower growth next year because of the current uncertain economic climate. Therefore, IT vendors and service providers must also stay ahead of the game by being flexible and making sure they adapt to these changes.

Last year, Serena Software moved to a software-as-a-service model and this is paying dividends for us now. In this environment of economic uncertainty, it is natural for companies to hold back on their capital investments to mitigate their risks. Therefore, the ability to adopt on-demand services on a pay-as-you-go basis is a perfect sourcing strategy for businesses seeking greater cost controls and flexibility during tough times.

- KC Yee

Vice-President, Asia Pacific

Serena Software

WHEN the world’s largest economy goes into a recession, most industries will be affected one way or another. Businesses need to understand that and start taking steps to balance the risks of a slowdown in the US. Businesses should look beyond the US market to cushion the downturn, if any.

Asia presents itself as an excellent opportunity for business growth.

Businesses can start by diversifying their clientele to reduce the risk of relying on a particular industry.

Riverstone, for example, is maintaining its lead in Asia for high-tech cleanroom gloves by expanding our clientele beyond the major players of hard disk drives and semiconductors.

For now, the demand for the high-tech clean-room consumables continues to grow and Riverstone intends to ride this trend.

- Wong Teek Son

Executive Chairman and CEO

Riverstone Holdings Ltd

AT AT&T, we are focusing on the strong growth engines in Asia Pacific – like China and India, but also the emerging markets in South-east Asia – and plan to continue investing in our business here to mitigate effects of a possible slowdown of the US economy.

Macro-economic data, ranging from the UN to the World Bank, shows that growth in Asia Pacific should be expected to continue, though maybe at a slightly lower rate than in the previous extraordinary years. Asia-Pacific economies are considered to be quite well-prepared to manage the continued uncertainty in the external environment coming from the US and, for example, the oil markets.

With our region continuing to be the fastest-growing region globally, a focus on such overseas opportunities can help minimise a potential dip in the US economic growth. Therefore, I would expect a continuous commitment to this region from global MNCs like AT&T. Most likely, we will see the further creation of high level jobs, continuous investments and more and more products and services being developed and managed in and out of the Asia Pacific – for a growing number of customers in this region.

- Collis Loh

Country General Manager

AT&T Business, Singapore

A US slowdown or recession will have some, but not catastrophic impact on the Singapore economy, as a growing driver of Asia’s growth has been fuelled intra-region. Thus, while the US curtails its consumption demand, this will be counter-balanced by the continued rise of Asian consumption – whether in China, India, or even Vietnam.

Having said that, in the event of a slowdown, having the right people to work and manage your business is critical to weathering a tough economic environment. The companies who emerge winners will be those that are focused on measuring and improving productivity, including that of their workforce.

- Su-Yen Wong

Managing Director, Asean

Mercer (Singapore) Pte Ltd

Be ready for tough times

TECHNOLOGY spending is normally a lagging indicator of an up or down-market. Our order book and sales pipeline currently look very strong. If we are to see slowing tech spending it will most likely hit Asia three to four months from now. So far, US multinationals, even in the financial services sector, are keeping up their spending with projects still being executed. Only one major client that I have met recently has talked of deferring a project. Companies obviously need to have a Plan B ready for any slowdown in spending. It’s important to be ready with scenarios so that we can adjust our model as any changes unfold.

- Bill Padfield

CEO

Datacraft Asia

THE US will continue to be the leading global economy for many more years. However, the print, publishing and media-related industry as a whole, my organisation included, has also diversified, doing a substantial amount of business with Britain, the Middle East and the EU countries.

On a national basis, the US is one of our main trading partners. Consequently, a US slowdown or recession would, together with many other Asian countries, definitely affect us negatively. Gloomy markets, recovery and growth are all part of the economic system.

Singapore businesses can reduce this looming negative impact by aggressively diversifying investments and export makets – which we have already done to a considerable extent.

With prudence and foresight, our businessmen could further move into Russia, the Middle East, the Korean peninsula and other Asian countries, Latin America and Africa.

Singapore businesses – especially our cash-rich investors and exporters, be they in mindshare leadership, providing services or manufactured products – should reduce over-dependence on the US.

- R Theyvendran

Chairman / Managing Director

Stamford Media International Group

A US slowdown or recession will have a negative impact on the global economy. US consumption has been instrumental in helping to boost world economies for several years. The growth of China and India is not going to be able to make up for the shortfall in US consumption in the event of a major cutback in spending in the US.

In a similar vein, manufacturers in Singapore will be negatively affected by the US slowdown as their products are mostly exported overseas. CEOs need to understand that it is no longer business as usual. Fortunately for my company, we will be able to comfortably ride out the tough times as we are a multinational company that has recognised the need to change much earlier.

For those businesses which are financially weak, it is important to restructure quickly to face the new harsh realities. They have to review their cost structure to ensure that they remain cost-competitive.

Companies need to penetrate markets such as the Middle East, China and India, whose economies are still booming. However, for weak companies, it is better to be healthy before expanding overseas, or their limited resources will be further dissipated. They should get their act together in Singapore first, such as putting in place a strong and competent management team and getting a positive cash flow. There are opportunities in the recession too as many weaker competitors will be knocked out of the race.

- Teng Yeow Heng Michael

Managing Director

TR Formac Pte Ltd

A US recession will cause uncertainties and undulations across the globe, but economic giants like China and India can cushion some of that ripple effect. As expounded by Minister Mentor Lee Kuan Yew, increased domestic consumption and investments in infrastructure, which serve to sustain a robust financial core, can also help weather the economic storm.

Local businesses, particularly SMEs, must be ever-ready for unforeseen events and have contingency plans in place during a period of decline. These include cost-cutting measures like downsizing and reducing overheads as well as increasing savings and investing in short-term assets that can be liquidated in times of need.

- T Chandroo

Chairman and CEO

Modern Montessori International

Singapore may be hit

THERE is no doubt that any slowdown or recession in the US economy will have a direct impact on the Singapore economy. Although Minister Mentor Lee Kuan Yew has stated that Singapore will not be too badly affected should the US catch a cold, prevention is better than cure.

As electronics is an important sector that exports to the US market, any contraction in the US will have immediate effect on this major industry which contributes a large percentage of the manufacturing exports. To mitigate any drastic drop in exports, IE Singapore should support our manufacturers in aggressively sourcing new emerging markets in the Middle East, South Asia and North-east Asia. A better option would be to shift the bases of production closer to the markets.

Pakistan has been identified as a pivotal centre for electronics serving the Middle East and South Asia, while North Korea is also a focal centre serving Greater China and East Asia.

It is timely for the Singapore Business Federation to organise missions to these key centres to explore, exploit and extract the opportunities for exports, investments and R&D, etc. I am confident that the electronics sector would be nimble enough to ride out any economic setback in the US. Let’s pull ahead.

- Derek Goh

Executive Chairman / Group CEO

Serial System Ltd

I BELIEVE the signs indicate that the US is in a recession or on the verge of one – with consumption going down, interest rates being reduced, and the implementation of a US$152 billion package to stimulate the economy.

In such a scenario, I would suggest that Singapore businesses take a conservative approach by containing costs, ensuring that forecasts are conservative and watch inventories. When there are opportunities to monetise assets, I would proceed, as cash is king in this situation.

Until India and China dominate the world economy, I believe that whatever happens in the US will have an adverse impact on Asia and Singapore, although this will be less than before. Singapore has taken enough precautions to fend off any cold the US might suffer, but again it depends on how badly the US will be affected, as the financial crisis continues to unfold.

- Lim Soon Hock

Managing Director

Plan-B Icag Pte Ltd

THE sub-prime mortgage crisis has now ballooned into a deepening credit crunch, leading to less liquidity for a host of financial assets and structures. Although the US Federal Reserve has reduced interest rates in recent months, there is still a crisis of confidence in the US which mirrors the experience in Asia during the 1997 financial turmoil.

Clearly, the US is already in recession. Its extent and duration will depend on how long it takes for confidence to be restored. And the signs are not good because it seems that investors, banks and markets are getting more – and not less – jittery with each passing week. The impact of the US recession on Asia may be limited if it lasts six to nine months. However, Asian economies – even Japan, China or India – are probably not strong enough to weather a prolonged economic depression in the US.

As a privately-owned bank, Rabobank is taking steps to strike a balance between supporting our long-term customers, and preparing for a possible slowdown in this part of the world. On the one hand, as a financial cooperative, we must do our best to ensure that the funding needs of our customers are met. On the other hand, as a bank with a Triple A credit rating, we must maintain prudent lending policies, exercise due diligence and read market warning signs early and accurately.

Every cloud has a silver lining, so a widespread recession could perhaps moderate the worldwide trend of rising inflation, which is caused by escalating prices of commodities, labour and land.

If Singapore enters a recession, hopefully workers will realise that wage increases cannot outpace productivity gains indefinitely without companies losing competitiveness – which may ultimately lead to employees losing their jobs.

- Goh Chong Theng

General Manager, Singapore

Rabobank International

ANY US slowdown will impact businesses here. Everyone’s hope is that it will not be a contagion with business confidence being dragged down. The flipside is that the costs of US goods and services will be lower with a weaker dollar for those who do business with the US. This sliver of opportunity should enable us to offer more attractive and competitive goods and services.

On the other hand, people are hoping that the boom in China, the Middle East and elsewhere will provide a counter-balance. Like many Singapore companies, we stand our business on many legs in different countries. We hope to re-adjust our balance even as one part of the business is down.

Indeed, it may ironically be the balance we need with the current inflation and a resource crunch.

But more worrying is the way events might turn out. The great uncertainty and turbulence might catch many businesses wrong-footed. We all need to be vigilant.

- Liu Chunlin

CEO

K&C Protective Technologies Pte Ltd

A RISING tide lifts all boats, but unfortunately, the inverse is true as well when it comes to a US recession. Asia is not decoupled from the US or any other world economy and this should come as no surprise. Access and dependency go in lock-step and capital markets are extremely efficient at providing access to virtually any market segment in any economy – the sub-prime market, for example.

Diversification is the key and where countries are not efficient at achieving balance our firms must be.

An organisation’s best hedge is a global revenue stream, a balanced product set, and access to a wide range of market sectors.

- Mark Bashrum

Regional Vice-President, Asia

ESI International

DESPITE the slowdown in the US, Singapore’s financial and construction services clearly remain the bright spots, fuelling a soft-decoupling story for Singapore from the US economy. Still, with rising inflation and a negative real interest rate environment, private banking, like other businesses, cannot completely ignore the US downturn.

Investors, regardless of their wealth bracket, behave differently in this climate. Private banking clients tend to lower their risk appetite, gravitating towards conservative products with lower yields and margins. However, my private bankers must also be able to give clients the confidence to look beyond the downturn, instead of focusing on the storm clouds. It’s essential that we take a fresh look at our clients’ changing situation or new environment. Then we make sure our products and services adapt to help clients navigate the storm and come out on top.

- Barend Janssens

Head

ABN Amro Private Banking, Asia

THE US is a major consumer of goods and services which are manufactured all over the world. In the case of electronic goods, consumer demand will fall. Singapore, as a manufacturing site for such products, will be affected. Both facility and equipment utilisation will consequently be impacted.

Following from this, there is likely to be a reduction in labour and overhead costs by businesses to keep costs low and ride through the storm.

There is no miracle solution to overcoming recession as it is part of the business cycle. During a recession, businesses have to be prudent and keep a tight control over costs. We also have to explore other markets such as China and India to sell our goods but this does not happen overnight.

The government can provide support in terms of incentives, rental reductions, property tax adjustments, energy rate cuts and other such measures which will help companies through the turbulent period.

- EH Lim

CEO

Avi-Tech Electronics

IN MY view, the US will definitely suffer a recession this year due to the sub-prime problems and this will cause a global economic meltdown. Stock markets worldwide will decline by not less than US$7 trillion. The US consumes 25 per cent of the world’s products so a recession there will affect the world’s economies. Even Singapore’s growth this year is likely to be less than 4 per cent because of it.

The travel and tour industry will also slow down. Luckily, Singapore is a debt-free country; its dollar may well be equal to the greenback at some point.

SA Tours will promote travel to the US, for enjoyment as well as to build relationships to do business there. Singapore is a marketing hub and Singaporeans can market products produced in the US throughout Asean. A recession in the US may well be an opportunity for Singaporean businessmen to do business with Americans.

- Ng Kong Yeam

Group Executive Chairman

Sino-America Tours Corporation Pte Ltd

Others

A US recession would have varying degrees of impact on multinational organisations in Singapore, as well as the local economy, given that Singapore is a major trading partner of the US. However, as for the IT industry, we don’t foresee a huge negative impact in our region as economies like Singapore are still experiencing buoyant growth and companies are investing in technology solutions to provide them competitive advantages.

In fact, we believe that a critical aspect to managing such potential risks for organisations is to have access to accurate and timely information and business intelligence tools that facilitate quick and effective decision-making.

- VR Srivatsan

Vice-President, South Asia

Business Objects

CREDIT crunch, downturn, or recession, the coming year is going to be a challenge for the global economy – and the IT industry will face the same pressures. While there’s no doubt that tighter belts will mean IT departments paying close attention to IT vendors and service providers performance, it will not be simply the case of the thumb-screws coming out.

In our case, even amid economic uncertainty last year, Interwoven’s fourth quarter and full-year performance was the highest we have ever recorded. During an economic slowdown, we can see an increase in online marketing budgets – more cost effective than traditional marketing methods. So while the spend from IT may reduce in a slowdown, we expect to have access to a larger portion of the marketing budget. The tougher times are, the more important it is for companies to measure and make the most value out of their budgets.

We anticipate that other IT vendors and service providers will also find a niche to prosper during these times of economic uncertainty. Companies are realising that business efficiency can be improved by innovating aspects of their business using IT.

- Sanjay Aurora

Vice-President of Asia Pacific

Interwoven

Source: Business Times 3 Mar 08

Govt uses ‘realistic’ assumptions instead of ‘optimistic’ ones

GST introduced while revenue position was still strong: Tharman

IN explaining the background to the way the government has turned out to have gathered far more money than was predicted in last year’s Budget, Finance Minister Tharman Shanmugaratnam told Parliament yesterday that the basic approach is to use the best information available at the time, with ‘realistic’ assumptions rather than ‘optimistic’ ones.

At the time of the Budget last year, the finance ministry estimated 2006 stamp duties to be $1.5 billion and hence projected the same level for 2007, Mr Tharman said.

‘This was because 2006 was itself already an exceptional year,’ he said. ‘In fact the subsequent data for FY2006 based on actual collections for January and March – the data comes out later, after our Budget – showed a significant increase in stamp duties and took total stamp duty collections to $2 billion, not $1.5 billion which we estimated at the time of the Budget.’

Eventually, the property market accounted for more than $3.5 billion in extra revenues, lifting the budget surplus for FY2007 to $6.4 billion.

Although policymakers had assumed further price increases in the property market then, they did not expect the surge in the volume of transactions.

There was also uncertainty on whether the buoyancy in luxury projects would filter through to the rest of the property market.

Mr Tharman assured the House that soft targets were not set just so they could be exceeded.

In the past 10 years, there had been six instances of over-projection in the Budget positions.

But he conceded that accurate forecasting will remain difficult, ‘especially because we are a city economy that is fully exposed to the swings in global markets and to the vagaries of our own asset markets’.

He added: ‘We cannot expect too much prescience in the budget planning process.’

On the timing of last year’s GST increase, Mr Tharman explained it was necessary to introduce it while the revenue position was still strong, so that the government would be able to fully offset the impact on cost of living for most Singaporeans.

In fact, the $1.4 billion collected from the increase in GST was equal to the GST offset package and the Workfare Income Scheme paid out.

Data collected showed that the bottom 60 per cent of Singaporeans actually received more in offsets than the additional tax paid.

Mr Tharman also rebutted the argument that the government’s ‘grow at all costs’ policy had led to rising business costs and to lower-income Singaporeans being worse off.

‘It is precisely the rapid growth that we have seen in the last few years that has turned things around for our low income households and allowed them to enjoy positive growth in real incomes after the very difficult period they went through earlier in this decade,’ he said.

He stressed that the way to assure long-term growth for Singapore is to take advantage of opportunities when external conditions are favourable.

Small businesses, for instance, have been better off because Singapore has grown well in the last few years.

Even those that are heavily reliant on the domestic market have seen their businesses pick up because of the strong growth of Singaporeans’ incomes.

‘Costs are higher, but so are overall volumes and demand for their goods and services,’ Mr Tharman said.

He went on to say that the government is studying the individual learning account scheme as a tool to encourage participation in adult learning.

In the meantime, there are already incentives and subsidies of up to 80 per cent of fees to drive re-training of workers.

Although this year’s Budget is seen to provide for more significant benefits for households than businesses, Mr Tharman urged for it be seen as a balance between short-term relief measures for rising costs and long-term initiatives to build up capabilities.

While global uncertainties exist, the economy is not in a crisis, unemployment is at a record low, and the Singapore economy is expected to grow 4-6 per cent this year.

Source: Business Times 28 Feb 08

6.6% – Housing, transport, food prices fuel Jan inflation

INFLATION accelerated last month to a 26-year high of 6.6 per cent with housing, food and transport costs registering steep increases over the past year.

The January figure picks up pace from December’s 4.4 per cent jump – itself the biggest rise since April 1982 – as external and local factors added further upward momentum to consumer prices.

The big surge was largely anticipated by economists, who said inflation rates in the coming months are unlikely to rise much more from the current levels.

Still, the spike seems to have prompted an unprecedented move by the Ministry of Trade and Industry (MTI), which issued a statement on the inflation data as it was published yesterday by the Department of Statistics.

Seemingly looking to quell fears of spiralling living costs, the MTI said that while the jump in consumer prices last month was high,

this was consistent with the official full-year inflation forecast of 4.5 to 5.5 per cent.

It said the spike was bumped up by several one-off factors, adding that price pressures should subside later in the year.

The surge in last month’s consumer price index (CPI) was driven largely by an 11.1 per cent jump in housing costs.

Much of this came from the Government’s one-off revision of the annual values of public flats. The annual value is the theoretical rental income that a house could fetch in a year.

‘As has been explained in Parliament, this does not actually affect expenditures of most Singaporeans, who own the homes they live in,’ said the MTI statement.

The ministry also pointed out that price levels were especially low in January last year, due in part to service and conservancy rebates given out that month. Such rebates were not given last month as they were already doled out in December.

Less theoretical were the hikes in food and transport costs, the two biggest components of the CPI.

Driven by global prices, costs of raw food such as dairy products, cooking oil and meat surged, which in turn made dining out more expensive, said the Department of Statistics in its monthly statement.

High oil prices made driving more costly, while car prices and taxi fares rose, it added.

Some of the increase would have been the result of last July’s goods and services tax hike, which continues to inflate year-on-year CPI figures even though it is no longer raising price levels from one month to the next.

The MTI said looking at price rises between consecutive months would indicate inflation momentum better. Taking three-month averages to smooth out monthly volatility, it said inflation momentum picked up last July but has stayed constant since then.

Still, if headline inflation figures, which use year- on-year comparisons, remain high, inflation expectations may rise, warned Citigroup economist Kit Wei Zheng. This may prompt workers to demand higher wages to compensate for rising living costs.

Experts also said the CPI probably underestimates the pace at which living costs for foreign workers are rising, and hence the rate at which Singapore’s edge in the global competition for international talent is being eroded.

CIMB-GK economist Song Seng Wun noted that expatriates are likely to face much higher hikes in private home rentals and international school fees than what the CPI indicates.

Source: The Straits Times 26 Feb 08

COST SPIRAL: Rising prices, bigger handouts

Rising costs for individuals and businesses, a growing ‘gimme’ mentality and the dangers of the ‘green-eyed’ syndrome in society were among the concerns raised at a Straits Times roundtable, chaired by deputy editor Warren Fernandez, ahead of next week’s debate on this year’s Budget

THEIR big looming worry is how fast costs for both individuals and businesses will keep rising, and for how long.

Their reading: No reprieve any time soon, even if economic growth were to moderate this year due to a global slowdown, as the momentum of economic activity will mean that competition for land, labour and other resources will remain red hot.

The six panellists fired off tough questions for the Government on why it pushed ahead with last July’s hike in the goods and services tax (GST) from 5 to 7 per cent, and the increase in Electronic Road Pricing (ERP) tariffs from April this year, at a time when the inflation rate is high and rising.

Citigroup economist Kit Wei Zheng said: ‘I think the real danger here is that this could risk entrenching inflation expectations – therefore making the inflation problem even more persistent than it otherwise would be.’

OCBC economist Selena Ling agreed. She observed that inflation has both external and domestic sources and said government fee hikes can have a significant impact on costs over the medium term.

But panel members were divided on how best to tackle the issue of rising costs for businesses.

At one end were Mr Kit and MP Inderjit Singh. They argued that this year’s Budget should have done more to help businesses tackle rising costs, with some short-term reliefs.

Mr Singh, who chairs the Government Parliamentary Committee (GPC) for Finance and Trade and Industry, said cost increases for materials, rentals and manpower have been ‘too steep and too fast’, catching many businesses off-guard.

‘So businesses will struggle for a while. And I thought that this was the best time, with the kind of surplus that we have, to also address this short-term problem,’ he said.

The Government logged a whopping $6.45 billion Budget surplus last year, due to record levels of stamp duties from a red-hot property market and higher- than-expected income tax receipts.

Its 2008 Budget measures for businesses, however, focused on developing local enterprises over the longer term, through new tax deductions and incentives to spur research and development.

But Mr Singh said what businesses urgently need are measures such as rental and corporate tax rebates, to provide immediate relief from cost pressures.

Mr Kit questioned if the Government should go ahead with this year’s planned ERP hikes, which will further raise business costs.

Businessman Zulkifli Baharudin and MP Sin Boon Ann took a different view.

They argued that Singapore’s open economy limits what the Government can do to buffer businesses and individuals against high costs. They believe the focus should be on channelling resources to raise productivity.

Mr Zulkifli, managing director of logistics company Global Business Integrators, said: ‘If you want to be a London or New York, then it’s going to be very costly. But there’s the other side of the argument, which is productivity. If your productivity is high, you can mitigate against high costs.’

High costs have hit individuals too.

Taxi driver Raymond Lo, 68, a regular contributor to the Forum pages of this newspaper, said the public feels ‘Singapore is a very expensive city to live in’.

He related a recent incident which brought home to him how prices are shooting up.

He stopped at a petrol station to pick up his favourite lotus paste bun, only to find that the price had gone up from 60 cents to 80 cents.

‘I got a shock. That is a 33.5 per cent jump,’ he said.

Mr Lo welcomed the Budget measures to help the lower-income cope with rising costs but says more needs to be done to combat profiteering. Amid a buoyant economy, businesses believe they can get away with raising costs by more than the rise in GST.

Others round the table, however, noted that costs have risen in part because of global factors beyond anyone’s control, such as oil prices hitting US$100 a barrel, and skyrocketing food prices worldwide.

Mr Singh pointed to how wages had been rising significantly, with some bankers, for instance, drawing $8,000 starting salaries. Such rises feed into higher prices for rentals and housing, adding to inflationary pressures.

Last week, Finance Minister Tharman Shanmugaratnam announced a $1.8 billion surplus-sharing package that included personal income tax rebates, cash grants in the form of Growth Dividends and top-ups to Medisave.

Those on lower incomes and the elderly received more Growth Dividends and larger top-ups.

Mr Tharman also gave the assurance that the Government has in place strategies to ensure Singapore continues to have lower inflation than the rest of the world, over the medium term.

In assessing how the Government is helping Singaporeans cope with inflation, the six cited two main concerns. The first is Singaporeans may develop a ’subsidy mentality’ and expect handouts in every Budget.

The second is the social tension arising from a growing income gap.

Mr Singh noted that the Government has felt compelled to dish out goodies three Budgets in a row: this year because of the ‘unbelievable’ surplus and rising costs, last year to offset the GST hike, and the year before because ‘it was a good time to do it for the Government’.

Singapore went to the polls in 2006.

OCBC economist Selena Ling said the Government could better manage expectations of handouts if it could find a more accurate way of estimating its tax receipts.

She suggested a mid-year review of its budgetary position.

‘ That’s something they really need to look into because it’s all about managing expectations, at the end of the day. If you project a small deficit and in the end, you get a huge surplus, the political pressure will be there,’ she said.

Mr Sin, who chairs the GPC for Community Development, Youth and Sports, was concerned that people’s expectations will always outstrip the Government’s ability to help them cope with rising costs.

The challenge, he said, is to manage expectations in the midst of a rich-poor divide that cuts across local-foreigner lines.

The double blow of rising costs and a widening income gap on low-income Singaporeans is causing Mr Singh to wonder about the Government’s strategy of making a dash for growth in good years.

This approach had given rise to the present situation in which the economy is racing ahead, but running into major constraints in terms of labour shortages, a housing crunch, and crowded public transport.

He plans to make that a focus of his speech during next week’s Budget debate.

‘A couple of years ago, the PM – when he was the Finance Minister – said that his model is going to be grow as fast as you can in good years to make up for the bad times, and so therefore, we created an overheated situation,’ he says.

Others, like Mr Kit, pointed to how attempting to ease the shortage of workers could give rise to more pressures on housing and places in schools.

While no one was wishing for slower growth – which might come this year anyway – panellists believed that more could be done to help businesses and individuals cope with the downside of a boom economy.

Source: The Straits Times 23 Feb 08

GST hike, Budget surplus and rising costs

LAST year’s huge Budget surplus of $6.45 billion is causing some economists and MPs to question the timing of last July’s hike in the goods and services tax (GST).

The issue came up for debate when a taxi driver, two MPs, two economists and a businessman met at The Straits Times on Thursday for a roundtable discussion on Budget 2008.

Rising costs for individuals and businesses remain their top concern.

Citigroup economist Kit Wei Zheng pointed out that some of the cost increases are within the Government’s control.

He cited the GST hike and the increases in Electronic Road Pricing charges due to start in April.

‘There’s a question of why all these price increases are coming at a time when the inflation rate is already very high and continues to rise,’ he said.

But MP Inderjit Singh countered Mr Kit’s point that the GST should have been raised in two steps, not one.

That would have opened the door for businesses to raise prices not once, but twice, possibly causing more hardship to consumers, Mr Singh said.

The six panellists also tackled the issue of a widening income gap and whether regular Budget handouts would breed a ’subsidy mentality’ among Singaporeans.

Businessman Zulkifli Baharudin said: ‘It’s good to give but I hope down the line, we do not create a mentality that Budget time is just about hongbao.’

Insight reports on their frank exchange of views on the Government’s financial policy.

Source: The Straits Times 23 Feb 08

Lack of green perks disappoints industry players

Lack of green perks disappoints industry players

Budget surplus gives scope for perks such as tax credits, say industry players

IT HAD been widely anticipated, but in the end, the ‘green Budget’ that many people had been waiting for did not materialise.

The lack of incentives such as tax credits to encourage environmentally sustainable business practices has left industry players across various business sectors feeling disappointed.

They say the bumper $6.4 billion Budget surplus offered plenty of scope for such measures.

Post-Budget discussions in both the public and private sector have questioned the ‘noticeable absence’ of such policies.

Some MPs have said they will be raising questions of their own at the upcoming Budget debate, which begins on Monday.

Singapore Environment Council executive director Howard Shaw said, given that awareness of climate change has grown in the Republic in the last year, the lack of pro-green fiscal policies has been very surprising.

‘I thought this year would be the green year. But perhaps, we’ll see some provisions for this in the upcoming debate,’ he said.

Dr Teo Ho Pin, the MP for Bukit Panjang, also said he had expected a ‘green element’ in the Budget, delivered on Feb 15. ‘In emission standards, we are a long way off. Perhaps we should provide for all our public transport going diesel too,’ he said.

Only one announcement – to cut costs for private diesel cars – seemed related. Under newer standards, such cars release less carbon dioxide than petrol cars.

However, Mr Charles Chong, who heads the Government Parliamentary Committee on National Development and Environment, felt the Government should move towards encouraging compressed natural gas (CNG) vehicles, which are greener than diesel and petrol cars.

Mr Chong, an MP for Pasir Ris-Punggol GRC, said he will also be asking questions related to green incentives in the debate.

‘The private sector is more bottom-line driven and less altruistic in the short term. The Government has to take a longer-term view and put in the green infrastructure and policies. And what better time to do it than in a Budget surplus year?’

Although widely-expected direct measures such as tax credits for energy-efficient equipment for businesses did not turn up, the Budget did include indirect measures such as tax allowances for local research and development (R&D) – which could boost the environment solutions sector.

Also, in the past year, the Government has announced a slew of initiatives to improve environment sustainability such as the Clean Energy Programme Office.

Funds have been set aside to build test-bedding sites and for manpower training.

These efforts, although not part of the Budget, also helped to drive the local green movement.

Nominated MP Edwin Khew, also chief executive of local waste recycling firm IUT Global, said the R&D incentives will help the clean energy sector as its development is tied closely to breakthroughs in R&D.

Mr Khew said he will ask about incentives for the clean technology sector on Monday.

Recently, PricewaterhouseCoopers Singapore tax partner David Sandison said Singapore might have missed an opportunity in the wake of the Bali climate change conference to take a lead in the green movement.

Mr Shaw, however, recognised that an economy with green policies does not happen overnight. He added: ‘Making the right decisions is necessary and this will take time.’

Source: The Straits Times 23 Feb 08

$6.4b Budget surplus poser: Was GST hike needed last year?

The question may be visited during the Budget debate

(SINGAPORE) The $6.4 billion bumper Budget surplus racked up in FY2007 has begged the question – was there a need to raise the Goods and Services Tax (GST) by two percentage points last July, if at all?

The issue has surfaced in Budget talk public and private this week, and will likely be touched on in Parliament when it convenes next week for the Budget debate. Given the surprise haul – against a $0.7 billion deficit originally projected – and the usual misgivings the public would have about any tax increase, it’s a question to be expected.

While the buoyant economy and runaway property market last year did cue, by recent weeks, expectations of a Budget bounty, the $6.4 billion surplus still exceeded analysts’ projections by at least $1 billion.

From another perspective, though, the latest surplus amounts to less than 3 per cent of GDP, and is – in absolute terms and relative to GDP – nowhere near the highs notched up during Singapore’s track record of straight strong surpluses in the 1990s.

Still, the question remains – was it necessary to hike the GST rate to 7 per cent last July amid then ‘boom-time’ conditions? Could not government spending on various social and infrastructure programmes be funded from operating inflows and reserves?

Prime Minister Lee Hsien Loong explained the backdrop to funding government spending in a speech in Parliament in November 2006, when he first served notice of an impending GST hike to 7 per cent.

In essence: Government spending can only be partly funded by investment income from the reserves (with the nest-egg left intact to grow). The rest of the expenditure must be met by other revenue, mainly tax. And with countries slashing corporate tax rates over the years in a global race to compete for investments, Singapore cannot increase direct taxes to raise revenue. Instead, with an eye on competitiveness,

Singapore’s corporate tax rate has been progressively lowered over the years, most recently by two points to 18 per cent from Year of Assessment 2008 in the 2007 Budget.

And it could go down further – as, too, could the personal income tax rate, left untouched this year. In the latest Budget statement, the Finance Minister held out hope, saying: ‘We will reassess our options on corporate and personal income tax and lower rates further should it become necessary.’

As direct taxes get cut, indirect taxes must rise to make up for the revenue shortfall. The GST hike was part and parcel of a fiscal restructuring from direct to indirect taxation, with the impact of its hits softened, if not entirely absorbed, by a package of offsets.

Still, the question might persist: What revenue shortfall in a boom year?

Well, leaving aside its staunchly conservative stance, the government could not have foreseen the property market boom when it decided early last year on the July 2007 date for raising the GST. The market had not quite stirred, let alone exploded. At that point, the Singapore economy was expected to grow 4.5 to 6.5 per cent in 2007. But GDP growth for the year came in at 7.7 per cent.

As it turned out, the biggest boosts to the coffers in FY2007 – stamp duty and property-related revenue – were $3.4 billion above projections. But stamp duty, which amounted to $3.8 billion, did not even figure as a separate item in the revenue table of early estimates in the FY2007 Budget – it was probably lumped under ‘other taxes’.

 

Source:

$6.4b Budget surplus poser: Was GST

hike needed last year?

The question may be visited during the Budget debate

By ANNA TEO

(SINGAPORE) The $6.4 billion bumper Budget surplus racked up in

FY2007 has begged the question – was there a need to raise the Goods

and Services Tax (GST) by two percentage points last July, if at all?

The issue has surfaced in Budget talk public and private this week, and

will likely be touched on in Parliament when it convenes next week for

the Budget debate. Given the surprise haul – against a $0.7 billion deficit

originally projected – and the usual misgivings the public would have

about any tax increase, it’s a question to be expected.

While the buoyant economy and runaway property market last year did

cue, by recent weeks, expectations of a Budget bounty, the $6.4 billion

surplus still exceeded analysts’ projections by at least $1 billion.

From another perspective, though, the latest surplus amounts to less

than 3 per cent of GDP, and is – in absolute terms and relative to GDP -

nowhere near the highs notched up during Singapore’s track record of

straight strong surpluses in the 1990s.

Still, the question remains – was it necessary to hike the GST rate to 7

per cent last July amid then ‘boom-time’ conditions? Could not

government spending on various social and infrastructure programmes

be funded from operating inflows and reserves?

Prime Minister Lee Hsien Loong explained the backdrop to funding

government spending in a speech in Parliament in November 2006,

when he first served notice of an impending GST hike to 7 per cent.

In essence: Government spending can only be partly funded by

investment income from the reserves (with the nest-egg left intact to

grow). The rest of the expenditure must be met by other revenue, mainly

tax. And with countries slashing corporate tax rates over the years in a

global race to compete for investments, Singapore cannot increase

direct taxes to raise revenue. Instead, with an eye on competitiveness,

Story Print Friendly Page Page 1 of 2

http://www.businesstimes.com.sg/sub/storyprintfriendly/0,4582,268583,00.html? 22/2/2008

Singapore’s corporate tax rate has been progressively lowered over the

years, most recently by two points to 18 per cent from Year of

Assessment 2008 in the 2007 Budget.

And it could go down further – as, too, could the personal income tax

rate, left untouched this year. In the latest Budget statement, the

Finance Minister held out hope, saying: ‘We will reassess our options on

corporate and personal income tax and lower rates further should it

become necessary.’

As direct taxes get cut, indirect taxes must rise to make up for the

revenue shortfall. The GST hike was part and parcel of a fiscal

restructuring from direct to indirect taxation, with the impact of its hits

softened, if not entirely absorbed, by a package of offsets.

Still, the question might persist: What revenue shortfall in a boom year?

Well, leaving aside its staunchly conservative stance, the government

could not have foreseen the property market boom when it decided early

last year on the July 2007 date for raising the GST. The market had not

quite stirred, let alone exploded. At that point, the Singapore economy

was expected to grow 4.5 to 6.5 per cent in 2007. But GDP growth for

the year came in at 7.7 per cent.

As it turned out, the biggest boosts to the coffers in FY2007 – stamp duty

and property-related revenue – were $3.4 billion above projections. But

stamp duty, which amounted to $3.8 billion, did not even figure as a

separate item in the revenue table of early estimates in the FY2007

Budget – it was probably lumped under ‘other taxes’.

US growth forecast cut but S’pore economists unperturbed

Outlook for Republic has already factored in a more severe slowdown for US

THE Federal Reserve on Wednesday cut its forecast for United States economic growth, but the move left American investors and economists in Singapore unfazed.

The US central bank now expects the world’s biggest economy to expand between 1.3 per cent and 2 per cent this year, down from a previous prediction of 1.8 per cent to 2.5 per cent.

The Fed’s weaker outlook ironically sent Wall Street stocks up as investors read the downgrade to mean that more interest rate cuts were on the way.

In Singapore, economists say a slower US economy is bad news for exporters. They add, however, that forecasts for the local economy, including that of the Singapore Government’s, have already factored in a more severe US slowdown.

‘People are already factoring in the worst for the US,’ said Mr Joseph Tan, a Fortis Bank currency strategist based in Singapore. ‘That worst-case scenario has been factored in and priced in.’

The Trade and Industry Ministry trimmed its Singapore growth forecast on Feb 14 to 4 per cent to 6 per cent. It said even if the US is stuck in a long and deep recession, the local economy should at least achieve the lower end of its forecast range.

Wednesday’s forecast was the Fed’s second downward revision since last November, when it cut its US growth estimate for this year by 0.75 percentage point.

It said the latest revision was due to a number of factors, including a worsening housing market, tightening credit conditions, ongoing turmoil in financial markets and high oil prices.

With growth slowing more severely, the Fed now expects the unemployment rate to increase further to between 5.2 per cent and 5.3 per cent, up from its old forecast of 4.9 per cent.

The Fed’s latest forecast was published with the minutes of the Federal Open Market Committee’s Jan 29 to 30 meeting, at which members trimmed 0.5 percentage point off the key federal funds interest rate to 3 per cent.

The minutes showed that several members noted that ‘the risks of a downturn in the economy were significant’.

‘With no signs of a stabilisation in the housing sector and with financial conditions not yet stabilised, the committee agreed that downside risks to growth would remain even after this action,’ the minutes said, referring to the Fed’s most recent rate cut.

These comments and the weaker outlook have raised expectations that the Fed will lower the target rate for overnight loans among banks again at its next meeting on March 18. The Fed has slashed rates by 2.25 percentage points since September, including an emergency 0.75 percentage point cut on Jan 22.

‘The Fed’s main focus will remain the weakening economy and dysfunctional credit markets,’ Merrill Lynch economist David Rosenberg told Agence France-Presse. ‘We continue to expect the Fed to keep cutting rates and still look for a 50-basis-point reduction in the funds rate on March 18.’

Deutsche Bank economists added that if the US slips into a recession, the benchmark rate is ‘likely to go down to 2 per cent, if not a bit less’.

But what is causing more worries is escalating inflation, which hit a two-year high last month.

The Fed on Wednesday bumped up its projection for core inflation, which excludes volatile food and energy prices. It expects this to hit between 2 and 2.2 per cent, up from a prior forecast of 1.7 to 1.9 per cent.

The combination of rising inflation and slowing growth has led some analysts to recall the infamous 1970s spectre of ’stagflation’.

The economic phenomenon presents policymakers with a tough dilemma: Easing interest rates will boost growth but spur inflation, while hiking rates will do just the opposite.

 

Source: The Straits Times 22 Feb 08

It’s Singapore 2010

An honour and privilege for everyone, says PM Lee; now for the countdown to the main event

THE news that Singapore waited over seven months for came at precisely 7.11pm yesterday, broadcast live via satellite link from Lausanne in Switzerland.

It was delivered by International Olympic Committee (IOC) president Jacques Rogge, who simply said: ‘The IOC has the honour of announcing that the first Summer Youth Olympic Games in 2010 are awarded to the city of Singapore.’

With that, more than 5,000 people who had gathered at the Padang for the announcement, as well as countless others glued to television sets across the island, threw up a resounding cheer.

At the Padang, the reactions of the ‘Ser’ tandem of Singapore’s IOC Executive Board member Ng Ser Miang and Parliamentary Secretary (Community Development, Youth and Sports) Teo Ser Luck, who had been instrumental in pushing the bid, reflected Singaporeans’ joy over making history.

Both men caught each other in a bear hug before jumping up and down on stage, broad grins creasing their faces.

Prime Minister Lee Hsien Loong, called on to deliver a celebratory speech, had to wait a while for the cheers to die down before saying: ‘I need hardly say how happy we all are.’

A smiling Mr Lee, with a miniature Singapore flag clutched in one hand, hailed the win as a ‘great honour and privilege for Singapore and every Singaporean’.

‘For the first time, the Olympics flame will be in South-east Asia, and in Singapore,’ he said. ‘We will be the focus of a new era of sports development for Singapore, for South-east Asia, and for the Olympic movement.’

He praised the national effort to land the Games – both young and old, from schoolchildren to taxi drivers, were involved, including one 68-year-old cabby who wrote letters to all IOC members telling them why Singapore deserved to be host.

As the PM ended his speech, the party fired up anew. It had begun at 4pm but quietened as tensions rose with the clock ticking closer to the magic hour of 7pm.

Amid a backdrop of a City Hall bathed in yellow, purple and red lights, revellers began dancing, singing and hugging each other, flashing the ‘V for Victory’ symbol.

Ms Cindy Chin, 20, a Singapore Management University undergraduate, summed up the feelings of the assembled throng when she said: ‘This is a historic moment. Some of us are having our exams tomorrow, including me, but this is more important. I wanted to let everyone see that Singapore deserves to host the games.’

The contest to play host had come down to Singapore or Moscow. According to the Associated Press, IOC members voted 53-44 in the Republic’s favour.

What clinched it was its innovative Games concept, which included a compact venue plan and a comprehensive Olympic education programme.

Speaking in Lausanne, Mr Rogge also said he thought the prevailing sentiment among IOC members was that the event should go to a ‘new city that has not organised a Games’.

He added: ‘Singapore has put together a very exciting project.’

Expressing confidence in the Singapore team, he added: ‘I have no doubt that their professionalism and enthusiasm will be instrumental in the staging of a successful Youth Olympic Games.’

Yesterday’s announcement culminated in a sensational turnaround for a bid that started slowly nine months ago.

Singaporeans were initially tepid about the bid, but galvanised around it when the country emerged as a frontrunner.

The win caps a series of sporting coups for Singapore: It will stage the world’s first Formula One night race in September, as well as be a stopover port for the Volvo Ocean Race in January next year.

Now, as Mr Lee said last night, the countdown to the Games’ opening on Aug 14, 2010 begins. ‘We have 21/2 years to prepare for the Youth Olympic Games. It’s going to be challenging, but it’s going to be full of excitement and achievements.’

 

Source: The Straits Times 22 Feb 08

Recent crises serve as wake-up calls

Focus on corporate governance; S’pore updating Companies Act: Lim Hwee Hua

(SINGAPORE) Think of the huge fraudulent trading losses at Societe Generale. Or think of the sub-prime mortgage fallout. The recent crises that have rocked the financial sector have also brought corporate governance under the spotlight, Minister of State for Finance and Transport Lim Hwee Hua said yesterday.

The perceived tardiness by major financial institutions in coming clean over their sub-prime exposure has led to unhappiness among investors and stakeholders, she noted. Revelations on how a rogue trader at SocGen racked up nearly US$7 billion of losses also raised questions over the robustness of internal controls, board supervision and oversight of risks.

‘Inadvertently, with financial crises of such magnitude, there will be renewed calls to strengthen and tighten corporate governance practices,’ Mrs Lim said. She was speaking last night at the Singapore Corporate Awards.

The US Securities and Exchange Commission (SEC) is now looking at tightening disclosure practices, particularly in strengthening the relationship between a company’s risk officers, the disclosure committee and the audit committee.

Singapore is not immune to financial scandals either, she added, pointing to the commercial fraud by an ex-finance manager of Asia Pacific Breweries and the allegedly unauthorised foreign exchange trading at SembCorp Marine.

As part of its continuing efforts to improve corporate governance practices among companies, the Ministry of Finance has convened an 11-member strong Steering Committee to review the Companies Act.

The Steering Committee is chaired by the Solicitor General, Professor Walter Woon, and the aim of the review is to retain an efficient and transparent corporate regulatory framework that supports Singapore’s growth as a global hub for both businesses and investors.

The committee will update the law to keep pace with relevant international legal developments and technological advances, promote greater accountability and transparency while keeping the compliance cost low.

It will be assisted by five working groups to study distinct segments of the Companies Act. The previous fundamental review of the Companies Act was done in 1999.

But Mrs Lim also noted that a robust company law framework can be an unwieldy and blunt tool and should only be used sparingly. A code of best practices will provide firms ‘the flexibility to put in place the rules and systems that are most appropriate to their context.’

To this end, the Audit Committee Guidance Committee, a joint effort of the Monetary Authority of Singapore, Accounting and Corporate Regulatory Authority and SGX, was set up to look at providing practical guidance to audit committee members.

In addition, Mrs Lim recommended the use of rewards and recognition to laud companies for adopting good corporate governance practices and going beyond best practices.

 

Source: Business Times 21 Feb 08

Budget 2008: Businesses highlight what’s ‘wanting’

Panelists cite lack of measures to cut business costs, tackle manpower crunch

IT’S not just relief from rising costs that businesses find wanting in the 2008 Budget.

They could also do with help to tackle a growing manpower crunch, a Budget seminar heard yesterday.

Panelists at PricewaterhouseCooper’s seminar on the Singapore Budget cited the lack of specific measures to address the immediate problems that businesses face, and the absence of any ‘green’ initiatives, among its shortcomings.

Entrepreneur and Member of Parliament Inderjit Singh – who intends to raise the issue in Parliament during the coming Budget debate – said the government may, in response, say that Singapore’s business costs are still below Hong Kong’s, among other things.

But the issue is not so much absolute costs but more the rate of cost increases, he said. There was scope in particular for the Budget to address rising rental and manpower costs, he added.

And scope to help employers overcome a shortage of people, in the view of Philip Overmyer, chief executive of the Singapore International Chamber of Commerce.

From petrochemicals to the two integrated resorts, various sectors of the economy face problems in securing trained staff, Mr Overmyer noted.

‘And there’s nothing in this Budget that looks at this,’ he said.

Overall, the nitty-gritty of the Budget, in terms of incentives for specific industries, is good, Mr Overmyer said.

But the longer-term strategic focus – to promote innovation across the economy – appears to emphasise certain higher-end high-tech industries that lend themselves more to research and development (R&D) work. The activities that qualify for the tax perks are not quite the areas that ‘many, many small and some large companies’ delve in. Hence, some of the simpler, ‘non-fancy’ yet still important industries may be overlooked, Mr Overmyer said.

BT associate editor Vikram Khanna, another member of the panel, pointed out that R&D in Singapore is largely driven by multinational corporations. It remains to be seen if the latest tax incentives will trigger an R&D drive across industry – and particularly if small and medium-sized enterprises will ‘bite’.

 

Source: Business Times 21 Feb 08

Budget 2008: Businesses highlight what’s ‘wanting’

Panelists cite lack of measures to cut business costs, tackle manpower crunch

IT’S not just relief from rising costs that businesses find wanting in the 2008 Budget.

They could also do with help to tackle a growing manpower crunch, a Budget seminar heard yesterday.

Panelists at PricewaterhouseCooper’s seminar on the Singapore Budget cited the lack of specific measures to address the immediate problems that businesses face, and the absence of any ‘green’ initiatives, among its shortcomings.

Entrepreneur and Member of Parliament Inderjit Singh – who intends to raise the issue in Parliament during the coming Budget debate – said the government may, in response, say that Singapore’s business costs are still below Hong Kong’s, among other things.

But the issue is not so much absolute costs but more the rate of cost increases, he said. There was scope in particular for the Budget to address rising rental and manpower costs, he added.

And scope to help employers overcome a shortage of people, in the view of Philip Overmyer, chief executive of the Singapore International Chamber of Commerce.

From petrochemicals to the two integrated resorts, various sectors of the economy face problems in securing trained staff, Mr Overmyer noted.

‘And there’s nothing in this Budget that looks at this,’ he said.

Overall, the nitty-gritty of the Budget, in terms of incentives for specific industries, is good, Mr Overmyer said.

But the longer-term strategic focus – to promote innovation across the economy – appears to emphasise certain higher-end high-tech industries that lend themselves more to research and development (R&D) work. The activities that qualify for the tax perks are not quite the areas that ‘many, many small and some large companies’ delve in. Hence, some of the simpler, ‘non-fancy’ yet still important industries may be overlooked, Mr Overmyer said.

BT associate editor Vikram Khanna, another member of the panel, pointed out that R&D in Singapore is largely driven by multinational corporations. It remains to be seen if the latest tax incentives will trigger an R&D drive across industry – and particularly if small and medium-sized enterprises will ‘bite’.

 

Source: Business Times 21 Feb 08

Capital will keep flowing into Asia, says fund manager

CAPITAL will keep flowing into Asia despite the turbulence across global stock markets, according to a senior executive of an international fund manager.

Fidelity International’s global head of institutional investment, Mr Michael Gordon, said long-term investors remain positive on Asia’s prospects, as the region is not plagued by debt problems being witnessed elsewhere in the world.

Fidelity is a global investment management company with more than US$276 billion (S$390.3 billion) in its portfolio.

Mr Gordon expects Asian stocks to fare ‘a little better’ than global equities this year.

Global equities will end the year about where they are now, he predicts.

‘We are still clearly favouring Asia over the rest of the world,’ he told The Straits Times.

‘Capital will continue to flow to Asia. I don’t see that changing any time soon,’ he added.

‘The debt problems that are killing markets elsewhere are not present here. In Asia, debt has not driven things. The credit crunch is not biting here.’

Global equities endured a torrid time last month. About US$5.2 trillion were wiped off their value, as investors took cover in the face of economic uncertainties.

However, that has not dampened the positive sentiment among investors with a long-term view towards Asian markets.

‘There are no nerves about Asia. The longer-term investors remain as committed to their investments in Asia as they were last summer,’ Mr Gordon said.

On his outlook for global equities this year, he said: ‘The volatility will quiet down a little bit. From here, things will probably be flat from today.

‘I expect it to close down about 5 per cent to 10 per cent overall for the year.’

He also feels Asia will be ‘quite insulated’ in the event of an economic recession in the United States.

The region’s long-term financial health is thriving, with strong foreign exchange reserves and current account surpluses, he explained.

Asia is also no longer as dependent on US capital now as it was 10 years ago, he said.

Source: The Straits Times 19 Feb 08

Budget could have helped more with costs, firms say

Tax rebate and cut in worker levies, fuel taxes among measures sought

THE Government’s Budget this year may look like it is hongbaos all around, but companies are disappointed that they are getting little aid with their most pressing challenge – escalating costs.

Even as families look forward to generous Budget goodies to help them cope with rising inflation, the corporate sector says it has been left to fend off the same economic demon on its own.

Finance Minister Tharman Shanmugaratnam yesterday said, however, that corporate taxes were already cut since last year, adding that the Government should not overreact to the present situation.

‘Particularly for small and medium-sized companies, the tax regime in Singapore is already more competitive than in Hong Kong or any other country,’ he told reporters at a community event.

Still, companies, business groups and economists said with a near-record surplus of $6.45 billion, the Government could afford to dish out rebates and other measures to help with spiralling rental and wage bills.

And while they welcomed new schemes to promote innovation in the long term, they said they would have liked some immediate aid, too.

‘Our costs have gone up on all fronts, be it raw materials, labour or rentals,’ said Mr Lee Tong Soon, managing director of the Thai Village restaurant chain. ‘Our profit margins will be hurt, and we had hoped that the Government would do something to help us in the Budget.’

The latest Budget was presented to Parliament by Mr Tharman last Friday. Strong economic growth and a redhot property market led to the exceptional surplus, paving the way for special transfers totalling $5.4 billion.

Most benefits went to ease the burden of rising living costs for households, especially those of the poor and needy.

‘For businesses, there was really little in terms of direct help to tackle rising costs,’ said CIMB-GK economist Song Seng Wun.

While a cut in the corporate tax rate would have been welcome, few expected it since the rate was reduced from 20 per cent to 18 per cent last year.

‘The tax rate is already fair. Our China branches are taxed at more than 30 per cent,’ said Mr Lee.

Still, companies and analysts were hoping for a one-off income tax rebate, like that offered to individuals.

Foreign worker levies and fuel taxes could also have been lowered, while foreign worker quotas could have been raised and rebates given to relieve rising transportation costs, they said.

Mr Phillip Overmyer, Singapore International Chamber of Commerce chief executive, applauded the move to allow renovation costs to be expensed. This will mean big savings for retailers and restaurants, which have to remodel their outlets every two to three years.

But he was disappointed that the Government did not address Singapore’s acute shortage of skilled labour.

‘In the hospitality sector, foreign worker sources are mostly exhausted already, so there’s scope to broaden the countries that hotels and restaurants can source from.’

DBS Bank economist Irvin Seah said it was unfair to look at this Budget only. The Government has been working to relieve rental and wage burdens through non-Budget initiatives, he said.

Citigroup economist Kit Wei Zheng also said the Government may be counting on cost pressures to dissipate as the global economy slows.

Others suggested that the Government may be keeping its powder dry for off-Budget measures that may be needed should the United States and world economy slow more severely than expected.

Reactions to Budget 2008

STAYING AHEAD

‘Budget 2008 focuses on innovation and manpower – twin strategies that require an early investment in order for Singapore companies and the Singapore economy to stay ahead of global competition.’

SINGAPORE BUSINESS FEDERATION

ATTRACTING INVESTORS

‘For the financial sector, the most significant financial incentive is the removal of the estate duty… This would certainly make Singapore more attractive to overseas investors and assist in promoting the asset and wealth management business in Singapore.’

ASSOCIATION OF BANKS IN SINGAPORE

WOOING TALENTS

‘The tax measures introduced were well-balanced and consistent with the overall aim of the Budget to create a top-quality economy… Reduction of personal tax rates would have been a real icing on the cake in helping to achieve this aim, and we look forward to this materialising in the coming Budgets.’

MR AJIT PRABHU, Deloitte Singapore & South-east Asia tax partner

BOOSTING BUSINESSES

‘The Budget is good news for SMEs with most of the goodies appearing to go to them. However, it falls short of the expectations of multinational corporations and big business.’

MR DANNY TEO, KPMG managing partner

GOING GREEN

‘We had hoped to see additional tax depreciation on energy efficient and pollution-reducing equipment for businesses. The absence of such incentives… is a big let-down given the increasing worldwide concern on sustainability.’

MR LEONARD ONG, KPMG executive director

EASING COSTS

‘Significantly higher business costs from soaring rentals, GST hike, increased transportation costs from ERP, taxi fares and fuel prices have all exacerbated the situation. The Budget could have been better if it had brought some relief to address the rising cost of doing business.’

SINGAPORE CHINESE CHAMBER OF COMMERCE AND INDUSTRY

Source: The Straits Times 18 Feb 08

Don’t expect big Budget goodies every year: SM Goh

THE generous goodies given out last Friday are the result of a bumper Budget surplus that cannot be expected every year, Senior Minister Goh Chok Tong warned yesterday.

The surplus was driven by ‘exceptional’ economic growth of 7.7 per cent last year that may not be repeated, he said.

And the other conditions that led to such a big surplus – such as fast-rising property prices – may not even necessarily be desirable.

On Friday, the Government announced a huge Budget surplus of $6.4 billion, as well as $1.8 billion in benefits in the form of Growth Dividends, income tax rebates and health care and education related top-ups.

Urging people to have realistic expectations and not to keep asking for more, SM Goh said: ‘What I find missing is a little bit of reflection. That is, people asking themselves how this Budget is possible.

‘You got to understand that the surpluses came about because of the exceptional economic performance. We cannot grow by 7.7 per cent every year.’

He also noted that a key factor behind this year’s surplus was the strong growth of the property market.

It led to the Government collecting $4.1 billion in stamp duties paid on property purchases last year, a 211 per cent increase over the previous year.

But continued growth of the property sector at such a pace is neither possible nor desirable, SM Goh said, because it may lead to an oversupply of property or an overheating of the economy.

SM Goh was speaking to reporters yesterday at a Chinese New Year lunch at the Singapore Expo for about 1,000 elderly people from Marine Parade GRC.

He said that when he looked around at the silver-haired attendees, one question in his mind was how Singapore will look after them in the future.

‘So, therefore in our budgeting, we always have an eye on the future,’ he said.

For this reason, it is important for the Government not to give out too much of the surplus, Mr Goh added.

Rather, the Government must keep aside a sum to increase the size of Singapore’s reserves, which will come in handy in the future.

Singapore’s long-term well-being was also the focus of Education and Finance Minister Tharman Shanmugaratnam’s first public comments since delivering the Budget statement on Friday.

‘We have got to turn our minds away from the immediate benefits that are being handed out…Far more important is what we are doing for our children, our youth, particularly those who are going to post-secondary education.’

A slew of incentives in the area of education was announced as part of the Budget. They included subsidies for part-time degree courses, an $800 million boost for the lifelong learning fund, enhanced aid for needy university and polytechnic students, and more top-ups to student education accounts.

Mr Tharman also encouraged local businesses to pursue innovation in order to compete against those from China, India and Western countries.

He said: ‘They must invest in some R&D, some innovation…try to improve, do something special, different.

This is most important for us in the future.’

Commenting on concerns about rising inflation, Mr Tharman said Singapore is well poised to cope with this short-term problem.

He said: ‘Inflation is not a problem for us in Singapore because we can help those who are directly affected, make sure that their families can continue to get by, continue to afford their food, and also encourage everyone to get a job. This is a Budget principally about preparing for the future.’

 

Source: The Straits Times 18 Feb 08

9 in 10 find S’pore an expensive place to live in

Respondents in Sunday Times poll blame higher cost of housing, transport, food and utilities

HOUSEWIFE Goh Lay Leng has seen her monthly grocery bills go up by 10 per cent, and that has prompted the mother of four to look for cheaper alternatives.

‘Everything is increasing and we’re spending more. My husband says there’s hardly any money left at the end of the month,’ said Madam Goh, 44.

Her engineer husband brings home about $5,000 a month and the family lives in a four-room flat in Pasir Ris.

A total of 91 per cent of the 353 respondents in a Sunday Times survey agreed with Madam Goh, saying that Singapore had become an expensive place to live in.

The survey had been conducted in late December to understand Singaporeans’ attitude to money.

Nine in 10 also felt that Singapore was an expensive place to raise a family. Less than half were confident that their living standard would improve in the next two years.

They blamed the higher cost of housing, transport and basic necessities such as food, water and power.

Almost half said that they felt the financial strain of servicing mortgages or rents, although 36 per cent were contented.

Nearly half felt that a family of four needed between $50,000 and $70,000 a year – or $4,167 to $5,833 a month – to live comfortably.

The latest figures from the Department of Statistics show that the average household’s income went up by 9.6 per cent last year, the biggest increase in at least a decade.

It rose to $6,280, up from $5,730 the year before. Families with higher incomes also had bigger pay hikes than those in lower-income households, widening the rich-poor gap.

Prime Minister Lee Hsien Loong said recently that he expected inflation this year to be 5 per cent or more. It was about 2 per cent last year.

MP Halimah Yacob said that the public’s mood may have been dampened by the continuing prospect of high inflation. But she was also heartened that Singaporeans were practical and prudent.

‘They think of investing in their children’s education and old age and that reflects that they do recognise the need to plan for the long term,’ she said.

Take 41-year-old Madam Zaina Mohammad. The part-time cashier and her Cisco officer husband’s combined monthly income is just $2,000, but the couple make sure they deposit $50 every month into each of their three children’s bank accounts for their education fund.

Like her, the priority for most Singaporeans is their children’s future. If they had a million dollars, 27 per cent said that they would spend most of the money on education.

One possible indication as to why their children’s education reigned supreme: More than half of those surveyed said that they were either not sure, or did not think that their children would be able to improve upon or afford their present lifestyle as adults.

Another indication of Singaporeans’ prudent and practical traits: More than four in five chose to save their surplus income every month.

Despite rising prices, nearly all the people polled had no plans to pack up for greener pastures.

Ninety per cent agreed that Singapore was still a place worth living in. Also, two in five were glad that Singapore had become one of the richest countries in the world, because it meant better public amenities, a more cosmopolitan society and a vibrant nightlife and cultural scene.

Despite having to scrimp and save, Madam Zaina isn’t going anywhere. ‘It’s peaceful here and it is our home after all,’ she said.

 

Source: The Sunday Times 17 Feb 08

BUDGET 2008: THE DAY AFTER: The Government’s Budget Book

The Government’s Budget Book is a fascinating treasure trove of facts and figures about how different ministries are spending their money and what standards they hold themselves to. Fiona Chan and Adam Lee plough through this year’s offering

$20.1 million To be spent for the relocation of the People’s Association headquarters

$218 million To be spent on reclamation at Pulau Tekong

788 Number of overall crimes expected per 100,000 population, up from 717 last year

90% Proportion of ‘999′ calls answered within 10 seconds, down from 98% last year

$1.9 Amount given to the universities in grants and subsidies

15% Proportion of single males in the 40-44 age group. The proportion of single females in this age group is 12.9 per cent

7.6 Number of divorcees per 1,000 female residents

3 number of cooks in PM’s office

450 Number of arts groups/artists to be assisted through grants this year

$2.9 Compensation payments for Jurong Island Project

$3 million To buy furniture and equipment for new Changi Prison Complex

45.2% Increase in Public Service Commission spending last year over 2006, mainly due to the higher civil service salaries

24.4% Percentage of Primary 1 cohort admitted into NUS, NTU and SMU

$27 To be spent developing *Scape, the new Youth Park behind Orchard Cineleisure on Grange Road

90% Proportion of all criminal cases that are proceeded with as scheduled

Source: The Sunday Times 17 Feb 08

TOP OF THE NEWS: Budget boost for middle class

THIS year’s Budget has helped Singaporeans cope with their top concern – rising prices – by putting cash in the hands of both low-income and middle class workers, said MPs yesterday.

While bonuses for the poor and the elderly have been par for the course for several Budgets now, this year’s Budget saw the so-called ’sandwiched class’ receiving a big boost from a 20 per cent income tax rebate.

‘The savings can be considerable and help middle-income earners cope,’ said Hong Kah GRC MP Zaqy Mohamad on the Budget package Finance Minister Tharman Shanmugaratnam delivered in Parliament last Friday.

The economy grew by 7.7 per cent last year. But inflation – caused in part by high food prices globally – reached a 25-year high of 4.4 per cent last December, and is expected to rise further.

‘Some countries try to address the problem by putting price controls…The more practical way is what we do in Singapore,’ said Health Minister Khaw Boon Wan at a grassroots event last night.

‘Let the prices flow down to the market but we put extra money, because of good Budget growth, into Singaporeans’ pockets. And that’s the way we address rising inflation.’

The tax rebate announced last Friday is a 20 per cent reduction of the income tax paid this year on last year’s earnings. An individual who makes just under $100,000 a year and would normally pay $3,500 in taxes can save some $700 in cash.

This dwarfs the relatively modest sums some middle class workers received in previous Budgets and is equal to the largest payout of this year’s surplus-sharing programme – the Growth Dividends.

The dividends, which range from $100 to $700 in cash, will be given out in April and October, with more for the old and poor.

‘People used to say the middle-income have been left out, but not this year. They are getting something, so it’s a welcome relief,’ said tax expert Lam Kok Shang from KPMG.

MPs also noted that significant non-cash payouts were made: Children aged seven to 20 had their post secondary education funds upped by up to $600, and Medisave accounts of citizens 51 and above received up to $450.

Mr Tharman said on Friday that investing in education and growing jobs and incomes were the best offsets against inflation.

But even for the shorter term, education top-ups and wider subsidies will help parents cope with higher tertiary fees, Aljunied GRC MP Cynthia Phua said.

Tanjong Pagar GRC MP Indranee Rajah said that it was an equitable Budget with something for everybody, yet those in need will get more.

Tampines GRC MP Sin Boon Ann wished small businesses had more help to cope with rising costs, while Pasir Ris-Punggol GRC MP Charles Chong felt rising health-care costs should be addressed. MPs said they would raise these and other issues when Parliament sits from Feb 25 to debate the Budget.

Commenting on the bumper Budget surplus of $6.45 billion, Mr Sin said it made the generous giveaways this year possible.

But Foreign Minister George Yeo sounded a note of caution when asked why there were not even more rebates. He said at a grassroots event: ‘When we look a year ahead, there are clouds on the horizon. So we have to be careful.’

 

Source: The Sunday Times 17 Feb 08

BUDGET 2008: THE DAY AFTER – Goodies for many, a tinge of regret for some

The disabled as well as single working women benefited less from this year’s Budget

STROKE patient Jason Yap will receive about $750 in total from the Government this year, from growth dividends announced yesterday and goods and service tax (GST) rebates announced last year.

Yet the good news has come with a tinge of regret.

There was, again, nothing specific in the Budget targeted at the disabled.

Along with single working women, they represent a small number of groups in society that have consistently received smaller hongbao come Budget time.

‘It seems like the disabled are classified as an invisible lot,’ said Mr Yap, 43, a former human resource executive, yesterday. ‘But we need to survive as well.’

The articulate Bedok resident, who has a bachelor’s degree from Britain, was paralysed by a stroke at age 36.

Unable to work and with his savings virtually wiped out by medical bills, he lives with his elderly parents in a three-room flat.

The family survives largely on the $230 he gets from the South East Community Development Council and the $500 or so the older Mr Yap makes as an odd-job worker at the airport.

Holland-Bukit Timah GRC MP Liang Eng Hwa, who has spoken about help for the disabled before, said that there was no ‘direct assistance’ for the disabled community and that they could be made eligible for help from several social and medical assistance funds that have been topped up by the Government as part of the Budget.

These include the ComCare fund, Medifund and funds that voluntary welfare organisations can tap.

About $200 million will be pumped into the ComCare fund alone. This fund is the primary source sustaining the Government’s social assistance schemes.

But the disabled are not the only group that may feel slightly short- changed by this year’s Budget.

Single working women who do not earn enough to pay tax also did not get much.

They already do not qualify for the NSmen bonuses given to most male Singaporeans.

But this year, they also missed out on the benefits of a 20 per cent income tax rebate, which higher-income workers received.

Customer service officer Faizah Salleh, 23, for instance, will get $500 in her Budget hongbao this year, which is less than half of what an elderly woman living in a one-room flat can get.

But she said that she did not mind both her smaller hongbao and the fact that her father or brother would get more since they had served NS.

What has left her a little disappointed is the fact that, because her family of eight lives in a five-room flat, they received around $750 less than what they would have got had they lived in a smaller unit.

‘Because our family is so big, it’s difficult for us to downgrade,’ said Ms Faizah, who lives with her parents, sister-in-law and four siblings. ‘It would be good if the Government considered family size as well while giving assistance.’

Jurong GRC MP Halimah Yacob conceded that there was ’some basis for concern’ in Ms Faizah’s argument.

Housing type, she said, was the ‘easiest proxy indicator’ of a person’s economic status. ‘But we also know that there are many large families that live in five-room flats out of necessity,’ said Madam Halimah.

‘It would be good if per capita income could also be taken into consideration in any future distribution of surpluses.’

Another group that did not receive much in terms of relief were the top income earners, since a muchanticipated cut in income tax rates did not materialise and the tax rebate was capped at $2,000 per person.

But most felt that this elite group did not need the money, since they were key beneficiaries of substantial wage increments and bonuses paid out last year.

 

Source: The Sunday Times 17 Feb 08

BUDGET 2008: BUSINESSES (COMMENTARY) – S’pore sharpens new edge in rivalry with Hong Kong

Battle could go beyond taxes to areas like innovation and pacts with other countries

BOTH Hong Kong and Singapore have the advantage of proximity and to a certain extent, blood relationship to China.

However, as close as they seem ethnically where their majority populations are concerned, they could also not be more different in terms of their commercial views of the world.

With Singapore inflation now hitting a 25-year high at the end of last year, and expected to rise to as high as 5.5 per cent this year, the questions over Singapore’s competitiveness in the regional and global market place has many businesses concerned.

Strictly from a commercial perspective, both are equally affected by the external factors which are driving up global prices and so it may be fair to say that Singapore’s current inflationary woes are not limited solely to the island.

So how does Singapore stack up against Hong Kong and do the recent budget changes in Singapore enhance our position?

Key thrust

While the 2008 budget announcement by Finance Minister Tharman Shanmugaratnam was limited in terms of tax changes for big business, the minister announced incentives to signal that innovation would be a key thrust of Singapore’s economic progress. Many measures were clearly also targeted at encouraging innovative thinking in small and medium enterprises.

Indeed, the message is that developing new and leading-edge products will be a key focus for strengthening Singapore’s position as one of the leading knowledge hubs in Asia.

Hong Kong has yet to introduce enhanced tax incentives for R&D.

In terms of tax rates, Hong Kong’s standard rate of corporate income tax of 17.5 per cent compares favourably to Singapore’s standard rate of corporate income tax of 18 per cent. However, once Singapore’s broad network of tax incentives and partial exemptions are taken into consideration, Singapore’s effective tax rate is significantly lower than Hong Kong’s.

With the Hong Kong government having announced an impending one per cent cut to 16.5 per cent however, the differential can become insignificant.

However, tax rates are not the only factor for investors.

On the international tax front, Singapore has negotiated almost 60 double-tax agreements with most of its major trading partners throughout the world, including the majority of its Asian trading partners and, in particular, the major growth engines of China and India.

On the other hand, Hong Kong has negotiated only three double-tax agreements, including treaties with China and Thailand. Even these treaties are comparable to the benefits negotiated by Singapore with these jurisdictions.

Accordingly, when it comes to a ‘one-stop’ shop for investment in Asia-Pacific, Singapore remains attractive as the first port of call for foreign multinationals.

In Singapore, the standard rate of Goods and Services Tax (GST) has been 7 per cent since July 2007. There is no VAT or GST in Hong Kong.

One apparent advantage that Hong Kong has over Singapore is therefore the absence of an indirect tax regime similar to Singapore’s GST. So far, the Hong Kong government has been forced to defer the introduction of such a tax from the business community and the populace at large.

It is worthwhile noting that GST in Singapore is a tax on the final consumer, a cost which finds its way into the final price of goods and services which contributes to overall inflation.

In the area of individual taxes, while Singaporean residents did not receive the highly anticipated 2 per cent cut in top-tier tax rates, what they received was bittersweet. There was a 20 per cent rebate, but this is capped at $2,000.

Singapore’s personal tax regime may not be viewed as being as competitive as Hong Kong’s in terms of attracting high-income talent. As the table above shows, the effective tax rate for most senior executives remains more competitive for executives working in Hong Kong.

However, while the numbers speak for themselves, there are other non-tax factors such as air quality and housing costs which may sway in Singapore’s favour.One area where there was some cheer this time in Singapore was the long-awaited abolishment of Singapore estate duty.

This tax, which is essentially a ‘tax on the handing down of wealth’ finally came through after some years on many pre-Budget wish-lists.

The promotion of Singapore as a wealth management hub also saw the introduction of a tax incentive scheme for family-owned investment holding companies, allowing them to enjoy increased exemptions. This announcement should be an added boon to the wealth management industry in Singapore which will now find it far easier to attract wealthy foreigners to Singapore’s shores in competition with Hong Kong which abolished its estate duty back in 2005.

The most apt description, then, for Singapore Budget 2008 is that while still aimed at ensuring Singapore’s longer term competitiveness, was largely a bread and butter Budget for Singaporeans.

Nothing earth-shaking was announced for corporate Singapore.

However, the message remains that the government will focus on what it believes is right for the long-term growth of the country as always, while caring for the vulnerable, came through.

The writer is head of tax services at KPMG in Singapore. The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in Singapore

 

Source: Business Times 16 Feb 08

BUDGET 2008: STRATEGY(COMMENTARY) – Deficit next year? Just don’t bet on it

Wealth management gets a boost, but Tharman keeps his powder dry

EVERY year at Budget time, Singapore’s Finance Minister, Tharman Shanmugaratnam, faces a task that must make him the envy of his peers in the rest of the world: he must explain why the nation’s tax revenues were so much higher than originally planned. Like those of his immediate predecessors, Lee Hsien Loong and Richard Hu, Mr Tharman’s Budgets have been inherently conservative in outcome – even if they are often (as this year and last) intended to be stimulative at the outset.

In each of the last four years, real GDP has grown much faster than anticipated at Budget time. Tax revenues have consequently far exceeded those projected at Budget time. This fiscal year (which ends on March 31, 2008) was expected to yield a fiscal deficit of $0.6 billion, but the government now estimates that the final outcome will be a surplus of $6.35 billion. In fact, over the first three quarters of the fiscal year, the actual fiscal surplus was $10.8 billion. All tax revenues were higher (as they almost always are in Singapore), but asset taxes surged most spectacularly as property values soared.

The January-March quarter tends to be the seasonally-weakest one for the fiscal balance, but the deficit for that quarter is unlikely to be $4.4 billion, so the actual surplus for this year will almost certainly be larger than the government’s current estimate.

With a larger surplus as the base, next year’s fiscal balance will also be stronger, assuming budgeted increases in revenue and expenditure. A betting man could do worse than place a large wager on actual revenues comfortably exceeding the Budget’s projections next year too!

The government’s intention is to provide a fiscal stimulus in the year ahead – evident in the projected fiscal deficit next year of $0.8 billion, which is not very different from last year’s projection.

Modest tax reductions include a 20 per cent rebate on personal income tax (capped at $2,000), revenue-neutral changes to the alcohol tax, a slight reduction in vehicle taxes (largely offset by planned increases in the coverage of ERP), and the elimination of estate duty.

Of these, the last will have a permanent positive impact on the wealth management industry (and Singapore’s attractiveness as a home for the wealthy) without hurting the exchequer much. The market will be disappointed that the top rate of income tax will not decline from 20 per cent, and the corporate tax from 18 per cent.

Mr Tharman has kept his powder dry for a rainy day – leaving ample room to lower taxes further were the global economy to weaken substantially more. He has still outlined an ambitious spending programme on further honing Singapore’s world- beating transport infrastructure, tweaking its skills-development schemes, and moving Singapore’s three (soon to be four) universities closer to the global frontiers of research and innovation.

Fiscal incentives and spending will further bolster Singapore’s R&D capabilities, by boosting both start-ups and existing companies’ research and also by attracting global talent. And for the community, there are further incentives for more voluntary saving and a deepening of funds to help the needy, vulnerable and sick.

Most exciting for the longer term, however, are the steadily-widening schemes for sharing surpluses with citizens.

Singapore’s budgetary accounting system is among the most conservative in the world. The fiscal balance is obtained by subtracting both operating and development expenditure from the government’s operating revenue alone.

The government’s ample investment income (from land sales, as well as the dividends, interest and capital gains of its sovereign wealth funds) is not counted as government revenue. In recent years, the government has made a small concession by using up to 50 per cent of the dividends and interest income from its invested reserves to fund the special transfers (to MediShield for the elderly, growth dividends for citizens, GST credits, etc, which are properly skewed towards benefiting the needy more).

However, the substantial capital gains on the government’s investments continue to accumulate, and cannot yet be distributed to citizens.

By next year, a constitutional amendment will allow the government to share the fruits of the capital gains made by investing its burgeoning reserves over the past several decades. That will give Singapore the ability to turn the dream of being the pre-eminent global city into reality. Clearly, only a small proportion of capital gains will be made available for spending in this way – the prudent practices of rich university endowment funds being cited as a precedent to preserve much of the corpus for the future while spending largely the recurrent components of capital gains.

When it begins to free up some of the capital gains from past investments, Singapore will have the wherewithal to realise the vision of an innovative, research-driven global city. This Budget contains merely the hint of those vast possibilities, but the vision is already there for those who choose to look.

 

Source: Business Times 16 Feb 08

BUDGET 2008: INDIVIDUALS (COMMENTARY) – Great expectations … dashed for now

One-off rebate can’t make up for an income-tax cut, especially when inflation is expected to rise sharply

THE collective groan of disappointment that greeted the government’s announcement of no cuts in personal tax rates this year was just about matched by the cheers that went up when a one-off 20 per cent rebate was subsequently announced.

But make no mistake: the rebate, generous as it was, cannot make up for the much-needed tax cut.

And that’s because what’s at stake are not just lower individual tax bills – but how tax cuts can help Singaporeans cope with the rising costs of living and aid Singapore’s regional and international competitiveness.

But don’t get me wrong: the 20 per cent rebate is a very welcome measure. It would mean having a fifth of your tax bill knocked off this year, subject to a maximum reduction of $2,000.

Public accounting firm KPMG has done the math, and calculated substantial savings for the lower to middleincome earners. The benefits thin out for the big-income earners, expectedly, because of the $2,000 cap.

But are the savings enough to help Singaporeans cope with one of their most pressing concerns in recent times – the rising costs of living here?

Inflation in Singapore, as mentioned in the Budget speech yesterday, was about 2 per cent for 2007 as a whole – and was much higher towards the end of the year. And inflation is expected to hit between 4.5 per cent and 5.5 per cent this year.

As Finance Minister Tharman Shanmugaratnam himself said: ‘Inflation today is higher than what we have been used to in Singapore for many years.’

The unprecedented level of inflation will be a grave concern for Singaporeans, going forward – which makes the need for lower taxes all the more urgent.

And the 20 per cent rebate, while generous and targeted at the low to middle-income earners, is just a one-off measure – that is, it will only mean lower tax bills this year. What’s needed to help Singaporeans cope with rising costs over the longer term is a more permanent move, in the form of a reduction in the tax rates for all individuals.

To a lesser extent, a cut in personal income taxes would also have helped to boost Singapore’s competitiveness as a wealth management hub in the region.

The abolition of estate duty in Singapore will go far in luring wealthy individuals to park their money here – and that announcement in the Budget yesterday will, for now, help to increase Singapore’s attractiveness as a wealth management hub, even without a cut in personal taxes.

But, one needs to remember that neighbouring Hong Kong – Singapore’s fiercest rival for private banking and wealth management funds – is pulling ahead of Singapore, in terms of being able to offer a competitive tax environment for individuals.

Hong Kong slashed personal taxes in its 2007 Budget – it widened the marginal salaries tax band, cut the top two income tax rates, and announced a one-time waiver of 50 per cent of salaries tax and tax under personal assessment payable – when Singapore chose to keep its rates on hold. KPMG worked out that a person earning S$1 million would pay less tax in Hong Kong than in Singapore, as a result of these measures.

Assuming the individual is married with two children below the age of 16, he would pay an effective tax rate of 12.29 per cent in Hong Kong, as opposed to an effective tax of 17.42 per cent in Singapore, after deducting the respective reliefs applicable to him.

Experts agree that it’s not something Singapore can afford to ignore – and all eyes will be on whether Hong Kong decides to cut its tax rates again this year.

And it’s not just Hong Kong; with tax rates coming down across the globe, Singapore can ill-afford to lag behind.

The country has always prided itself on being one of the most competitive in the region, and it will need to seriously consider lowering personal taxes – along with the other generous incentives it’s offered to make itself the preferred hub for science and technology, businesses and individuals – to maintain that edge.

Expectations had been great that this would be the year for Singapore to bring its personal tax rates down to 18 per cent at the top level, but those expectations have been sorely dashed.

 

Source: Business Times 16 Feb 08

BUDGET 2008: STRATEGY – Five-pronged strategy to fight inflation

A key problem is imported inflation, especially of food and oil

SINGAPORE will adopt a five-prong strategy to tackle inflation which is expected to stay high at 4.5-5.5 per cent this year, more so especially in the first half, said Finance Minister Tharman Shamugaratnam.

This includes steps like diversifying the Republic’s food sources and more fundamentally, keeping the economy competitive.

Inflation is a concern ‘not expected to go away soon’, he warned, adding that Singaporeans have to brace themselves for more cost rises.

Over the last year, global oil prices have spiked by 50 per cent, raw food prices by 55 per cent and commodity prices by 31 per cent. These have cascaded down into higher transport costs, more expensive manufactured goods, and costlier consumer foods.

‘We cannot say how long it will last, but we have to expect that it will remain high, in the first half of this year especially. For example, China’s worst winter in 50 years will likely add pressure to prices of certain foods in the next six months,’ he added.

While last July’s Goods and Services Tax (GST) increase had partly contributed to inflation, this has been compensated for by substantial GST offsets – spread over four years – for most Singaporeans, Mr Tharman said.

‘The key problem we face going forward is that of imported inflation caused by high global prices, especially of food and oil.’

Outlining his five-prong anti-inflation plan, Mr Tharman said that this firstly involves the Monetary Authority of Singapore’s (MAS) use of the exchange rate to moderate imported inflation.

‘Had the MAS not allowed the Singapore dollar to appreciate over the last two years, our CPI inflation in the last quarter would have averaged 6.5 per cent, instead of the 4.1 per cent that was actually recorded,’ he said.

However, there is a limit to this strategy as it can hurt the Republic’s economic performance and growth, he warned.

An overly strong Singapore dollar can bring inflation down, but at the cost of lower growth and higher unemployment.

Secondly, Singapore is stepping up the diversification of its food sources so as to minimise spikes in the prices of imported foods.

The Agri-Food and Veterinary Authority of Singapore (AVA) is helping private importers buy from new overseas sources and the government will also continue to work with retailers to increase public awareness of cheaper food choices and substitutes.

The third way has been the government’s support of home ownership, especially through the heavy subsidies provided to lower-income Singaporeans to own a home.

This insulates Singaporeans, especially retirees, from increases in rental costs which are a significant long-term concern in other countries, he said. In the US, for example, about a fifth of older Americans rent their homes, with rentals accounting for close to one-third of their monthly expenditures.

Fourthly, the government provides assistance directly to Singaporeans who face problems coping with the cost of living, such as through the Workfare Income Supplement scheme and GST Offset Package.

‘This approach of helping those in need directly is better, and more sustainable than taking reflex actions such as imposing price controls on essential goods,’ he said, adding that the latter will only lead to negatives like hoarding and black markets.

Finally, the government aims to keep the economy competitive and build up capabilities for strong economic growth.

‘This is the best offset to global inflation – to educate and train up our people, attract new investments, create jobs, and sustain good growth of incomes for our whole population.

‘If global inflation stays high, all countries will be affected by it and we will not be able to totally insulate ourselves. But there is no reason why we cannot keep growing, and keep outperforming,’ he stressed.

 

Source: Business Times 16 Feb 08

Estate duty R.I.P.

Death tax removal makes S’pore an attractive place for wealth to be built up, says Tharman

IN A LONG awaited move, the Government yesterday read the last rites for the death tax here.

The tax, known as estate duty, had been imposed if the assets of a person who died exceeded certain limits.

It was abolished with immediate effect yesterday.

The Government believes the move will boost the wealth management industry by encouraging both foreigners and Singaporeans to base their assets here.

Although the move had been keenly awaited, it drew gasps of surprise when announced by Finance Minister Tharman Shanmugaratnam in Parliament yesterday.

Calls to abolish the tax had grown more frequent in recent years as growing affluence meant that even the middle classes were caught by it.

A key grouse was that the exemption limits were lopsided. An estate could, for example, own up to $9 million worth of residential property and not pay the duty.

But everything above $600,000 in cash, shares and other non-residential assets was subject to the duty.

Mr Tharman said the exemption limits tended to ‘affect the middle- and upper-middle-income estates disproportionately compared to wealthier ones’.

The intended target of the tax – the super rich – had been able to set up trusts and other legal arrangements that allow them to minimise the duty.

Estate duty was taxed at 5 per cent on the first $12 million of applicable assets and 10 per cent on amounts above. Assets of $1 million, for example, incurred duty of $50,000.

The duty had been whittled down considerably over the years. In 1984, the top rate was a hefty 60 per cent.

Mr Tharman said that removing the duty was not just a practical and expedient measure but also in Singapore’s collective interest.

‘If we make Singapore an attractive place for wealth to be invested and built up, whether by Singaporeans or foreigners who bring their assets here, it will benefit our whole economy and society, not just the individuals who build up their wealth.’

This will be a boost to the wealth management industry here, said KPMG Tax Services executive director Ooi Boon Jin. ‘It will encourage the inflow of foreign talent. People will bring money here, sink their roots here and invest here,’ he added.

On average, the Government collected about $75 million a year in estate duty.

Mr Tharman is encouraging people with accumulated wealth to think of how they can use the savings from the scrapping of the tax to make a contribution to society.

Already, one foreigner living here is making such plans after learning of the move.

Mr Iain Ewing, 62, founder of management training consultancy Ewing Communications, plans to channel half of the estate duty savings to fund university scholarships and other causes. The rest will go to his son, Tejas, 27.

Mr Ewing, a Canadian with permanent residence here, has worked here for 23 years and expects the savings to be millions of dollars.

Two likely recipients are Singapore Polytechnic – where he previously worked as a media producer – and his alma mater, the University of British Columbia in Canada.

‘It’s great that some of my money can do more for other people after I’ve gone,’ he added.

 

Source: The Straits Times 16 Feb 08

Robust economy, property market lead to $6.4b surplus

THE Government racked up a Budget surplus of $6.45 billion last year, the highest since 1994, outdoing even the most bullish of market forecasts.

Unexpectedly strong economic growth and a runaway property market sent tax revenues surging, putting paid to an initial projection of a $700 million deficit.

But such a sizzling performance is not expected in the next financial year, with an $800 million deficit pencilled once handouts and changes announced in the Budget are accounted for.

Economists, who were predicting a surplus of between $4 billion and $5 billion, said they were caught out by higher-than-expected consumption and real estate-related tax collections.

They were also surprised by the size of ‘budget hongbaos’ that will be given out next year. ‘It’s a very generous Budget, with much more special transfers than last year,’ said United Overseas Bank (UOB) economist Ho Woei Chen.

Finance Minister Tharman Shanmugaratnam yesterday told Parliament the unexpected surplus came on the back of exceptionally strong economic growth.

‘We started the year expecting a growth rate of 4.5 to 6.5 per cent, which was also in line with market forecasts. With actual growth at 7.7 per cent, corporate and personal income taxes came in some $1 billion higher than projected.’

As anticipated, strong company profits sent income tax collections from businesses up 6.2 per cent to $9 billion despite a cut in the corporate tax rate from 20 per cent to 18 per cent.

Bigger wages and a tight job market sent personal income tax revenues up 18.1 per cent to $5.56 billion.

The strong economy also boosted goods and services tax (GST) revenues.

While a rise was factored in, given last July’s GST hike from 5 per cent to 7 per cent, the final figure was $1.2 billion higher than initial estimates. This, said Mr Tharman, was due mostly to higher consumption.

He added that the rate hike raised $1.4 billion in revenues, matching the size of benefits paid out in the year through the GST Offset Package and Workfare.

Economists said a buoyant economy enabled retailers to raise prices to pass on the GST hike. The higher prices, in turn, translated into more GST paid.

But the biggest surprise came from the red-hot property market, said Mr Tharman. Stamp duty rose to a record $3.8 billion, $2.3 billion higher than expected. Other property-related revenues also clocked in $1.1 billion above projections.

‘These were large gains, out of the ordinary, and which we cannot expect to see very often,’ he said.

UOB’s Ms Ho noted that net investment income contributions seemed low at $2.3 billion, given buoyant markets last year. ‘It’s the lowest since Sars-hit 2003.’

Mr Tharman said the Government is amending the Constitutional framework to let it draw on more investment income from its reserves. This would allow it to further enhance tax competitiveness.

A Bill will go before Parliament later this year.

In the year ahead, operating revenues are predicted to inch up 0.5 per cent. Spending will rise 12.5 per cent and special transfers will more than double.

Citigroup economist Chua Hak Bin said the estimates are very conservative as in previous years. ‘We could see another surplus next year.’

 

Source: The Straits Times 16 Feb 08

Govt raises inflation forecast, sees peak in H1

Forecast upped to 4.5-5.5% as S’pore feels effect of rising food and oil prices

(SINGAPORE) Singapore’s inflation will get worse before it gets better, the Ministry of Trade and Industry (MTI) said yesterday, expecting inflation to peak in the first half of 2008 before moderating in the second half.

The government raised its full-year forecast for the headline consumer price index (CPI) to 4.5-5.5 per cent, from 3.5-4.5 per cent previously.

Rising food and oil prices globally have filtered through to domestic prices of food and oil-related items here, MTI said.

Last year, Singapore’s CPI grew 2.1 per cent year-on-year after growing by one per cent in 2006. It hit a 25-year high in December when it grew 4.4 per cent year-on-year. It rose 4.1 per cent for the fourth quarter.

MTI second permanent secretary Ravi Menon noted that part of the increase in the headline inflation here was due to the one-off effect of the two percentage-point hike since last July and technical factors like the revision of annual values of HDB flats.

‘We expect inflation to get worse before it gets better,’ he said at a media briefing yesterday. ‘The revised forecast is premised on fairly high inflation rates in the next few months. This is only to be expected given the very low base in the first half of last year.’

While inflation is expected to taper off in the second half during which the effect of the GST hike wanes, a return to the low inflation rates enjoyed in recent years will not happen any time soon as commodity prices are still likely to rise albeit at a slower pace than in 2007, Mr Menon added.

When asked if the Monetary Authority of Singapore (MAS) would be prompted to change its monetary policy stance given the higher inflation outlook, MAS deputy managing director Ong Chong Tee said the current monetary policy stance ‘remains appropriate and the macroecnomic and inflation outlook has been broadly consistent with the planning parameters’.

This policy of a modest and gradual appreciation of the S$NEER policy band has been in place since April 2004. Mr Menon noted that the current inflation outlook has to be viewed in the context of historically low inflation. For the last 40 years, Singapore’s inflation rate averaged 1.5 per cent, excluding the two oil shocks in the mid

1970s and early 1980s. Average inflation for the past 10 years was half that rate at 0.7 per cent due to the weak global demand in the aftermath of the Asian financial crisis, the downswing of the technology cycle and disinflationary impact from the emergence of China and other economies.

After years of low inflation, the world is now returning to ‘a more normal inflation environment,’ Mr Menon said.

But he added that the fact that long-term bond yields remain low and reflect that despite the current spike in inflation, the long-term inflation outlook remains low. And as long as jobs are created and wages grow, the impact of inflationary pressures will be dampened.

A recent report released by the Department of Statistics shows that household income has risen faster than inflation. Average household income from work was 32.4 per cent higher than 10 years ago, while consumer prices rose by a smaller 7.6 per cent over the same period.

Ministry of Manpower divisional director (manpower planning and policy) Jeffrey Wong said he expects employment growth to be sustained into 2008, after adding a record 236,600 jobs in 2007.

 

Source: Business Times 15 Feb 08

Slower growth, higher prices and uphill climb ahead

2008 growth forecast cut to 4-6% in shadow of US uncertainty

(SINGAPORE) The Singapore economy will see lower growth and higher inflation this year, but remains wellpoised to ride the upturn when it comes, says the Ministry of Trade and Industry (MTI). Most economists agree.

In view of heightened risks in recent months, chiefly a sharp US slowdown, MTI has shaved its forecast of Singapore’s 2008 GDP growth by half a percentage point to 4-6 per cent, which would be down a few notches from 2007’s revised 7.7 per cent pace.

The previous 2008 forecast in November had already factored in a US slowdown, MTI second permanent secretary Ravi Menon explained at a media briefing yesterday on the 2007 economic results.

But downside risks have since risen. And while it is not known if the US economy is in fact in recession, ‘what we do know is that the US is already experiencing a significant slowdown in growth, and the key uncertainty now is the length and severity of this slowdown’, said Mr Menon.

The new official 4-6 per cent growth forecast captures two scenarios. The

brighter outlook sees – as current conditions suggest, by MTI’s reading – the United States tackling a mild recession in the first half but recovering in the second half on the back of strong fundamentals, and fiscal and monetary stimulus.

Singapore will then likely grow in the upper half of the 4-6 per cent forecast, supported by healthy, if slower, growth in Europe and Japan, and a robust Asia.

But if the US falls into a severe recession brought on by a prolonged credit crunch, with knock-on effects in Europe and Asia, ’sentiment-sensitive and external-oriented’ sectors in Singapore, such as electronics, wholesale trade and financial services, will be hit hardest, said Mr Menon.

Even sectors with more of a regional exposure, such as health care and tourism, will not be totally unscathed. The Singapore economy will then likely grow nearer the 4 per cent end of the forecast range.

‘In either scenario, we’re looking at slower growth this year,’ he said.

Already, GDP growth slowed to 5.4 per cent in Q4 last year – down from Q3’s 9.5 per cent pace, and lower than early estimates of 6 per cent for Q4. On a quarter-on-quarter basis, GDP contracted by 4.8 per cent.

According to MTI, the Q4 slowdown reflected more the plunge in biomedical manufacturing – which fell nearly 30 per cent in Q4 because of cyclical pharmaceutical downtime – rather than any impact from the US.

Asked about the chances of Singapore slipping into a technical recession – if the economy sees a second consecutive negative quarter in quarter-on-quarter terms – Mr Menon said: ‘Most of the simulations we have done don’t show that outcome.’

MTI’s economics and strategy director, Cheang Kok Chung, also declared it ‘quite unlikely’, adding that there is ‘good potential’ for a biomedical rebound in Q1.

In fact, some of the more upbeat private sector economists see a quick rebound in GDP – in the current quarter.

While OCBC Bank’s treasury economist Selena Ling thinks the slowing growth momentum from Q4 2007 ‘could bleed over into Q1 2008′, others such as HSBC’s Prakriti Sofat see the Singapore economy bouncing back strongly in Q1. One reason – she is confident of a pharmaceutical turnaround ‘over the next few months’.

A recent Merrill Lynch report also voiced confidence that the Singapore economy is ‘well-positioned to cope with a US downturn this time’.

And P K Basu, the ever bullish chief economist (Asia ex-Japan) of Daiwa Institute of Research, declares: ‘I see no reason for even one iota of pessimism about the Singapore economy.’

Apart from the pharmaceutical bleed, Q4 was hardly a weak quarter at all, he says, pointing out that the rest of the economy, notably electronics, was ‘accelerating’.

But the ‘most eye-popping number’, Mr Basu said, was the Q4 manufacturing investment commitments of $8.7 billion – that spells jobs and output down the road.

Depending on the pharma sector rebound, he reckons GDP growth could hit 7-8 per cent in Q1.

‘I see no significant downside risk to my 7.4 per cent GDP growth forecast for 2008,’ he tells BT.

MTI – which yesterday also raised its 2008 inflation forecast for Singapore to 4.5-5.5 per cent – would be cheered by such confidence.

‘Growth will be lower and inflation higher, not a great combination,’ Mr Menon said. But the slowdown – after four years of above-trend growth – towards the economy’s underlying potential will help ease supply-side constraints and relieve cost pressures, he added.

Beyond 2008, the economy is well-positioned for any pick-up, he said. ‘Notwithstanding the weakened macroeconomic picture, the economy remains in fundamentally good shape structurally.’

Rising costs – and Singapore’s ever-strong fiscal balances – set the stage for the Budget today. Rebates and other goodies for lower-income households, as well as a cut in the personal income tax rate, are widely anticipated.

 

Source: Business Times 15 Feb 08

Singapore cuts growth forecast to 4% to 6%

Concern over a US recession leads to revision; inflation estimate is raised to 4.5%-5.5%

SINGAPORE has lowered its economic growth forecast for the year but also tipped that consumer prices are expected to rise faster than previously thought.

Concern over a possible United States recession led the Government to trim its growth forecast from an earlier estimate of 4.5 to 6.5 per cent to between 4 and 6 per cent. Last year, the economy expanded by 7.7 per cent.

Its inflation estimate has gone the other way with prices now tipped to rise on average between 4.5 and 5.5 per cent, up from a three-month-old forecast of between 3.5 and 4.5 per cent.

The Ministry of Trade and Industry (MTI) released the revised figures yesterday and raised its concerns about the US economy.

‘Compared to three months ago, there is broad consensus now that the US economy is entering a slowdown,’ said the ministry.

‘The key uncertainty is over the length and severity of this slowdown, which will in turn influence how the rest of the world and key industries are affected.’

The MTI’s new forecast shaves 0.5 percentage point off the estimate made three months ago and reflects the recent welter of bad news from the US.

MTI Second Permanent Secretary Ravi Menon told a news conference that the earlier forecast had already factored in a US slowdown.

But ’since then, the downside risks have increased somewhat… The US is really experiencing a significant slowdown in growth.’

Economists were not surprised at the revision, given the deteriorating global outlook. Many had slashed their Singapore estimates in light of surprisingly weak data out of the US in recent weeks.

The MTI said current conditions suggest that the US will probably enter a mild recession in the first half but recover as the year goes on.

‘Strong fundamentals, coupled with fiscal and monetary stimulus, will help to support recovery in the second half,’ it said.

In this scenario, the local economy should grow in the upper half of the forecast range, said the MTI. But if the US has a more severe recession, growth here will be nearer the lower end of the range.

Electronics exporters and the trading and logistics firms that serve the industry will take the biggest hit, said the MTI, while financial services will be more vulnerable to weaker market sentiment.

The slower growth comes after four years of robust expansion and is still within the economy’s underlying potential growth rate, said Mr Menon.

Singapore should also escape a technical recession, defined as two straight declines in quarter-on-quarter growth. ‘Most of the simulations we have done do not show that outcome,’ said Mr Menon.

Action Economics economist David Cohen said, ‘4 to 6 per cent is realistic. It’s nothing to be embarrassed about.’

On the inflation front, prices are set to rise even faster than the record-breaking pace of recent months, due largely to surging oil and food costs.

Mr Menon said inflation will peak by the middle of the year before moderating.

The Monetary Authority of Singapore (MAS) said its policy of allowing a slightly faster appreciation of the Sing dollar remains appropriate.

Economists said the Government may announce today a more generous Budget to help low-income earners cope with escalating living costs.

This would allow the MAS to focus more on the slowing economy when it reviews its policy stance in April.

 

Source: The Straits Times 15 Feb 08

Economy grows 7.7%, beats expectations

Growth is somewhat dampened by surprise downward revision for fourth quarter

SINGAPORE’S economy grew even faster than expected last year, with a robust 7.7 per cent expansion fuelled by the booming construction and services sectors.

That was a notch up from an earlier estimate of 7.5 per cent – thanks to upward revisions to growth in the first nine months.

There was, however, a sting in the tail of the latest figures, published yesterday by the Trade and Industry Ministry (MTI).

The strong full-year growth was somewhat overshadowed by fourth-quarter figures, which turned out to be weaker than previously estimated.

Economic growth slowed to 5.4 per cent from October to December, said the MTI, lower than the 6 per cent previously estimated and far below the 9.5 per cent recorded in the third quarter.

On a seasonally-adjusted, quarter-on-quarter basis, the economy shrank 4.8 per cent, more than the 3.2 per cent estimated earlier by the Government The downward adjustment surprised economists, who said the final quarter would best indicate prospects for this year.

Already, the fast-deteriorating United States economy has prompted the MTI and other economists to cut their growth forecasts for this year.

‘We think the slowing growth momentum from the fourth quarter could bleed over to the first quarter of this year,’ said OCBC Bank economist Selena Ling.

Last year’s strong growth was powered by the red-hot construction and services sectors. The once-mighty manufacturing sector turned out to be the laggard.

Construction growth hit a record 19.6 per cent, the fastest pace since 1996, while services expanded 8.1 per cent, accelerating from 2006’s 7.5 per cent.

Manufacturing growth, on the other hand, slowed to 5.8 per cent from 11.9 per cent in 2006.

It was a similar picture in the fourth quarter, except that manufacturing growth was an exceptionally dismal 0.2 per cent.

The revised data came a month after advanced estimates for the fourth quarter were published at the start of the year. The early figures were based largely on the first two months of the quarter, so the latest statistics suggested that conditions worsened considerably in December, analysts said.

The adjustment was mainly due to services, which grew 7.7 per cent instead of 8.3 per cent, and manufacturing, which fared even worse than an earlier predicted 0.5 per cent expansion.

‘Financial services have peaked as we have forecast. The industry will likely moderate further. The heady days of high-teens growth are over,’ said Citigroup economist Kit Wei Zheng. He said the fall in financial services growth to 15.9 per cent in the fourth quarter suggested that the industry peaked in the third quarter, when it surged 20.1 per cent.

OCBC’s Ms Ling said manufacturing would remain lacklustre in the current quarter, if not the first half of the year. ‘With the global slowdown story, we do not expect any quick turnaround on the manufacturing front,’ she said.

Still, some economists are not ringing the alarm bells just yet.

HSBC economist Prakriti Sofat said while US growth slowed in the fourth quarter, that was not the cause for Singapore’s weak figures.

Analysts pinpointed the volatile pharmaceutical industry as the main reason for the slowdown.

‘Manufacturing output plunged, largely due to protracted production delays and technical problems at Singapore’s biggest pharmaceutical plant,’ said Barclays Capital economist Leong Wai Ho. ‘Supply bottlenecks were the main cause, not a drop-off in demand.’

Indeed, pharmaceutical’s recent sharp contraction could well set it up for a big rebound in the next few months, said analysts.

More optimistic economists are also looking to resilience in domestic and regional economies.

The construction sector is expected to continue growing robustly, given the strong pipeline of both public and private projects.

Sectors such as tourism and real estate services will be partially shielded from a US slowdown by neighbouring economies, on which they are more dependent, said the MTI.

 

Source: The Straits Times 15 Feb 08

Average monthly household income grows at fastest pace in 10 years

But income inequality widens despite govt effort

(SINGAPORE) Income inequality in Singapore widened last year to its most pronounced state since at least the year 2000, with some high-income households enjoying big pay increases while the less well-off saw more modest wage gains, according to a report released yesterday by the Singapore Department of Statistics.

On average, almost everyone is somewhat better off than they were. Among Singapore resident households with at least one working member, average monthly income from work rose 9.1 per cent to $6,830 in 2007, from $6,260 the previous year, the fastest growth in the last decade, the report said.

However, the average was skewed by disproportionately higher income gains for the wealthiest households. The average monthly household income for the top 10 per cent earners rose 10.5 per cent to $20,240, up from $18,310 in 2006.

For the bottom 10 per cent, income from work increased just 3.9 per cent to $1,210, or 1.9 per cent after inflation.

When computed on a per household member level, average income per member for the bottom decile was only $310, up $10 from $300 in 2006. For the top decile, income per household member was $7,940, up from $6,990.

Domestic workers are considered household members, although their wages are not included in the income figures.

The income disparity even among the well-off in Singapore was also large, according to the report. The average household income of the 80th to 90th percentile of earners was $11,190, compared to $20,240 for the top decile.

In 1995, the equivalent figures in nominal terms were $6,990 and $11,190.

The big disparities in income gains resulted in a sharp jump in the Gini coefficient – a statistical measure of income inequality – from 0.472 in 2006 to 0.485 in 2007. The figure has grown every year since it was first computed using the current method in 2000, when the value was 0.442, according to the Department of Statistics.

Gini coefficient was 0.44 in 1990 and 0.47 in 1999, but those figures were computed using a different methodology and coverage, said the department.

Government measures to alleviate the income disparity have failed to narrow the gap.

After adjusting for government taxes and benefits, including last year’s Goods and Services Tax offset package, the Gini coefficient was 0.460 in 2007, still a substantial rise from 2006’s similarly adjusted figure of 0.439.

Most developed countries such as Switzerland, the United Kingdom and Japan, have coefficients of between 0.25 and 0.40, while South American countries like Brazil and Argentina tend to score between 0.40 and 0.60.

However, cross-border comparisons are difficult because each country’s figures may be computed differently.

But the Gini coefficient may underestimate total income and wealth inequality in Singapore as the Department of Statistics used only income from work – wages, as well as business proceeds for the self-employed. Income from dividends, rentals and interest was not included, and such income is likely to accrue more to high earners.

Also, the Department of Statistics only included employed households – defined as households with at least one working member – in its computation of the Gini coefficient, leaving retiree or unemployed households out of the picture.

 

Source: Business Times 14 Feb 08

Surging business costs worry Chinese chamber

SURGING business costs, brought on by last year’s increase in the Goods and Services Tax (GST), higher office rents and rising oil prices, are chief among the worries of Singapore Chinese Chamber of Commerce and Industry members.

This was the finding of the chamber’s annual pre-Budget survey sent to all of its 4,000 corporate members in December and last month. It showed that members are hoping this year’s Budget, to be announced tomorrow, will address the issue of the rising costs of doing business.

Respondents believed that increased business costs caused by dearer raw materials such as oil and more expensive manpower, among other factors, had also led to lower customer sales. This caused corporate profits to fall even further.

Looking to the year ahead, respondents expressed fears that escalating taxes, levies and other charges might have an impact on businesses directly.

This would further erode Singapore’s competitiveness, especially when foreign competitors are able to undercut the Republic with lower overheads and labour costs, the chamber said.

On the list of wishes that the companies have is a lowering of government taxes and charges, especially corporate income tax.

‘Personal income tax should be reduced to 18 per cent. As for the corporate income tax, the Government could also consider increasing the ceiling of chargeable income qualifying for tax exemption,’ the chamber said in a statement yesterday.

In order to ensure Singapore continues to excel as a hub for meetings, incentive trips, conventions or exhibitions, the chamber also urged the Government to consider exempting such events from the GST to help local businesses cope with surging rents.

The respondents also called on the Government to relax laws to open up new labour sources.

‘For local enterprises, the respondents hoped that the Government could render more support, such as more assistance schemes for local companies to upgrade and train their workers,’ the statement said.

‘They also called for more pro-enterprise measures so that smaller companies could gain greater access to public projects.’

 

Source: The Straits Times 14 Feb 08

Household incomes up but rich-poor gap widens

THANKS to a booming economy and rising salaries, the average family in Singapore saw its household income rise by 9.6 per cent last year, the biggest increase in at least a decade.

But the rich again got richer in 2007. Higher-income households generally enjoyed bigger pay hikes than lower-income ones, widening the income gap between the rich and poor.

Data published yesterday by the Department of Statistics (DOS) showed that average monthly household income from work last year rose to $6,280, up from $5,730 the previous year.

Much of this was due to strong economic growth and a tight labour market, which drove up just about all salaries last year.

The data comes on the heels of a set of rosy numbers for Singapore’s workers. The unemployment rate is at a 10-year low, while average bonuses paid out are at their highest since 1990.

Even after accounting for inflation, income still grew 7.4 per cent, beating a previous high of 6.2 per cent in 2001 at the height of the dot.com boom.

Citigroup economist Chua Hak Bin said: ‘It’s very encouraging that workers are finally seeing big gains from the economic boom of the past few years.

‘The earlier part of the recovery from Sars in 2003 had benefited companies more, with wage gains being relatively modest in previous years.’

But yesterday’s figures from the DOS also showed that the wages boom was clearly skewed in favour of richer families.

Income per family member in the top 10 per cent income bracket surged 11.1 per cent.

This is compared to 3.3 per cent for the lowest 10 per cent income bracket.

The result is that the Gini coefficient, a widely used measure of income inequality in a country, has gone up to 0.485 from 0.472 – one of the biggest increases in the past seven years.

The DOS acknowledged this yesterday, saying that it reflected ‘higher wage increases for skilled and knowledge workers’.

Economists agreed, positing that the unusually large jump could be due to more top global business executives relocating here.

But they also noted yesterday that a widening income gap is to be expected in a globalised economy. This is because low-skilled workers may not have as much bargaining power even in a tight labour market as companies can easily turn to cheaper foreign labour.

This means the Government will have to help poorer families more as the spoils of globalisation are not equally distributed, they added.

Indeed, economists said that with economic conditions turning south, more help should be announced at tomorrow’s Budget statement as lower-income, lower-skilled workers may be more vulnerable.

Said DBS Bank economist Irvin Seah: ‘I would not be surprised to see many measures at this Budget to alleviate the lower-income families from the escalating costs of living.’

In this vein, the DOS noted yesterday that Government benefits targeting the lower-income, such as the Goods and Services Tax offset package offered at last year’s Budget, helped to narrow the income gap.

If those were taken into account, the Gini coefficient would come down to 0.46, it said.

 

Source: Business Times 13 Feb 08

2007 Budget surplus expected to hit eight-year high

Figure forecast to reach between $4b and $5b on higher tax revenues

THE Government is widely expected to report its largest Budget surplus since the dot.com boom, after a robust economy boosted tax collections last year.

Good corporate profits, strong wage growth and a rip-roaring property market are likely to mean that public revenues exceeded expenditures by between $4 billion and $5 billion, say economists.

This would give the Government considerable leeway to be extra generous with one-off financial aid measures to help the elderly and poor cope with escalating living costs, the experts said.

‘It’s going to surprise on the upside,’ said DBS Bank economist Irvin Seah, who is expecting an overall surplus of $4.28 billion for the fiscal year ending March 31. ‘Due to strong economic growth, tax collections will be higher than expected.’

Finance Minister Tharman Shanmugaratnam will be presenting the Budget to Parliament on Friday. The expected bumper surplus follows economic growth last year, likely to come in at 7.5 per cent.

The final figures for gross domestic product, or economic output, for last year will be announced tomorrow and are expected to reflect estimates published last month.

The Government has recorded, at best, a small surplus in recent years. The last time it achieved a bulging surplus was in 2000 at $4 billion and in 1999 at $4.9 billion.

Standard Chartered Bank (Stanchart) economist Alvin Liew noted that when a fiscal deficit of $690,000 was estimated a year ago, the Government was forecasting growth at 4 per cent to 6 per cent.

‘But actual growth has exceeded their expectations by more than 2 percentage points,’ he said.

CIMB-GK economist Song Seng Wun said the Government’s operating revenues probably jumped by 25 per cent from the previous year, instead of the official 5 per cent forecast.

Economists said personal income tax receipts rose as the strong economy lifted wages and created jobs.

Average bonuses paid out to workers have hit a 17-year high, while the unemployment rate has come down to a 10-year low.

Businesses should also post much stronger earnings such that they will pay more taxes overall despite a cut in the corporate tax rate from 20 per cent to 18 per cent.

Citigroup economist Kit Wei Zheng estimates that combined income tax collections from companies and individuals, which make up almost half of all tax revenues, surged 20 per cent.

Stanchart’s Mr Liew said revenues from the goods and services tax (GST) probably exceeded government projections, too. He noted that the booming economy has allowed consumer prices to rise strongly, probably exceeding government forecasts, which will boost GST receipts.

The experts say the Government should distribute the bulging surplus mainly to individuals who face a slowing economy and rising inflation.

‘The key focus will likely be measures to address the widening income gap and help the lower-income group cope with high costs of living,’ said United Overseas Bank economist Ho Woei Chen. This will likely take the form of one-off help, such as rental and utility rebates for the poor.

Beyond addressing acute challenges, economists said the Government would likely keep an eye on the medium to long term also.

A cut in personal income tax rates to match last year’s reduction in company taxes is widely anticipated to help Singapore attract foreign talent to live and work here.

The Government may also look to further enhance public infrastructure to keep Singapore competitive.

 

Source: The Straits Times 13 Feb 08

Don’t over-stretch yourselves: MM Lee

Financial prudence in periods of boom will enable S’poreans to ride out bad times

MINISTER Mentor Lee Kuan Yew last night urged Singaporeans not to over-stretch themselves financially in a period of boom, so that in the event of bad times, they would be better able to ride out the cycle.

Describing the effect of the property cycle, he warned that property prices go in cycles and will not keep going up all the time.

‘They go up, then they go down,’ he said. ‘So when they go up, don’t believe that it’s going to go up further and further, and you start buying bigger and bigger, and mortgage for bigger and bigger amounts. Because the day it starts to fall, the cycle goes around, you will find yourself with a negative value asset.’

It is by such prudent attitude that the government has refrained from spending the hundreds of billions of dollars of reserves that it has built up over the decades. Pointing to the recent investments made by the Government of Singapore Investment Corp and Temasek Holdings, Mr Lee said the two agencies were able to increase the value of their assets because they hang on in a recession, and sell part of their assets and keep cash when the boom becomes too intoxicating. The strategy ensured that when international banks like UBS, Citigroup and Merrill Lynch needed cash, GIC and Temasek would have the cash to invest in them.

Mr Lee was speaking at the Tanjong Pagar GRC Chinese New Year dinner when he made those comments. The constituency dinner, held at Farrer Park Primary School, was attended by some 1,200 residents and guests.

At the event, Mr Lee also cautioned against failing to plan for old age, saying: ‘The government will not allow anybody to die of starvation, but we are not going to cover you for your indiscretions.’

Along with the guarded tone in his message, he spoke of a bright outlook for Singapore. While the rise in food and energy prices and the widening income gap are causes for concern, he said Singapore can mitigate these problems.

‘But we must press ahead and maximise our chances to break through in the coming five to 10 years to reach a higher quality of development,’ he said. ‘We are now into a period of steady growth and transformation.’

Apart from the massive foreign infrastructure investments Singapore has attracted, the Republic is also spending about $28 billion in new MRT lines and a new expressway. The city centre is undergoing a makeover with the upcoming integrated resorts, the soon-to-be-completed Marina Barrage, and a Formula One night race.

Mr Lee said that Singapore has become successful thus far ‘because we have assumed individual responsibility for our lives’. Without natural resources, the way Singapore has managed to attract investors has been to keep taxes low, and offer a highly efficient, non-corrupt system and an industrial climate where workers, employers and government can work together.

‘And that is the basis on which we have huge investments coming in, because they (investors) know that this system will ensure that there will be no sudden dive down,’ he said.

‘I therefore urge everyone to remember, individual responsibility and family responsibility for each other is the way to go forward and the way to build one of the best cities in the tropics.’

 

Source: Business Times 12 Feb 08

Q4 GDP seen shrinking by 3.4%: poll

But Singapore not expected to slide into recession

SINGAPORE’S economy probably shrank in the fourth quarter by an annualised 3.4 per cent, weaker than an advance government estimate and the first quarterly contraction since 2003, a Reuters poll showed.

The preliminary government estimate suggested the economy shrank an annualised 3.2 per cent in the final three months of 2007. Factory output at the end of the year was lower than expected, after a 4.3 per cent expansion in the third quarter.

Most economists do not expect Singapore to slide into recession – defined as two consecutive quarterly contractions in economic growth – although slower growth will probably prevent the central bank from tightening monetary policy to rein in inflation, which is at a 25-year high.

The slowdown, after four years of booming growth averaging 6.6 per cent, is due to a sharp fall in manufacturing activity as demand for electronics in the United States and Europe dropped in the fourth quarter.

Drug output was also weak at the end of 2007.

‘The fourth-quarter slowdown was due to a contraction in the biomedical sector, but we can expect a rebound in the first quarter,’ said David Cohen, an economist from Action Economics.

‘The biomedical sector would be the least vulnerable to weakness in global demand,’ he said.

Many Asian economies are expected to slow this year on the back of the struggling US economy, the region’s largest export market.

The International Monetary Fund cut its global 2008 growth projection to 4.1 per cent from 4.4 per cent in January because of continuing stress in global credit markets, and it warned that economic activity could slow even further.

Singapore’s economic growth in the fourth quarter is expected to have slowed to 6 per cent from a year earlier, down from 8.9 per cent in the third quarter but in line with the advance government estimate, the poll of 10 economists showed.

For 2007 as a whole, the economy probably grew 7.5 per cent, also in line with the government’s estimate but slightly lower than the 7.9 per cent in 2006.

‘A US recession is likely to deepen the manufacturing and export slump this year, causing GDP growth to slow to 5.6 per cent in 2008,’ said Kit Wei Zheng, a Citigroup economist.

Factory output, which generates a quarter of Singapore’s gross domestic product, unexpectedly fell a seasonally adjusted 4.7 per cent in December as annual drug production fell for the fourth straight month due to lower output of active drug ingredients.

The manufacturing sector grew just 0.5 per cent in the fourth quarter, an advance government estimate showed, braking from 10.3 per cent growth in the previous quarter.

 

Source: Reuters (Business Times 12 Feb 08)

MM confident S’pore will ride out global slowdown

US troubles won’t hurt Asia for the first time, thanks to investments and region’s resilience

SINGAPORE will do well despite trouble in the global economy, said Minister Mentor Lee Kuan Yew.

And, for the first time, Asia will not tip into recession even though the United States economy is faltering, he said at his annual Tanjong Pagar Chinese New Year dinner yesterday.

But while he registered confidence in Singapore’s prospects, he was also mindful of the widespread worry among Singaporeans over the cost of living.

Speaking in English as well as Mandarin, he noted that economists have forecast that Singapore will still achieve 4 per cent to 6 per cent growth.

‘This is quite remarkable for it will be the first time that when the American economy slows down and reduces imports from Asia, Asia will not go into recession,’ he said.

He cited two main reasons for Singapore being able to ride out the financial disturbances.

One, it stands at the heart of the world’s highest-growth region. Two, the massive investments that are pouring into the island.

On the region’s prosperity, he highlighted the domestic growth momentum in China and India as well as the buoyant economies of neighbours such as Indonesia, Malaysia and Vietnam.

In his Mandarin speech, he said Vietnam will have South-east Asia’s most lively economy in 20 to 30 years.

Among Asean scholarship students here, he noted, the Vietnamese are the most serious, intelligent and reliable.

As for the massive investments here, he noted that the construction industry will be busy for several years building $20 billion worth of new MRT lines, the two integrated resorts and more.

Foreign investors, too, are here. Citing three billion-dollar projects, he said: ‘Huge investments cannot be recovered in a few years but will take decades to get back.’

Mr Lee believes these developments, in the region and at home, can help Singapore ‘mitigate’ its problems.

‘The rise in food and energy prices, and the widening income gap between high and low earners is cause for concern. But we must press ahead and maximise our chances to break through in the coming five to 10 years to reach a higher quality of development.’

He also said that Singapore is into a period of steady growth and transformation that includes the HDB estates.

‘We will not leave our heartlands behind,” he promised, as the 1,200 Tanjong Pagar GRC residents and guests celebrated with yu sheng (raw fish salad) under a white tent at the Farrer Park Primary School.

In the festive crowd was lawyer Michael Chia, 37, who said: ‘It’s comforting to know that Singapore will continue ticking.’

While assuring people about the days ahead, Mr Lee also warned against overreaching in good times and called it ‘a blessing’ that the financial crisis had cooled the property market.

‘Please remember that property prices go in cycles,” he added. ‘So when they go up, don’t believe it’s going to go up further and further and you start buying bigger and bigger homes…”

‘Boom and bust is in the nature of business cycles. You must be able to ride through a recession and emerge the better for it.’

This is how the Government of Singapore Investment Corporation and Temasek have been able to increase the value of its assets, he said, focusing on opportunities present in dark times.

‘In a recession we hang on. As the boom gets too intoxicating, we sell part of our shares and other assets and keep cash.”

So when UBS, Citigroup and Merrill Lynch needed a cash infusion, Singapore invested $22 billion in these distressed international banks.

‘When the share prices of these banks recover that $22 billion investments, it will be worth $50 to S$70 billion.”

 

Source: The Straits Times 12 Feb 08

Firms hope for tax measures that help combat rising costs

Faced with possibility of global slowdown, they call for Budget moves to ease inflation pressures

TAX relief to help businesses cope with spiralling costs is the key item that just about every company in Singapore is clamouring for in this Friday’s Budget.

Companies are unanimous in calling for more government help to combat rising inflation. The wish list ranges from a further cut in corporate tax rates to rebates for transport and rental costs.

Tax experts also hope to see Budget items such as tax exemption for income received by companies from abroad and ‘green’ incentives.

Still, after last year’s sterling corporate profits and a 2 percentage point cut in corporate taxes to 18 per cent, they do not expect a bagful of goodies this year.

But faced with the spectre of a global slowdown, companies are hopeful that the Government will dish out more measures to minimise the pain of rising costs.

‘What is unique about this year’s Budget is that inflation concerns are the dominant theme,’ noted Singapore Indian Chamber of Commerce and Industry (SICCI) chief executive Predeep Menon.

Fears that rising business costs will erode competitiveness in a global market is one of the key issues keeping the 800 corporate members of SICCI up at night, he said.

This was reflected starkly in a recent survey of 556 companies by the Singapore Business Federation about their Budget wish list. Almost 40 per cent of the companies polled hope to see a cut in corporate tax rates, with some seeking a 1 percentage point cut to 17 per cent.

Another 31 per cent of respondents called for tax measures to help cut rental costs, while 16 per cent wanted help in handling steeper operating costs. Other key concerns are transport, utilities and labour costs.

Tax experts and industry players said the Budget is likely to tackle inflation. But rather than sweeping measures to tackle costs across all sectors, the Budget is likely to target specific sectors to relieve cost pressures.

Lowering the levy for foreign workers to help the manufacturing sector could serve as a means to manage rising labour costs, said Mr Edwin Khew, president of the Singapore Manufacturers’ Federation.

Also, the Budget may grant the shipping industry’s wish for an extension of concessions to companies to get tax exemption on gains from the sale of vessels, due to end this year, said Mr Chiu Wu Hong, KPMG executive director, tax services.

Tax rebates on transportation costs may be offered to logistics companies, which are hardest hit by rising oil costs and road taxes.

Singapore companies may get tax incentives to expand in the Middle East or Eastern Europe to diversify their business away from the United States, suggested Association of Small and Medium Enterprises president Lawrence Leow.

Consumer-related and services companies are also hoping for a cut in personal taxes so that consumer demand would not be too severely dampened by inflation.

Mr Roman Scott, economic spokesman for the British Chamber of Commerce Singapore, called for a tiered reduction of the top personal tax rate from 20 per cent to 18 per cent over two years.

Tax experts also called for measures to enhance the tax regime to attract more foreign companies and build up certain key sectors.

Ernst & Young partner for tax services Choo Eng Chuan suggested that the Government consider using fiscal measures such as providing additional tax depreciation on equipment that reduces pollution or saves energy to complement its national policy to make Singapore an eco-friendly hub.

To promote the wealth management sector, a key growth engine of Singapore’s financial hub, Mr Yeo Kai Eng, Ernst & Young partner for GST services, suggested that the Government allow trusts to recover the GST incurred on their business expenses in full.

GST of 7 per cent is currently levied on fund management services or legal services provided to trusts with Singapore trustees and overseas beneficiaries.

Another bugbear plaguing the industry is estate duties. ‘Many other jurisdictions have already abolished it.

May it rest in peace in Singapore,’ said PricewaterhouseCoopers tax partner David Sandison.

Singapore International Chamber of Commerce chief executive Philip Overmyer called for the removal of a tax that companies in Singapore pay on the income they bring in from overseas units.

He noted that other jurisdictions like Malaysia and Hong Kong have done away with this tax.

 

Source: The Straits Times 12 Feb 08

Singapore’s competitive edge eroding

Hourly wage cost rise for production staff in 2006 was second highest among 33 locations in US study

(SINGAPORE) A shortage of talent is still the biggest headache for businesses in Singapore, but sharp pay hikes in recent years – on top of increases in rentals and other costs – are triggering concerns about the island’s competitive edge.

And this comes just as the US Department of Labor released data showing that American factories here have been among the hardest hit by the rising wage costs US manufacturers are facing in most of their overseas operations.

In US dollar terms, the hourly wage cost for production workers in Singapore – including contributions to the Central Provident Fund (CPF) – shot up sharply by 17.1 per cent to US$8.55 in 2006 (the latest year for which data is available), bouncing back from a 2.3 per cent dip in 2005. For 2007, costs in US dollar terms probably rose even more, partly due to the strengthening of the Singapore dollar against the greenback.

Only in Brazil, among the 33 overseas locations in the study, was the increase higher in 2006 – up 17.8 per cent to US$4.91, according to a study by the US Labor Department’s Bureau of Labor Statistics (BLS).

Pay in Singapore continued to shoot up in 2007. Polls taken showed Singapore workers have been enjoying the biggest bonuses in Asia in the past two years – and their pay, already higher than that in emerging economies, was rising just as fast as in these economies.

Economists and businesses acknowledge that the jump in pay reflects the tight local labour market, as employers up salaries to attract scarce workers. But the persistence and scale of the increases are leading bosses to keep a closer eye on wage movements. And some observers caution that if they continue, sharp pay hikes will hurt Singapore’s competitiveness.

‘Singapore doesn’t compete on wage costs,’ said Robert Prior-Wandesforde, an economist at HSBC Bank.

‘Nevertheless, there must come a point that the (wage increases) become problematic.’

According to him, Singapore’s manufacturing costs continued to rise sharply last year even as production dipped in the final quarter. HSBC estimated that the unit labour costs of manufacturing here went up by around 15 per cent year- on-year in the last three months of 2007.

‘By any standards, this is an extraordinary rise, particularly for such an internationally exposed sector and, if sustained, will seriously threaten the competitiveness of the sector,’ Mr Prior-Wandesforde said in a report released last week.

For now, according to Song Seng Wun, CIMB- GK’s research head, there is enough business for companies here to sustain higher salaries. Still, he cautions that they have to ‘watch out’ as the global economy grows more uncertain down the road.

Which is what many companies are already doing, although their main worry is still hiring enough staff to meet orders, according to Philip Overmyer, chief executive of the Singapore International Chamber of Commerce.

Yet, at least in the eyes of US manufacturers, the pay hikes in recent years could have blunted some of Singapore’s competitive edge.

‘Hourly compensation costs in Brazil, South Korea (15.5 per cent), the Philippines (16.2 per cent) and Singapore all showed double-digit growth in 2006,’ says the BLS in its study.

The compensation costs on a US dollar basis are often used as indicators of competitiveness of manufactured goods in world trade.

The BLS study shows hourly compensation costs for production workers in the US were flat at US$23.82 in 2006, while those in the 33 foreign locations in the study jumped 4.7 per cent. The result: manufacturing wages in these locations edged up to an average 82 per cent of the US pay level, up from 79 per cent in 2005.

Among the Asian Newly Industrialising Economies (NIEs) – Hong Kong, Singapore, South Korea and Taiwan – the hourly compensation increase for production workers was 9.5 per cent in US dollar terms, raising their wage levels from 37 to 42 per cent of that of the US.

Singapore’s hourly production wage level rose from 31 per cent in 2005 to 36 per cent of that of the US – the highest since 2000.

The stronger currencies of the 33 locations contributed 2.1 percentage points of the 4.7 per cent rise, while domestic wage jumps accounted for 2.6 percentage points.

‘The movements of foreign currencies relative to the US dollar in 2006 had an influence on hourly manufacturing compensation costs measured in US dollars,’ the BLS report says.

In local currency, the hourly production wage costs in Singapore surged 13.57 per cent in 2006, the study says. The Singapore dollar rose 4.8 per cent against the greenback that year.

‘Singapore doesn’t compete on wage costs. Nevertheless, there must come a point that the (wage increases) become problematic.’ – Robert Prior-Wandesforde, an economist at HSBC Bank

 

Source: Business Times 11 Feb 08

What is scary about latest economic data?

The Institute of Supply Management (ISM) issues a monthly index of activity in the non-manufacturing or services sector in the United States by surveying purchasing managers around the country.

The ISM is a US-based industry association.

The ISM survey on the services sector is a closely-followed gauge of a wide swathe of the US economy – from hotels and restaurants to banks and insurance companies, telecommunications firms and retailers.

The index for January, released on Tuesday, showed that a sharp contraction is under way in businesses that represent almost 90 per cent of the US economy.

The drop in the index was sharp and shocking. It plunged to 41.9 last month from 54.4 in December.

‘This is an absolute collapse of the index,’ Mr Nigel Gault, the chief US economist at Global Insight, told the Associated Press.

Economists had been expecting a modest fall to 53. A number above 50 shows an expansion, while a number below 50 indicates a contraction.

The figures show that the US economy’s one silver lining is now in trouble.

The massive services sector had been propping up the US economy when its other legs – the housing and manufacturing sectors – have already weakened.

The ISM figure is also the lowest since October 2001, when the US economy was in a recession, and was the first time in five years that the services sector shrank.

• Particularly worrisome, economists said, is that the elements of the survey that forecast future activity – new orders and jobs – are among those that dropped the most, signalling more trouble ahead.

  New orders fell to 43.5, while employment fell to 43.9.

• The ISM report was also the US economy’s second shock surprise in a week. Last Friday, the US government reported that the country lost 17,000 jobs, the first fall in employment since August 2003.

Source: The Straits Times 6 Feb 08

Germans remain bullish about S’pore

Business community upbeat on growth prospects: survey

THE German business community remains bullish about Singapore as a regional business hub, a survey published yesterday shows.

The survey of businesses varying from small operations to multinationals was conducted by Droege & Comp in December, for the Singaporean-German Chamber of Industry and Commerce.

The companies were asked about growth prospects and about what they saw as the challenges ahead.

Findings show that all participating companies here strongly confirm Singapore’s position as the undisputed hub for Asean markets, affirming that Singapore would be the cornerstone of their future Asia strategy. The republic will continue to attract foreign direct investments from German companies.

Respondents attributed their positive attitude to the competitive advantages of the ‘Singapore package’ of excellent infrastructure, socio-political stability, efficient logistics hub and protection for intellectual property rights, which outweighed the rising costs of doing business here.

There were also several less promising findings. One hot topic was that despite Singapore’s push for R&D, most German companies were reluctant to shift R&D capabilities here.

In addition, some medical and healthcare companies were seriously considering neighbouring countries as alternative locations for further investments, particularly Malaysia.

A grouse of all the companies is that despite viewing themselves as attractive employers, they are finding it difficult to recruit and retain skilled personnel.

But even so, a majority of the companies still planned to hire more local people and cut back on their expatriate staff. Calling Singapore the gateway to Asean, Alexander Melchers, vice-president of the chamber, said that Germany is an important trading partner, with bilateral trade valued at more than $20 billion last year. There are 5,600 German people working in Singapore.

Mr Melchers added that Singapore could look forward to better business relations with German companies, especially in the area of environmental engineering and technology such as the clean energy sector where the interests of both countries are ‘perfectly matched’.

 

Source: Business Times 6 Feb 08

Markets will recover after 3-6 mths of mild recession: S&P analyst

He warns of one more major market collapse between now and rosier H2

THE sub-prime crisis will cause a mild US recession, but financial markets will recover in three to six months after most of the bad news is flushed out or priced in, says a leading US analyst.

Stephen Biggar, New York-based director for US equity research at S&P Equity Research, was one of the first to predict the sub-prime crisis and subsequent market meltdown that began in late July last year.

He sees many similarities between the current sub-prime fallout and the 1990-91 Savings and Loan (S&L) crisis.

‘The ingredients are the same: banks in trouble, credit crunch, junk bonds, worthless debt,’ he said. ‘But as is the case now, the Federal Reserve stepped in aggressively. The US went into a mild recession, but it was a three- to five-month event for the market.’

Mr Biggar reckons this US recession started in December 2007, but noted that the Fed has moved fast, cutting its key interest rate three times in as many months – the most aggressive cuts in 25 years.

The latest 50 basis points cut last week brought the key discount rate down to 3 per cent.

‘The Fed has been on the curve, if not ahead of it,’ Mr Biggar said. ‘Meanwhile, the impact of Washington’s US $145 billion fiscal stimulus package should kick in by May. And we should also see US corporate earnings improving during the second half, especially for exports.’

He says with half of the total earnings of S&P 500 companies coming from offshore, the weak US dollar environment will be a boost for them.

But while painting a sanguine picture for the second half of this year, Mr Biggar warns of one more major market collapse between now and then.

‘We haven’t seen a capitulation selling yet which will totally flush out the system and set it on course for the next recovery,’ he said. ‘But this will happen in the next couple of months as banks will demonstrate their ultimate exposure (to the sub-prime collateralised debt obligations).’

This will pull the S&P500 down to retest 1,310, he said. If this does not hold, the index will hit a trough at 1,170 points. And that will be the buy signal for value investors.

‘The shock value of bailouts will rattle many, but markets have a way of getting immune to this kind of news,’ he said. ‘Ultimately, the market will price in the risks.’

Mr Biggar is not a proponent of the theory that Asian markets and economies have decoupled from the US.

‘We have already seen how the US market’s pull-back has caused the collapse across this region,’ he said. ‘And the sub-prime losses are not just losses in the US. The exposure is global.’

Mr Biggar told BT in June last year that several US lenders were on the verge of declaring huge sub-prime losses, and that these would trigger a meltdown on Wall Street and elsewhere.

‘All it would take is a failure of one large US bank,’ Mr Biggar said then. ‘In the US sub-prime segment, which accounts for 20 per cent of total lending, delinquencies and foreclosures have been building up. But the troubles have been largely hidden away.’

Those words proved prescient. Just a month later, Countrywide Financial Corp – America’s largest mortgage lender – reported a sharp rise in delinquencies. This was followed by American Home Mortgage’s loan delinquencies, after which two of Bear Stearns’ hedge funds hit the sub-prime skids.

Fast-forward, and Mr Biggar has this prediction: ‘If the parallels to the 1990-91 S&L crisis and what we have now are anything to go by, we should pull out of this in about three to four months.’

Many here would recall that after the recovery from the 1991 crisis, Asian markets headed into their biggest ’superbull’ run ever in 1993.

And many must also be praying Mr Biggar is spot on – again.

 

Source: Business Times 5 Feb 08

Budget may soothe fears over costs creeping up

Businesses worry over transport bills, economists expect some goodies

(SINGAPORE) Amid concerns that the costs of living and doing business could go up, economists expect the upcoming Budget to provide some form of relief.

These could come in the shape of more cash handouts, particularly targeted at the low to middle-income groups, as well as a cut in top personal income taxes from the current 20 per cent.

‘I think something similar to last year’s GST offset package will be introduced. My guess is that it will be quite targeted to the lower-income group,’ Citi economist Kit Wei Zheng said.

‘There is a chance that it will come more in the form of cash,’ he added. The $4 billion Goods and Services Tax (GST) offset package over a five-year period that was announced last year comprised of $1.8 billion in GST credits while the balance was in the form of rebates.

Standard Chartered economist Alvin Liew noted that the strong economic performance last year has placed the government in a good position to offer more cash handouts.

‘But we are not looking at any increase in CPF contribution on the employer side or the employee side because that will increase business cost,’ he said.

Economists predicted a potential cut in top personal income tax from 20 per cent, after the government shaved two percentage points off the corporate tax rate to 18 per cent last year in what was seen as a pro-business Budget.

Now there are fears that costs are creeping up. Last year, the consumer price index (CPI) rose 2.1 per cent year on year, a significant jump from the one per cent seen in 2006, partly due to the two percentage-point hike in GST in July last year. The CPI jumped 4.4 per cent in December from a year ago to hit a 25-year high fuelled by higher transportation, food and healthcare costs. ‘Perhaps, of greater concern is the risk that if inflation stays persistently high, inflation expectations could become more entrenched, pushing up wages and leading to a second-round impact on the CPI numbers,’ Mr Kit said.

Sharing this sentiment was CIMB-GK economist Song Seng Wun. ‘Barring a sharp downturn in the global economy, domestic price pressures are likely to persist, due to short-term supply constraints,’ he said.

The recently announced changes in ERP charges and the uncertainty of whether means testing in public hospitals would lead to higher insurance premiums have also raised concerns over higher living and business costs.

To curb congestion on the roads, the government is raising the ERP base charge from the current $1 to $2 and the incremental charges from $0.50 to $1 from July. The increase in ERP revenue is more than offset by a 15 per cent cut in road tax and a reduction of additional registration fee (ARF) for vehicles from 110 per cent to 100 per cent of the Open Market Value (OMV).

These ERP changes take effect from July onward, when the effect of a two percentage-point GST hike last July would have waned.

For now, economists and businessmen alike are circumspect about how the impact of higher ERP charges and the offsetting measures of lower road tax and ARF on inflation will eventually play out.

‘While the usage costs may go up, I believe it should be offset by lower car ownership costs,’ said Wee Piew, CEO of steel stockist HG metal. ‘As I understand this is not a revenue-generating measure by the government but a car population containment measure, so I believe incremental costs for businesses should be negligible.’

Stanchart’s Mr Liew believe that the costs of being stuck in traffic jams and losing man hours could be just as detrimental to businesses as an increase in transport costs, if not more.

But Mr Kit of Citi wondered what it would take for motorists to change their daily routine.

‘The ERP by itself might not have a huge impact, but it’s the cumulative effect – all these price increases coming together,’ Mr Kit said, citing higher food prices and electricity tariffs, an upward revision of HDB annual values

and higher taxi flag-down rate.

Some businesses will likely feel the heat of higher ERP costs on their operations, whether they are couriers, manufacturers that deliver goods on a regular basis or companies whose employees take taxis to make sales trips and workers who may soon demand higher transport allowances or wages.

Kim Ann Engineering believes that the group’s delivery and logistic cost will increase eventually when more gantries are added as it delivers goods to many light industry estates.

‘We have eight delivery trucks/vehicles to various directions. Other than Express Highways, we will soon have to pass Alexandra and Toa Payoh gantries when they’re in operation,’ Lau Tai San, chairman and managing director of the group, said.

Predeep Menon, executive director of the Singapore Indian Chamber of Commerce & Industry, said most of the association members are bracing themselves for a significantly higher cost structure.

‘What’s happening now is that most businesses are being hit by the costs first. Then, they will need breathing time to see how to adjust to it and how best to avoid certain expenses,’ Mr Menon said.

Many economists expect CPI for the first half of this year to hover around 5 per cent year on year.

Inflationary pressures would then taper off in the third quarter where the GST effect would have dissipated and further moderation in the fourth quarter due to a high base of comparison in a year-ago period, they said.

Stanchart and DBS are expecting the full-year CPI to come in at 4 per cent year on year, CIMB-GK is predicting 4-4.5 per cent, while Citi raised its inflation forecast for 2008 to 5 per cent from 3.8 per cent previously.

 

Source: Business Times 5 Feb 08

SMEs upbeat about 2008 growth

84% see same or faster GDP expansion: HSBC poll

SMALL businesses across the Asia-Pacific region are optimistic about their respective country’s economic prospects, with more than half of Singapore firms expecting the country’s economy to grow at the same pace as it did in 2007. This is according to an HSBC survey conducted in the last quarter of 2007, in which the bank polled 2,700 small and medium-sized enterprises (SMEs) in nine Asia-Pacific territories, including China, Taiwan and Vietnam.

The survey found that 84 per cent of small businesses in Singapore expect the same or faster economic growth this year compared to 2007.

‘Singapore’s economy saw continued strong GDP growth in 2007, and the fact that most of the small businesses surveyed expect the same or higher level of growth in 2008 bodes well for the local economy as a whole, given the collective economic might the 130,000 SMEs in Singapore can assert,’ said Tan Siew Meng, head of commercial banking at HSBC Singapore.

Acting on their positive economic outlook, 90 per cent of small businesses here plan to maintain or increase their capital expenditure, with over a third of them planning to increase investment by a little or significantly.

The survey conducted by research company TNS covered 300 small businesses in each territory. The Singapore firms polled had annual sales of less than US$6 million.

Firms were asked about their local economic outlook for the next six months, their hiring and investment plans, and their view of trading prospects with China, Asia and the rest of the world.

Some 37 per cent of businesses in the region expect faster economic growth (37 per cent), compared to the 17 per cent that expect a slowdown.

Across the region, the emerging markets of Vietnam and India were the most optimistic. In Vietnam, 90 per cent of firms thought local economic growth would accelerate this year and three-quarters of them plan to increase investment. None of the respondents in both those countries had plans to reduce staff numbers.

More than half the companies surveyed in Singapore also said that they currently engage in cross-border trade.

Most said they expect to see an increase in trade with the rest of the world, especially in China. Interestingly, small businesses with cross-border trade expect to increase their capital expenditure more than those who do not trade with other countries.

HSBC’s Ms Tan said the survey results are a testament to the resilience of the small business sector, which is learning to adapt quickly to changing global economic conditions.

‘In the face of growing economic uncertainty in the United States, emerging markets still see great opportunity for growth as they seek advantage of the rising trade flows in the Asian region,’ she said.

 

Source: Business Times 5 Feb 08

F1 in S’pore ‘an opportunity on the doorstep’

THE inaugural Singapore Grand Prix offers companies in the Republic an unprecedented opportunity to do some marketing and branding to a vast global audience, said a visiting Formula One (F1) marketing expert.

Still, few Singapore names have thus far stepped forward to take advantage of the opportunity that is ‘right here on your doorstep’, said Mr Mark Gallagher, the London-based managing director of sports marketing consultancy Eden Rock Sports Management.

This, he said, was a great pity and ironic considering the way that Changi Airport’s transit lounge has been blanketed by Royal Bank of Scotland’s advertisements celebrating the Singapore Grand Prix. The bank is one of F1’s global sponsors.

Mr Gallagher is in Singapore to discuss F1-related marketing prospects with potential clients in the banking and logistics industries.The Singapore leg of the race, in September, is the first night race in F1 history.

With more than 800 print journalists and 150 TV crews covering it, the Singapore Grand Prix is expected to generate tremendous global buzz, said Mr Gallagher, who has teamed up with Singapore public relations agency Baldwin Boyle Shand to offer specialised F1-related marketing services.

The global TV audience for F1 is estimated to be in the hundreds of millions.

This lack of local participation is probably not due to a lack of interest, said Mr Gallagher.

More likely, wannabe-Singapore marketeers have been spooked by reports of multi-million-dollar F1-related deals, which have given the impression that companies without such hefty budgets have no chance to get in on the buzz.

That impression is wrong, said Mr Gallagher, who has worked for a number of F1 teams, including stints with the Jordan and Jaguar teams.

‘Commercially astute’ F1 teams are very open to sponsorship talks, he said. Prices range from US$50,000 (S$70,800) for ‘hospitality’ – industry- speak for getting an F1 team or a driver to appear at a company’s event like a gala dinner or product launch, to US$500,000 or more to sponsor one of the 12 F1 team’s Singapore races.

While this is not pocket change, such budgets are clearly well within the means of many Singapore companies, he said.

And while cash sponsorship is always a priority, teams are not above bartering for goods and services they need, such as technical support or printing supplies, he said.

The cleverest deals, he said, are probably available now, in the race’s first year. This is because success breeds success, and if the race this year is successful – and he is confident it will be – costs are likely to spiral up in the following years, he said.

The F1 race will be in Singapore for the next five years.

 

Source: The Straits Times 5 Feb 08

Small businesses in S’pore less bullish about growth outlook

SMALL businesses in Singapore are less confident about the growth outlook compared with six months ago, according to the latest survey by HSBC Singapore.

The bank conducted a survey covering more than 2,700 small businesses across nine economies.

In Singapore, only 32 per cent of the small and medium-sized enterprises (SMEs) surveyed expect faster economic growth over the next six months.

Just six months ago, 73 per cent of SMEs polled expected economic growth to speed up.

Singapore trails behind Vietnam, where 90 per cent of the SMEs polled expect faster growth over the next six months.

But Singapore SMEs are more optimistic than businesses in Hong Kong, where only 26 per cent of those polled expect the economy to grow at a faster pace.

About one-third of the respondents in Singapore plan to raise their capital expenditure over the next six months.

This was down from the 44 per cent of SMEs polled six months ago who said that they would be increasing their capital expenditure.

With fears of a global slowdown, only 24 per cent of respondents plan to expand their workforce by up to or more than 20 per cent over the next six months. Last year, about 36 per cent of Singapore SMEs said they plan to hire more staff.

In this year’s survey, a whopping 74 per cent of SMEs plan to maintain current staffing levels.

‘Clearly, these figures reflect a bit of a cautious outlook in Singapore, as compared with the previous survey,’ said HSBC Singapore’s head of commercial banking, Ms Tan Siew Meng.

Still, it bodes well for the economy as a whole that Singapore’s economy saw continued strong gross domestic product growth last year and most of the SMEs surveyed expect the same or higher level of growth this year, Ms Tan said.

The half-yearly survey, conducted in the fourth quarter of last year, covered SMEs in economies including China, Hong Kong, Malaysia, Taiwan and Vietnam.

SMEs were asked about their local economic outlook, and whether they plan to invest and hire. Those engaging in cross- border trade were asked their views on trade volumes with mainland China, the rest of Asia and the rest of the world.

 

Source: The Straits Times 5 Feb 08

SM GOH IN DUBAI: Grow economy, draw investments to fight inflation

S’pore can tap Middle East and China to grow; inflation here lower than other nations: SM

DUBAI – SINGAPORE can tackle the rising cost of living with a clear focus on spurring economic growth and wooing foreign investments, said Senior Minister Goh Chok Tong.

One front of this growth strategy is to open new doors in the Middle East and China, said Mr Goh on Sunday, at the end of his week-long visit to Qatar and Dubai.

‘I would say concentrate on generating economic growth and bringing foreign investments into Singapore,’ he said in an interview with Singapore journalists.

‘When there’s growth, people are employed, at least you can buy something. You have income, even though inflation is high.’

And salaries will hopefully grow faster than inflation in most instances, he said.

But the Government is also mindful that there will be cases of workers whose salaries will not rise faster than inflation, he said.

‘Here’s where the Workfare Income Supplement comes in. Maybe we could look at what we can do for them in the coming Budget.’

He added: ‘We have always done it in the past – some special distribution to special groups.’

The big picture, he said, was that inflation in Singapore is low by most countries’ standards.

Prime Minister Lee Hsien Loong said on Sunday that this year’s inflation ‘could be 5 per cent, maybe even more. Especially in the first half, it is going to be high’.

But, SM Goh said, Dubai and Vietnam are experiencing inflation rates of over 10 per cent. In China, it is easily over 7 or 8 per cent.

‘All countries face this pressure because of high oil prices and because of the diversion of farm lands to grow biofuel,’ he said.

So in Malaysia, there was the phenomenon of a cooking-oil shortage, as palm-oil plantations are being diverted for biofuels, he observed.

Member of Parliament Ahmad Magad, who was in SM Goh’s delegation, said that Singaporeans need to know that the pressures of inflation are very much felt in the Middle East, too.

Another economic challenge facing Singapore this year is the possibility of the United States tipping into recession. In the short term, some industries may be affected, said SM Goh. ‘But in the medium term, if you have a stream of investments coming in, you’ll be all right.’

His forecast for Singapore is still bright: ‘In my own view, this year we should be able to do fairly well. MTI (Ministry of Trade and Industry) still retains its forecast of 4.5 to 6.5 per cent growth for this year.’

His expectations of a fairly good year rest on a set of good performers in the economy. ‘Construction is still very active in Singapore. There are signs that the electronic cluster may begin to pick up. Financial services are still doing well.’

But Singapore exports may be affected. This may happen if there is a US recession and, at the same time, China grows a little slower, he said. ‘But on the whole, there are enough activities to give us the confidence that we should be able to grow within the range of 4.5 to 6.5 per cent for this year.’

SM Goh on…

FIGHTING INFLATION

‘I would say concentrate on generating economic growth and bringing foreign investments into Singapore.

When there’s growth, people are employed, at least you can buy something. You have income, even though inflation is high.’

HELPING THE AFFECTED

‘Maybe we could look at what we can do for them in the coming Budget. We have always done it the past – some special distribution to special groups.’

 

Source: The Straits Times 5 Feb 08

Prices up everywhere, but inflation rate for food low here

Govt casting net wider to source for food; businesses also helping to limit price hikes

FACTORY operator Loke Yew Whye, a 54-year-old father of three school-going children, is finding it hard to cope with rising food prices.

The family, which survives on about $2,000 a month, which he and his wife earn, has been buying house brands from one of supermarket chain NTUC FairPrice’s Bedok branches to save money.

Last night, for example, a 5kg bag of FairPrice Thai fragrant white rice cost the family $4.70, half the price of a similar-size bag of Royal Umbrella fragrant rice at $9.50.

Minister of State for Trade and Industry Lee Yi Shyan yesterday urged Singaporeans to consider alternatives, such as by buying house brand products, as a way to cope with rising food costs worldwide.

Last year, food prices were 2.9 per cent higher than in 2006, going by the consumer price index (CPI).

Globally, market forces pushed up food prices.

Record oil prices raised the cost of producing and transporting food, while increasing wealth enjoyed by people in China and India have pumped up demand for meat and other food items, edging them northward.

On the other hand, bad weather reduced crop yield, so the mix of higher demand and lower supply have sent prices up.

Mr Lee added: ‘As Singapore imports most of its food, we can’t run away from this worldwide trend of rising prices.’

But the Government is not going to step in to impose price controls, he added.

‘From the experience of other countries which have done so, price controls have always led to hoarding, empty shelves and black market pricing,’ he said.

Instead, the Government is fighting the problem by diversifying its food sources to reduce the impact of supply disruptions from any single source.

For example, the Agri-Food and Veterinary Authority has looked beyond Malaysia and China for vegetables.

The supply of greens now also comes from Vietnam and Indonesia.

NTUC FairPrice is doing the same with rice and other produce.

Its managing director, Mr Seah Kian Peng, said FairPrice is buying Vietnamese rice, which is 20 per cent cheaper than Thai rice.

NTUC also packages items from cooking oil to soap under its house brand. These are generally 10 to 15 per cent cheaper than branded items, he added.

Meanwhile, it appears that businesses have not passed on the full brunt of increased prices to consumers.

Last December, the prices of imported food increased by 12.1 per cent from prices in December 2006, but the non-cooked food component of the CPI, such as rice and meat, went up by only 7.1 per cent during the same period.

What this means, Mr Lee said, is that supermarkets and shops have not passed on their full cost increases.

He pointed out that inflation among food items here has remained low by international standards.

The Republic has one of the lowest rates of inflation when it comes to food, going by a survey of 14 countries by the Australian Bureau of Statistics. Only Japan, Australia and South Korea had lower rates than Singapore.

But the question is: Will food prices continue rising?

Mr Lee said did not know, because food prices were shaped by a variety of factors.

For a consumer like Mr Loke, the rising costs of utilities and public transport, as well, add to his worries. He said in Mandarin: ‘The price increases all add up. The cost of living is becoming a bigger burden by the day.’

 

Source: The Straits Times 4 Feb 08

Firms post strong gains so far, but all eyes are on bank results

Keppel Corp leads at half-time with record full-year earnings of $1.13b

THE stock market may have had a torrid time of late, but the financial reporting season has so far brought little but big smiles for investors.

With the reporting season for companies with Dec 31 year-ends now at the halfway mark, Singapore has so far registered another sterling year of profits.

Among the 32 Singapore- listed early birds that had reported by 5pm last Friday, total profits were $4.07 billion, up a dazzling 68.3 per cent on the $2.42 billion for 2006.

Of those that reported full- year results, 31 were in the black. And 22 of them posted higher earnings.

Racking up the largest profit number, in absolute terms, was Keppel Corp. The company’s earnings for the 12 months ended Dec 31 last year rose 50.6 per cent to $1.13 billion, thanks mainly to booming business at its oil rig and shipbuilding unit.

Keppel’s record gain calmed jittery investors concerned over whether it might face foreign-exchange losses similar to those that rocked other offshore and marine companies like SembCorp Marine (SembMarine) last year.

SembMarine, now mired in a lawsuit with BNP Paribas over forex losses, will report full-year results on Feb 22.

The sharp spikes in crude oil prices last year also helped propel the full-year net earnings of Keppel associate, Singapore Petroleum Company, to a record of $508.3 million.

On the property front, many real estate investment trusts have unveiled strong full-year profit scorecards.

One of the top performers in that category is CapitaMall Trust, whose net income available for distribution for last year came to $211.2 million, up 25 per cent from the $169.4 million posted in the same period a year earlier.

One of the poorest performers was Evergro Properties – a member of the Keppel group – which reported a 97.4 per cent plunge in full-year net profit for last year on the back of lower divestment gains.

Several big-cap counters – including StarHub, ComfortDelGro, City Developments, Great Eastern Holdings and SembCorp Industries – are due to report their results this month.

However, it is the traditional top earners – DBS Group Holdings, United Overseas Bank (UOB) and OCBC Bank – that are likely to come under the most scrutiny, with analysts not ruling out more write-downs on assets linked to United States sub-prime mortgages.

‘What is currently of utmost concern are the results of the local banks, as great uncertainty and anxiety rule in the wake of the big casualties surfacing from the sub-prime fiasco affecting the top banks and brokerages in the world,’ said Mr Najeeb Jarhom, the senior vice-president of research at AmFraser Securities.

Another concern is how the net interest margins of local banks will be affected by the falling Singapore interbank offered rate (Sibor) – the rate at which banks lend to one another.

‘A falling Sibor environment is likely to post a threat to the net interest margins of Singapore banks, as all three of them are net interbank lenders,’ said Kim Eng analyst Pauline Lee.

Economists expect the Sibor to go even lower by midyear, due partly to the US cutting its key interest rate.

Phillip Securities Research investment analyst Brandon Ng has declared OCBC his top pick. OCBC is a conservative bank and made the largest provisions in the last quarter to cover the fallout from risky debt, compared with UOB and DBS, he said.

Deutsche Bank analyst Michael Chang feels Singapore banks offer cheap valuations for their rapidly improving fundamentals.

‘We recommend an overweight position,’ he noted.

 

Source: The Straits Times 4 Feb 08

Staff costs, inflation major issues this year

SINGAPORE’S economy is strong enough to weather the fallout of a US recession this year, while escalating staff costs will be the top problem bosses have to grapple with in 2008, human resource practitioners were told at a conference yesterday.

Speaking at the SHRI Outlook 2008 conference, Hui Cheung Tai, regional economist at Standard Chartered Bank, said the robust domestic demand which drove Singapore’s growth last year will continue in 2008. And this will help soften the blow of a US recession.

But Mr Hui dismissed the ‘decoupling’ notion that a booming Asia, including Singapore, has acquired its own dynamism to escape a US recession without a scratch. China may now have become the largest export market for many trade-dependent countries in the region, but many of the exports to China – half by Stanchart’s reckoning – eventually end up in the US or the EU, he said.

By that measure, Mr Hui finds Hong Kong to have the biggest exposure to a US downturn, followed by Singapore. China, Indonesia and India are the least exposed. So Stanchart is projecting the Singapore economy to expand by 4.5 per cent this year – at the lower end of the official forecast of 4.5-6.5 per cent.

The economy rose 7.5 per cent in 2007.

Mr Hui warned that a US recession would not be followed by a quick bounce-back – it would be a Ushaped rather than a V-shaped recession. According to him, a US downturn is likely to last for about two quarters. The subsequent pick-up would be ‘prolonged’, stretching into 2009.

Meanwhile, Mr Hui noted, inflation has made its comeback and has become a hot issue in the region.

Everywhere, including in Singapore, people are complaining that price increases are higher than what the official figures reflect. Stanchart expects the inflation rate in Singapore to rise to around 5.0 per cent in the first half of the year, before easing to 4.0 per cent in the second half.

While inflation has reared its ugly head as the economy slips into slower gear, the job market is likely to remain tight. ‘It will still be a challenge to fill vacancies,’ Mr Hui said.

A panel led by David Ang, executive director of the Singapore Human Resources Institute, picked escalating pay, fanned by job-hopping, to be the number one headache for employers.

Jacqueline Streimer, employment law editor at CCH Southeast Asia, one of the region’s leading professional publishing companies, said employees in the banking and finance sector get as much as a 50 per cent increase in pay when they jump ship to sign on with another bank. Such turnover leads to a spiral in wage costs because the employer who loses a staff member will then have to pay to advertise for a replacement, suffer downtime and lost productivity as well as need to offer a premium in higher salary to secure a new employee, Ms Streimer said.

Source: Business Times 25 Jan 08

Sustainable development a priority for S’pore: PM Lee

A top-level panel of ministers has been formed to chart the way forward, he says

IN DAVOS

PURSUE economic growth, but with an eye on the Earth.

Going forward, sustainable development will be a priority for Singapore – and a top-level panel of ministers has been formed to chart the way forward.

On the sidelines of the World Economic Forum, where he will today take part in a key session on climate change, Prime Minister Lee Hsien Loong told Singapore reporters that an Inter-Ministerial Committee on Sustainable Development will be looking into drawing up a holistic sustainable development strategy for Singapore.

The need to be environmentally friendly is patently clear, ‘but at the same time, we don’t want to have to sacrifice economic growth’, he said. Hence the premise and promise of sustainable development – to ‘grow in an environmentally friendly way, where you build into your whole development strategy an awareness of the environment, of conservation, of efficiency, so that your buildings use less energy for air conditioning, your public transport is convenient and people use public transport instead of driving cars’.

While there are no plans to levy any carbon tax, Mr Lee would not rule it out entirely, but emphasised the need to be mindful about cost and competitiveness, particularly in imposing any regulatory requirements that effectively add to business costs.

The committee is co-chaired by Minister for National Development Mah Bow Tan and Minister for the Environment and Water Resources Yaacob Ibrahim. Other members include Finance Minister Tharman Shanmugaratnam, Transport Minister Raymond Lim and Minister of State for Trade & Industry S Iswaran.

A joint statement by MND and MEWR says the committee will, for a start, ‘articulate a clear national framework and strategy to achieve a sustainable and high-quality living environment that is consistent with economic growth’.

It will also seek to build new competencies and encourage mind-share across the public, private and people sectors to develop Singapore as an ‘Eco-Hub’ – ‘an innovative thought-centre and hub for urban and environmental sustainability’.

Noting that Singapore is already a model of urban planning, Mr Lee said that if Singapore’s efforts on sustainable development are successful, it will spell one more area of expertise that it can share with other countries.

Mr Lee arrived in Davos on Wednesday afternoon from Paris, where he had been on a three-day official visit. In Davos yesterday, he had a busy day of meetings with various people, including US Deputy Secretary of Treasury Robert Kimmitt; former US Secretary of State Henry Kissinger, Harvard professor Larry Summers, as well as UBS chairman Marcel Ospel and Google chairman Eric Schmidt.

 

Source: Business Times 25 Jan 08

YESTERDAY IN PARLIAMENT: GST hike adds $990m to govt revenue so far

$1.17b budgeted to help S’poreans adjust to higher GST: Tharman

THE government collected an additional $990 million in tax revenue last year due to the higher Goods and Services Tax (GST) that kicked in on July 1, 2007.

Yesterday, Finance Minister Tharman Shanmugaratnam told parliament that about $540 million of the revenue was domestic, while the rest came from foreign consumers.

He was responding to questions about the added tax revenue from a 2 percentage point hike in GST levied from last July.

Of the sum, $630 million were subsequently paid out as GST credits over the same period, ‘including the bonus credits that were given to senior citizens’.

‘Overall, besides the GST credits, the government had budgeted to hand out $1.17 billion in fiscal 2007 to assist Singaporeans to adjust to the GST increase,’ said Mr Tharman.

He acknowledged that there were needy Singaporeans who did not sign up to receive the GST credits or senior citizens bonus, but added that efforts had been made to contact them.

‘We had repeated publicity as well as outreach efforts on the ground to reach out to these individuals,’ like posters in lift lobbies and customised flyers sent to those households, the minister explained.

Yesterday, the house also passed an amendment bill to the Workmen’s Compensation Act (WCA).

Under the amended bill, coverage under the WCA has now been expanded to include non-manual workers earning more than $1,600 a month, besides manual workers and non-manual workers earning $1,600 or less a month.

Also, the compensation limits have been raised due to wage increases since 1995 when the previous limits were set.

‘With this change, the minimum compensation for death and total permanent incapacity will be increased to $47,000 and $60,000 respectively,’ said Gan Kim Yong, Minister of State (Education and Manpower).

‘The maximum compensation will also be raised to $140,000 and $180,000 respectively.’

The other changes include streamlining the compensation process, flexibility in paying and distributing compensation.

To ensure that the WCA is effective, Mr Gan said penalties against errant employers and employees would also be raised accordingly.

‘For example, an employer who illegally deducts his employee’s salary to defray the cost of work injury compensation insurance may be fined up to $5,000 instead of $2,000, while the maximum jail term has been kept at six months.’

The Manpower Ministry said it would reach out to employees on their rights under the Act, and raise worker awareness of the available avenues for compensation.

 

Source: Business Times 23 Jan 08

Overheating of Asian economies likely: Lehman

Better growth rate will attract massive capital inflows

GOOD economic news now could lead to tough times later, an American investment bank is warning. The bank, Lehman Brothers, says that a soft landing for the global economy could lead Asia ex-Japan economies to overheat later this year or into next year.

Lehman’s chief economist Asia ex-Japan, Robert Subbaraman, says the bank expects the region to ‘attract massive capital inflows’ because of its better growth rate than those of other regions, higher interest rates, and stronger economic fundamentals.

‘So our core view of the region is that the aggregate GDP growth for the Asia ex-Japan economies will weaken by about one percentage point this year to about 7.5 per cent,’ he said. ‘The weakening will be because of weakening exports; however, because of the strong capital inflows, the domestic economies are going to be red-hot.’

He also expects that, with the region’s exports weakening, Asian central banks will intervene heavily to slow currency appreciation, even more so than before.

This may result in the dilemma of the ‘impossible trinity’, which holds that a country can have only two of the three economic options of a fixed exchange rate, control over interest rates, and an open capital account.

‘We doubt that countries will impose Draconian capital controls,’ he said. ‘Thus it will become harder for central banks to raise interest rates, because to do so would attract even stronger capital inflows and put greater upward pressure on their currency.

‘In our view, that is a recipe for an overheating economy.’

On the other hand, the bank predicted that if there is a global recession, Asia ex-Japan economies will be severely hit – falling by as much as 4.5 percentage points. This would be nowhere near as bad as during 1997’s Asian financial crisis, because of ’sound economic fundamentals’ and ‘plenty of room for macro policy to respond’.

However, Lehman Brothers has not gone out with a full-blown recession prediction for the United States, forecasting only a 40 per cent risk of a recession this year, slightly higher than its predicted one-in-three chance at the beginning of this year.

 

Source: Business Times 23 Jan 08

Soros warns of worst financial crisis since WWII

(VIENNA) Billionaire investor George Soros said the world was facing the worst financial crisis since World War II and the United States was threatened with recession, according to an interview by the Austrian daily Standard.

‘The situation is much more serious than any other financial crisis since the end of World War II,’ Mr Soros was quoted as saying.

He said that, over the past few years, politics had been guided by some basic misunderstandings stemming from something which he called ‘market fundamentalism’ – the belief financial markets tended to act as a balance.

‘This is the wrong idea,’ he said. ‘We really do have a serious financial crisis now.’

Asked whether he thought the US was headed for a recession, he said: ‘Yes, this is a threat in the United States.’

He added that he was surprised how little understanding there had been on how recession was also a threat to Europe.

European shares fell nearly 6 per cent on Monday, their biggest one-day slide since the Sept 11 attacks of 2001, as fears of a US recession and more writedowns in the financial sector sparked a broad-based selloff.

In Washington, US Treasury Secretary Henry Paulson said that the US economy remained resilient and has healthy long-term fundamentals, but has slowed ‘materially’ in recent weeks.

Warning that, in the short term, risks were clearly to the downside, he said that Congress and the administration need to agree quickly on a package of tax cuts and other measures to boost the economy.

‘Time is of the essence and the president stands ready to work on a bipartisan basis to enact economic growth legislation as soon as possible,’ Mr Paulson said in remarks to the US Chamber of Commerce as House Speaker Nancy Pelosi and leaders in both parties prepared to meet President George W Bush at the White House to discuss a stimulus bill.

Such legislation presumably would involve tax rebates, business tax cuts and funding for a Democraticled call for additional food stamp and employment aid.

 

Source: AP, Reuters (Business Times 23 Jan 08)

Governments urge calm in face of market turmoil

Ministers in Asia and Europe advise investors to stay rational and not overreact

HONG KONG – GOVERNMENTS urged calm yesterday while calling for international cooperation to cope with a global slide in stock markets sparked by fears of a United States recession.

Asian markets experienced a day of heavy losses, with Hong Kong share prices suffering their biggest ever one-day slide, closing down 8.7 per cent, while bourses in Europe also opened in negative territory.

French Finance Minister Christine Lagarde said US President George W. Bush’s US$140 billion (S$201.9 billion) stimulus package for the American economy was a ‘bit vague’ and called on him to spell out his plans more fully.

‘I think he must go further to explain precisely how these billions of dollars are going to be injected into the economy,’ Ms Lagarde told French radio, as French share prices shed 2.57 per cent at the start of the day’s trading.

In Japan, Economics Minister Hiroko Ota told a news conference that the government saw no need for the time being to intervene to halt the rout.

‘Stock markets across the world are falling, and it basically stems from the US,’ she told reporters, before Japanese share prices tumbled 5.65 per cent to a 28-month low.

‘It is difficult at the moment to mull over action by Japan alone. Instead, we should cooperate globally,’ she said.

Mr Bush announced his economic stimulus package of tax cuts and other measures last Friday, but the proposal has failed to allay concerns about the health of the world’s No.1 economy.

Indian Finance Minister Palaniappan Chidambaram, whose country’s shares lost more than 7 per cent in early afternoon trade, urged investors to ignore the financial woes in the West.

‘My advice to investors is to stay calm,’ he said. ‘Corporate profits are high, corporate income tax is at an alltime high in terms of growth. There’s no reason at all to allow the worries of the Western world to overwhelm us.’

Australian share prices plunged by 7.1 per cent yesterday in the biggest one-day fall since October 1997, but the government said the country was likely to be able to weather the storm.

‘We are well-placed to ride out the turbulence that flows from events in the US, even though we are not immune to it,’ said Treasurer Wayne Swan.

‘The prospects for ongoing growth in Asia and the developing markets are assisting us to withstand the fallout occurring elsewhere.’

Meanwhile, European finance ministers said a global stock market slump and an economic slowdown in the US threaten to slow growth in Europe more than forecast.

‘The economic situation and financial markets are highly volatile and uncertain, a good deal more uncertain than usual,’ Luxembourg Finance Minister Jean-Claude Juncker said on Monday in Brussels after presiding over a meeting of counterparts from the euro region.

‘If there is a real slowdown in the US, obviously that would be felt in the euro zone.’

Stock market volatility has heightened uncertainty on the outlook for economic growth in the 15 nations that use the euro, according to a European Union briefing document obtained by Bloomberg News.

The draft document was discussed at Monday’s meeting of finance ministers.

Still, ‘it would be a mistake to fall victim to excessive pessimism’, Mr Juncker told a press conference after the meeting. ‘We shouldn’t overreact to events on the stock exchange.’

AGENCE FRANCE-PRESSE, BLOOMBERG NEWS

DON’T BE OVERWHELMED

‘My advice to investors is to stay calm. Corporate profits are high, corporate income tax is at an all-time high… There’s no reason to allow the worries of the Western world to overwhelm us.’

MR CHIDAMBARAM, India’s finance minister

Source: The Straits Times 23 Jan 08

Recession in US, Europe could shake Asia, S’pore

Region still relies heavily on world’s biggest markets, say economists

A RECESSION in the United States and Europe would badly hurt Asian economies, including Singapore’s, which still rely heavily on these two export markets for growth, according to economists.

Indeed, analysts at Lehman Brothers believe economic growth in Singapore could slump to as low as 2.5 per cent this year, if the worst-case scenario of a recession occurs. The official forecast is for growth of 4.5 per cent to 6.5 per cent.

Economists said yesterday that while the region’s economies have managed to stand on their own feet in recent years, their fortunes are still closely tied to external conditions.

Most economists are maintaining forecasts for a more benign slowdown, but they concede that risks of a severe downturn are on the rise.

‘We are probably only one shock away from the US economy tipping into a recession,’ said Lehman chief global economist Paul Sheard. ‘One thing that we will be thinking about the next week or so: Are we seeing that one shock now hitting the US economy in the form of this equity market meltdown that is unfolding this week?’

Global share prices have crashed since the start of the year and are accelerating their declines amid rising fears that a US recession may send the world economy into a tailspin.

Earlier theories that Asia’s booming economies are plotting their own destinies and escaping this plight are dissipating fast.

‘We don’t really buy the decoupling idea in its strong form,’ said Dr Sheard, adding that it is very unlikely that demand from Asia and other emerging markets can offset a slowdown in the US and Europe.

Singapore is especially vulnerable, given its small and open economy, said Mr Robert Subbaraman, who heads Lehman’s economic research for Asia, excluding Japan.

He believes overall Asian growth this year could fall by 4.5 percentage points from last year’s 8.7 per cent, if the rest of the world goes into recession. Singapore’s growth could come down to between 2.5 per cent and 3 per cent, he said.

For the moment, Mr Subbaraman is still hoping that aggressive US interest rate cuts will avert a recession to support a 5.3 per cent growth in Singapore and a 7.6 per cent expansion in the region.

This scenario, however, brings risks of an overheating economy, as foreign capital inflows drive up inflation to form possible asset bubbles in the region, he warned.

United Overseas Bank economist Ho Woei Chen said a US recession would hit Singapore’s export sector very hard.

‘Although exports to China have increased, enddemand is largely still in the US,’ he said.

Citigroup economist Chua Hak Bin said a 1-percentage-point reduction in US growth would cut Singapore growth by 1.7 percentage points.

He said a contraction in the US and Europe could lower Singapore growth from his current forecast of 5.6 per cent to between 3 per cent and 4 per cent. ‘Ultimately, manufacturing will be hit, as well as trade-related services such as wholesale and transport.’

Barclays economist Leong Wai Ho, though, is much more sanguine.

He tips Singapore growth at 6.5 per cent this year, purely on the strength of the domestic economy.

‘We already expect exports to contribute very little to growth,’ he said, pointing out that last year’s strong growth came amid a weak export performance.

Instead, private consumption, fuelled by record tourist arrivals and investments in the construction sector, should provide a buffer.

Projects, like the integrated resorts, are highly unlikely to be disrupted, while the record new manufacturing investments that Singapore won last year will provide support, Mr Leong said.

‘We have never entered a US recession from such a strong position. We are going into this with good quality, broad-based growth.’

 

Source: The Straits Times 23 Jan 08

Investment bar set high, but EDB expects to cross it

It forecasts another bumper year despite prospects of global economic slowdown

(SINGAPORE) The world’s economy may be slowing down, but Singapore expects to continue attracting huge investments this year that will spur growth and create jobs.

If anything, it expects to surpass last year’s record $16.1 billion worth of manufacturing investments. The Economic Development Board (EDB) has forecast fixed asset investments (FAI) of between $16 billion and $18 billion in 2008.

For the record, 2006 was described as a bumper year as manufacturing investments touched $8.8 billion. Last year, this figure almost doubled and EDB expects 2008 to proceed along similar lines, the global economic slowdown notwithstanding.

In fact, the sterling performance of 2007 – the first time that FAI here crossed the $10 billion mark by a wide margin – appears to have made it the new benchmark. The year also witnessed a record $3 billion in total business spending (TBS) and 28,600 new jobs were created – many in engineering, research, management, and creative and industrial design. Close to 400 new projects got off the ground.

Despite setting the bar so high, EDB expects to cross it this year. It reckons that 24,000-28,000 jobs could be created in 2008 and TBS may hit $3-$3.3 billion. It also expects more ‘big bang’ projects in sectors like chemicals, electronics and semiconductors, biomedical, and aerospace.

It is also banking on new growth areas like clean energy, environment and water, and natural resources. EDB will also explore business opportunities in urban solutions; health, wellness and ageing; and lifestyle products and services.

The last three are areas ‘where Singapore itself requires good solutions, where Singapore can serve as a working model and a test bed for new ideas’, it said.

But wouldn’t the looming global recession deter investors? Said EDB chairman Lim Siong Guan: ‘Investors aren’t looking at just how markets are going to be like this year, but in 2010, 2011, 2012 and beyond. Many of them do assessments based on what the longer-term trends are.’

This year, EDB expects to capitalise on the strong investment momentum and also attract peripheral or supporting industries following ‘queen bee’ investors like Norway’s Renewable Energy Corporation (REC) which is investing in a mega $6.3 billion solar manufacturing plant here, Mr Lim added.

But, certainly, competition for investments remains ‘very, very fierce’, both from developed and developing economies, EDB managing director Ko Kheng Hwa said.

He recounted how, for instance, Norway’s REC started out by looking at 200 possible locations for its integrated solar manufacturing complex, then narrowed this down to 20 before doing its due diligence and finally choosing to set up here. That is very typical of the competition Singapore faces.

His point was that in order to attract more new investments, Singapore also ‘has to deliver’ in terms of helping investors already here to carry out their projects.

Rising business and housing costs here for investors were, for example, questions raised at yesterday’s press conference, about challenges which EDB faces.

Mr Ko said that Singapore is helping investors manage capacity constraints and their manpower needs, and also in other areas like helping them secure places in bursting- to-the-seams schools for expatriate children – like getting United World College, for example, to temporarily expand its intake even as it builds a new, larger campus.

To meet investors’ increasingly skilled manpower needs, EDB also rolled out three training initiatives last year, including for wafer fabrication specialist engineers, precision engineers and for clean energy manpower.

2007 was a ‘chemicals year’, with the sector accounting for $8.6 billion or 53 per cent of total FAI, followed by electronics with $5.1 billion (32 per cent). This was the reverse of 2006, when electronics accounted for the lion’s share or 49 per cent of FAI, with chemicals accounting for 28 per cent.

Europeans, with $8.4 billion or 52 per cent of FAI, were the main investors last year, followed by the US with $3 billion or 19 per cent.

EDB has also been reaching out to new investment sources like China, India and the Middle East, and this has reaped significant projects – like Tsinghua Tongfang’s Asia-Pacific R&D centre for IT and environment, which will employ 100 researchers; and a US$110 million petrochemical plant on Jurong Island by Tamil Nadu Petroproducts (India) in a joint venture with Kuwait Finance House.

 

Source: Business Times 22 Jan 08

Investments in fixed assets in S’pore jump to record $16b

Good mix of new projects boosts data, lifts outlook for this year: EDB

SINGAPORE has smashed the record for investments in new factories, machinery and other industrial facilities – having secured $16.1 billion worth of such investments last year.

This was thanks to a whopping 400 new projects, including multibillion-dollar petrochemical and wafer fabrication plants which make semiconductors. It was a huge rise over the previous record of $9.2 billion  set in 2001.

And the Economic Development Board (EDB) is confident that 2008 will be another bumper year.

The level of fixed asset investment is one of three key indicators used by the EDB. The other two are business spending, and the value-added or the rise in the value of goods and services resulting from a firm’s activities.

Fixed asset investment from the manufacturing sector was nearly double 2006’s $8.8 billion and easily beat the forecast of $8.5 billion to $9 billion, EDB said.

Business spending from the services sector also grew, to $3 billion from $2.8 billion in 2006, surpassing expectations of between $2.7 billion and $2.9 billion.

The new projects won last year are set to create a record 28,600 new jobs.

They are also expected to add $11.6 billion each year to Singapore’s gross domestic product, exceeding the upper limit of earlier forecasts by $100 million. Still, this was lower than the $13.4 billion recorded last year.

EDB managing director Ko Kheng Hwa said this was due to the mix of projects.

‘It depends on the industry. In the chemicals sector, for example, investment figures are usually high, but the value-added tends to be captured in downstream plants as opposed to the initial upstream ones,’ he said at a press conference yesterday.

EDB chairman Lim Siong Guan said the data reflected strong investor confidence.

‘It also affirms manufacturing as a critical component of Singapore’s economic growth, and underlines our ability to continue to attract high-end complex manufacturing projects which bring in quality jobs,’ he added.

EDB said many of the projects it had pursued were capital, knowledge or innovation-intensive, or a combination of all three – all key to economic development and creating good jobs.

The top projects announced last year included ExxonMobil’s second world-scale petrochemical plant in Singapore, set to cost US$4 billion (S$5.7 billion), and Neste Oil’s 550 million euro (S$1.16 billion) biodiesel plant, which will be the world’s largest.

Mr Lim said attracting such projects has made EDB confident that the momentum will continue this year despite global slowdown fears.

Fixed asset investment from manufacturing and services is set to hit up to $19 billion. Business spending could rise to $8 billion and value- added is tipped at $12 billion to $14 billion.

Economists were cautious about the forecasts. Citigroup economist Chua Hak Bin said: ‘It’s an ambitious target as there’s a risk of a manufacturing recession in Asia by the middle of the year,’ he said.

‘If the United States slows even more, chances are that exports from Asia could weaken more…and this could dampen manufacturing investments.’

CIMB-GK economist Song Seng Wun is more optimistic. ‘If things on the external front stay on an even keel, then the numbers are do-able. ‘But if sentiment deteriorates as a result of spillover to the real economy from the financial sector, we may see firms cutting back on investments. What is encouraging is that investments are coming from more diverse sources and some slack may be taken up by Asia-Pacific firms.’

Mr Lim said EDB will focus on exploring opportunities in three growth areas where Singapore itself requires good solutions and can serve as a working model and test bed.

They are: urban solutions involving pollution control, clean water and energy and traffic management; health and wellness solutions for ageing populations; and lifestyle products and services.

 

Source: The Straits Times 22 Jan 08

EDB revises key indicators to reflect industry changes

THE blurring of the traditional lines between the manufacturing and services sectors has led the Economic Development Board (EDB) to revise the performance indicators it uses to reflect investment into Singapore.

EDB’s assistant managing director for planning and policy, Dr Beh Swan Gin, said yesterday that evolving industry conditions had necessitated a revamp of the key indicators typically used to show the level of investments made into the Republic each year.

Up until this year, fixed asset investment was the indicator used for the manufacturing sector. This reflects capital investments made by firms on facilities, plant equipment and machinery.

For the services sector, total business spending – which captures a firm’s business expenditure and, hence, direct spin-offs to the economy – was used.

The major components of this indicator include wages, work subcontracted out locally, depreciation and rental.

Dr Beh explained that, when a company takes significant action to get a project going, such as starting construction or buying a factory or machinery, the investment is counted as committed and EDB adds it to the annual tally.

However, from next year onwards, EDB will begin to look at the combined fixed asset investment and business spending figures for the manufacturing and services sectors, instead of splitting them up.

Dr Beh said at a press conference: ‘This is because the traditional boundary between manufacturing and services is blurring.

‘Some companies are going asset-light and outsourcing more and more work. Others create value through manufacturing, such as aircraft engine assembly, but capture more value through services such as aircraft engine repair and overhaul.’

He also said that EDB’s sharpened focus on capital-, knowledge- and innovation-intensive projects had made it necessary to tweak the indicators.

‘Fixed asset investment has been a good proxy for capital-intensive projects, but it is not adequate as a measure of knowledge- or innovation-intensive projects.

‘This is where total business spending and the number of skilled jobs come in. We believe we should look at all the indicators as well as value-added for a project, regardless of whether it is manufacturing or services.

‘We feel the updated indicators offer a more holistic and multi-dimensional view of the projects we work on.’

 

Source: The Straits Times 22 Jan 08

TOP OF THE NEWS: The dome picked for Sports Hub

KALLANG will have one of the world’s biggest domes dominating its landscape by the end of 2011, to replace the 35-year-old National Stadium.

The Singapore Sports Hub consortium has pipped two other groups for the right to build and run the Sports Hub for 25 years, it was announced yesterday.

The Government will pay the consortium $1.87 billion in all over this period. Led by construction firm Dragages Singapore, the consortium will bear the $1.2 billion capital expenditure.

Dr Vivian Balakrishnan, Minister for Community Development, Youth and Sports, hinted at what set the dome apart from the ‘horseshoe’ and ‘crumpled tissue’ designs of the contenders: its packed sporting calendar.

That accounted for 40 per cent of the ratings by the 11-member evaluation panel, which included Singapore Sports Council (SSC) representatives.

The minister acknowledged that Singaporeans might well query the $1.87 billion the Government was paying out for the Sports Hub.

Singapore needed an icon that would draw in top sporting talent, and create jobs and a lifestyle in sync with a sophisticated service economy, he said.

The stadium was ‘a piece of a much larger jigsaw’ which included the Esplanade, the building of the two integrated resorts and the development of Marina South.

‘This is an investment and this is money well spent,’ he told reporters gathered at The Ritz-Carlton hotel for the announcement of the winning design.

Asked to explain the initial price tag of between $650 million and $800 million, SSC head Oon Jin Teik said that this was based on the 2005 price index which had not accounted for a water sports centre for the new premises.

Besides the water sports centre and the 55,000-seater stadium, the Sports Hub project will also have 41,000 sq m of leisure, shopping and dining facilities.

 

Source: The Straits Times 20 Jan 08

Inflation seen eating into pay hikes this year

Real take-home pay increases will be subdued: HR group

INFLATION is likely to take a big bite of that fat pay rise this year. With Singapore workers looking forward to some of the biggest pay rises in the developed economies at 5 per cent, ECA International, a global club of human resource practitioners, says real take-home increases will be ‘relatively subdued’.

A surge in prices of oil, food and lodgings will ‘counter-balance’ the projected big pay rise ‘considerably’ not just in Singapore but also in the likes of China, South Korea and Taiwan, ECA said in a statement released yesterday.

‘This latest upswing in inflation, which has caught many people by surprise, will have an impact on real salary increases in 2008,’ said the firm’s general manager Lee Quane.

‘When many companies calculated salary increases for 2008, inflation forecasts were relatively low,’ he said. ’Inflation in Singapore, for example, is now around two-and-a-half times higher than anticipated in October forecasts, so employees here are likely to experience relatively subdued real income rises in comparison to previous years.’

The situation is going to give companies faced with a tight labour market a big headache in the coming months, according to Mr Quane.

‘They will need to consider revising their forecast salary increases or provide higher salary increases next year to make up for this year’s relatively low increase in real incomes,’ he said.

In nominal terms, ECA’s recent poll shows Singapore workers can expect their pay to go up by an average of 5 per cent in 2008 – thanks to a robust economy and a labour shortage.

While this is below the estimated 7.3 per cent average for Asia as a whole, it is still higher than last year’s 4.5 per cent.

‘For a developed economy such as Singapore, this level of wage increase is high,’ Mr Quane said.

‘Most other developed economies in our survey are showing forecast wage increases of approximately 4 per cent.’

Hong Kong, Singapore’s chief economic rival, is likely to see pay increases flat at 4 per cent this year – the secondlowest in the region, according to ECA.

Japan, again, has the lowest projection for pay rise in Asia for 2008 – 3 per cent, the same as in 2007.

The Philippines is tipped to join India, Vietnam and China in seeing the biggest pay increases.

Salary increases in Asia are expected to be 25 per cent more than they were in 2005. And for the first time, the region’s pay hikes are tipped to be higher than those in Eastern Europe, where signs show wages are starting to stabilise.

‘Regionally, India and Vietnam are expected to see the biggest increases when compared with last year,’ ECA said.

‘In India the 14 per cent salary rise is significantly up on last year’s high of 12.6 per cent, while Vietnam’s 10 per cent prediction is a notable increase on the 8.5 per cent in 2007.’

Led by India, Asia is projected to have the biggest pay increase in 2008.

 

Source: Business Times 18 Jan 08

Singapore may dodge recession in 2008: economists

SINGAPORE – Singapore’s export-driven economy, which shrank in the fourth quarter, will feel the impact of a slowdown in the United States but will just avoid recession, analysts said on Friday.

Weak exports figures on Thursday suggested the government’s Jan 2 advanced estimate showing the economy shrank in the fourth quarter at an annualised and seasonally adjusted rate of 3.2 per cent would be downgraded when final figures are reported.

Since the advance estimate, US economic data has grown increasingly gloomy and on Thursday the Singapore government reported that exports, the main growth driver, fell in December for the fourth consecutive month.

But economists said buoyant construction and services sectors and a pick-up in drugs production should offset the impact from a weakening US economy in the first quarter, preventing a recession.

The standard definition for recession is two consecutive quarters of economic contraction.

Still, it will be a close call, they said.

Out of 8 economists surveyed, five said Singapore would avoid recession. Three said there was a risk of recession.

‘The likelihood of a recession is in the low probability but high risk category,’ said Song Seng Wun, an economist at CIMB-GK Research said. ‘It all boils down to how pharmaceuticals will do.’

Drugs exports fell in both November and December, suggesting a rebound early this year, economists said. The industry produces about 10 per cent of Singapore’s non-oil exports, the main measure of the republic’s trade performance.

But drug production is volatile because firms often switch products and shut down factories for periods to prepare for production of another drug. This can have an unpredictable impact on trade and growth.

The economy’s contraction in the fourth quarter of 2007 was the first since since 2003. But the economy hasn’t suffered a recession since 2001 and 2002, when the United States was also in recession.

Most economists expect the Singapore economy to grow between 4-6 per cent this year, in line with the government’s forecast, but below last year’s estimated 7.5 per cent.

‘The global demand story is down. If manufacturing turns from being a non-performer to an actual drag, we could be looking at a recession,’ said Selena Ling, an economist at OCBC.

Singapore’s manufacturing sector had a lacklustre showing last year as persistent weakness in technology shipments, and sluggish drug exports in the fourth quarter dragged on growth.

 

Source: REUTERS (Business Times 18 Jan 08)

Exports lurch to worst showing in five years

NODX hit by electronics slump; jury still out on 2008 as US slowdown looms

 

(SINGAPORE) Even the economists were caught off-guard. They had expected Singapore’s key non-oil domestic exports (NODX) in December to grow at a healthy clip, compared to a year ago. Instead, they fell 4.5 per cent on the heels of a 3.4 per cent drop in November.

This unexpected slowdown meant that, for the year as a whole, NODX put on its worst showing in five years.

As all eyes turn to 2008, there appears to be a difference of views between the official assessment and what economists in the private sector feel.

International Enterprise Singapore, the government trade promotion agency, yesterday said things are likely to get better on the trade front this year. Other economists are less sanguine.

The NODX expanded just 2.3 per cent from a year ago in 2007, when IE Singapore expected it to grow 4-6 per cent, after trimming its forecast from 7-9 per cent in July. This key barometer had risen 8.5 per cent in 2006.

Last year’s disappointing export performance came despite a robust growth in the overall economy, which put on 7.5 per cent gains. IE Singapore tips the NODX to grow in line with the larger economy in 2008 – by 4-6 per cent, against a 4.5-6.5 per cent growth forecast for the economy.

Overall trade, which increased 4.5 per cent to $846 billion in 2007, is likely to expand a bit faster at 6-8 per cent.

Economists in the private sector, meanwhile, feel that the looming recession in the United States could hit Asian exports.

‘Looking forward, the 2008 outlook is definitely getting less sanguine,’ said Selena Ling of OCBC Bank. ‘Given the slowing global economy and the increased risk of the US economy sliding into a recession, the external demand outlook would be dampened.’

OCBC is projecting the NODX to grow 4-5 per cent this year, but may revise it after reviewing the NODX data in the first three months. The present signs are not encouraging.

The NODX has dropped sharply over the past two months, even though the median estimate by private sector economists was that it would register a 5.3 per cent increase in December.

IE Singapore, which sees the NODX performing better this year, could not say when the turnaround will come.

While indicating that its projection is conservative and wide enough to accommodate a slowdown in the world economy, IE Singapore’s chief executive Chong Lit Cheong said the agency is prepared to trim its trade forecast – especially if US growth forecast falls below the 1.5-2.0 per cent range.

While China overtook the US last year as Singapore’s third largest trading partner – after Malaysia and the European Union – Mr Chong said it is still a ‘very significant’ market for Singapore. Many of Singapore’s exports to China and other markets in the region eventually ended up in the US.

In fact, along with South Korea and Malaysia, the US was the biggest contributor to NODX’s growth in 2007.

Exports to the EU, Japan, Hong Kong, Indonesia and Taiwan also sank

For 2008, IE Singapore is riding its hope on a recovery in electronics shipments; stronger exports in chemical products, especially pharmaceuticals and petrochemicals; and still-robust economic growth in Asia to take up the slack in the US and EU.

Poor electronics exports was a key reason for the NODX’s poor performance last year. Shipments fell each month since February as a global inventory glut pushed down prices of memory chips and microprocessors. For the year, electronic exports fell 9.2 per cent from 2006.

Mr Chong sees chip prices bottoming and an electronics pickup in the second half of 2008. Bigger pharmaceutical output could provide an extra boost.

More pharmaceutical plants have been built in Singapore since 2004 – up from 25 to 42 today – and many will be rolling out production this year, Mr Chong pointed out.

 

Source: Business Times 18 Jan 08

Nominal wages could rise 5% this year: Survey

SINGAPORE employees can expect a hefty 5 per cent pay rise this year, on average, according to a new survey, up from 4.5 per cent last year.

However, a rising inflation rate could mean their real spending power barely changes, despite the rise.

The survey, carried out by human resources organisation ECA International, is based on data collected and analysed over the last six months from human resources (HR) professionals in 250 multinational companies worldwide.

The increase, which is considered high for a developed economy such as Singapore’s, is due to the Republic’s robust growth last year and a ‘relatively tight labour market, which looking into 2008 shows little sign of changing’, said ECA’s Hong Kong-based general manager, Mr Lee Quane.

Most other developed economies, he said, are expected to post wage rises of about 4 per cent.

Hong Kong, for instance, is looking at a 4 per cent growth rate, the same rate it has seen in the two previous years.

Globally, Asian workers are tipped to be getting the highest salary increments of 7.3 per cent, on average, while those in Western Europe are enjoying the lowest at 3.9 per cent. Globally, the average is 5.9 per cent.

But employees should not celebrate just yet. In terms of real wages, it is a different story.

A real wage increase is the difference between the salary increase and inflation, which is the rate at which prices for necessities such as food and accommodation rise.

Many HR departments, said Mr Quane, base their salary increment calculations on historical inflation rates.

He noted, too, an unwillingness on the part of companies in developed Asian cities to raise wages, which reflects a constant pressure on keeping costs low.

Inflation in Singapore hit a 16-year high of 3.6 per cent last October, before rising further to 4.2 per cent in November, the fastest rate of price increase since 1982.

The current bout of inflation, said Mr Quane, has blindsided many HR professionals.

So while ‘companies expect to pay 5 per cent more, they may have to revise this, to take into account the rising inflation rates’, he said.

 

Source: The Straits Times 18 Jan 08

Export growth slumps to slowest pace in five years

2.3% figure is well under official forecasts of between 4% and 6% growth

A SURPRISE contraction last month capped a disappointing year for Singapore exports, which missed official targets as growth slumped to its slowest pace in five years.

Expansion last year hit just 2.3 per cent, well under official forecasts of between 4 and 6 per cent and small change compared with the 8.5 per cent growth in 2006.

Last month’s dismal figures reflect the wider downturn: Overseas sales of goods made here shrank for the second straight month, contracting 4.5 per cent against expectations for at least 5 per cent growth.

Pharmaceutical exports disappointed, failing to recover from a surprise contraction in November, while the electronics sector shrank for the 14th time in 15 months.

Economists had expected a rebound from November’s 3.4 per cent contraction. A better December trade figure could have signalled that overall economic growth for the fourth quarter was better than an early estimate of 6 per cent.

But the dismal data out yesterday dashed such hopes, pointing instead to yet another weak month for manufacturers.

It has cast a pall over the new year, but trade agency IE Singapore is predicting a turnaround, forecasting export growth of between 4 and 6 per cent this year.

This is despite expectations that growth in all of Singapore’s main markets will slow.

The trade agency is pinning its hopes on a long-overdue global technology recovery to provide enough boost to achieve its target.

‘GDP growth of our trading partners will moderate, but we are hopeful that the other engines of growth for trade can help us,’ said IE chief executive Chong Lit Cheong.

Exports last year were a major letdown. Growth was only 2.3 per cent – mainly because of shrinking exports of semiconductors, disk drives and telecom equipment. The number paled beside the 3 per cent predictions of many market economists.

Electronic exports shrank 9.2 per cent last month, as well as for the whole year.

‘The electronics sector remains firmly in the doldrums,’ said HSBC economist Robert Prior-Wandesforde. Much of this was due to a prolonged downturn in the global electronics cycle, he said. ‘But Singapore has fared a lot worse than other tech-heavy countries, hinting at some more fundamental problem.’

By contrast, pharmaceuticals helped hold up overall exports, jumping 21 per cent for the whole of last year.

But a failure last month by the notoriously volatile sector to rebound from a surprise November contraction kept overall exports in the red for a second straight month.

IE is counting on a global chip recovery in the second half of this year to boost local electronic exports.

Industry forecasts predict global chip sales to grow 6 to 9 per cent this year, up from last year’s 3 to 4 per cent.

Two new pharmaceutical plants coming on stream this year could boost drug exports, said Mr Chong.

But all eyes are on the US, Singapore’s No. 2 export market after Europe, which may be sinking into a recession. Mr Chong said IE’s forecast may be revised if the country’s economic outlook worsens from the agency’s 1.5- to 2-per-cent forecast.

Indeed, some analysts said the IE growth target is ambitious. ‘My best guess is that exports will grow 2 to 4 per cent, given our view of US growth at 0.5 per cent,’ said Standard Chartered Bank economist Alvin Liew.

UNDERLYING PROBLEM?

‘The electronics sector remains firmly in the doldrums. But Singapore has fared a lot worse than other tech-heavy countries, hinting at some more fundamental problem.’

HSBC ECONOMIST ROBERT PRIOR-WANDESFORDE, saying the prolonged downturn in the global electronics cycle may not be solely responsible for the 9.2-per-cent fall in electronic exports last month as well as for the whole year

 

Source: The Straits Times 18 Jan 08

S’pore economists unfazed as US recession fears grow

They opt to wait for more data before revising growth forecasts

FEARS of a United States recession are hitting a fever pitch with the dreaded ‘R’ word mentioned with increasing frequency by American policymakers and economic soothsayers.

But the temperature in Singapore is notably lower. Local analysts are sitting tight on their forecasts – for both the US and Singapore – even with the hair-raising news out of America this week.

‘It’s looking darker undeniably,’ said Action Economics economist David Cohen. ‘But the situation hasn’t changed that dramatically either.’

Economists in Singapore said their colleagues in the US might be overreacting somewhat. Local experts are forecasting a slowdown but they want more evidence before making a recession call.

The mood in the world’s largest economy turned south dramatically in the past few days, with several global banks and former Fed chief Alan Greenspan issuing strongly bearish outlooks. Goldman Sachs, Standard Chartered Bank (Stanchart), Merrill Lynch and Morgan Stanley slashed their forecasts and joined Mr Greenspan in saying that the US is either in a recession or about to enter one.

Economists are expecting the US Federal Reserve to make deeper interest rate cuts, with Stanchart chief economist Gerard Lyons predicting that the benchmark rate could go as low as 1 per cent.

On the fiscal front, a US$100 billion (S$143 billion) stimulus plan, which will likely include tax rebates, is being put together by Democratic leaders in the US House of Representatives.

The surge in pessimism has been triggered largely by surprisingly weak labour and retail data. A jump in unemployment last month and a slide in holiday sales are being seen as signals that the era of the irrepressible US consumer is coming to an end.

Especially worrying were poor sales of luxury cars and premium jewellery, suggesting that even affluent Americans are tightening their belts.

Meanwhile, more big write-downs on sub-prime mortgage losses by US banks, led by Citigroup on Monday, will do little for the already shaken banking sector in the West. The gloomy sentiment has sent global investors into a frenzy with stock markets slumping and gold prices surging as safety is sought in these uncertain times.

‘Market prices tend to overreact to fluctuations in economic data,’ said Mr Cohen, who maintains that the US could still grow by about 2 per cent this year.

He said the figures may not be as bad as they are made out to be. For instance, the weak December will not derail fourth-quarter retail sales from a 2 per cent expansion.

CIMB-GK economist Song Seng Wun said that while US household spending will moderate, American firms are doing well generally, tourists are taking advantage of the cheap US dollar and an election year will provide extra jobs for many.

Analysts in Singapore said the sharp reactions in the West may be caused by the economists there being too close to the battle.

Some suggested that dramatic calls may have been made to hog headlines while others said an element of overcompensation could be in play after previously ’sticking their heads in the sand’.

Indeed, United Overseas Bank economist Thomas Lam said he had anticipated last May that the US was headed for a slowdown and flagged the possibility of Fed rate cuts against a sea of predictions for inflation busting rate hikes.

Economists said a sharper slowdown in the US will hurt growth in Singapore but the effect will be cushioned by expected resilient growth in China and the region’s rising affluence, which should keep tourism humming.

 

Source: The Straits Times 17 Jan 08

Stanchart lowers S’pore growth forecast

STANDARD Chartererd Bank (Stanchart) expects Singapore’s economy to slow even further this year – to 4.5 per cent – as fears of a recession in the United States loom ever larger.

Weaker exports to the world’s largest economy will drag down trade-related services in Singapore, said the British lender, which cut its forecast from 5.7 per cent previously.

‘The US economy is heading into a recession,’ Stanchart chief economist Gerard Lyons yesterday told 200 of the bank’s clients in a seminar.

‘An American downturn directly hits exports from Asia. An American downturn also indirectly impacts confidence,’ he said.

Stanchart’s lower Singapore estimate follows a cut in the bank’s forecast for US growth this year from 1.4 per cent to 0.5 per cent. Its China and India forecasts are unchanged.

The new Singapore prediction is at the bottom end of the Government’s forecast range of 4.5 per cent to 6.5 per cent growth this year.

It is also more pessimistic than the estimates of most economists in Singapore, which generally hover at around 6 per cent.

Goldman Sachs, which slashed its US forecast to 0.8 per cent on Monday, has a 6.4 per cent bet on Singapore, down from 7.3 per cent previously.

Stanchart Singapore economist Alvin Liew said a US slowdown would hit Singapore manufacturers and traderelated services, such as logistics.

Financial services and other growth drivers, such as transport engineering, will also moderate after the high base they set last year.

Strong domestic demand, however, will keep Singapore in the black, unlike in 2001 when the Republic was dragged into the red by a contracting US economy.

Growth in sectors such as construction provided 80 per cent of the country’s economic expansion last year, said Stanchart South-east Asia economist Hui Cheung Tai.

Stanchart expects the US slowdown to be a protracted one, lingering on to next year.

Dr Lyons reckons the severe downturn will prompt the US Federal Reserve to slash its benchmark interest rate to 3 per cent by the middle of the year.

‘In my view, they should go even lower. Do not rule out US rates going all the way down to 1 per cent,’ he said, noting that current economic conditions were worse than the last time the Fed rate was that low.

 

Source: The Straits Times 16 Jan 08

GIC pumps $9.8b into troubled Citigroup

THE Government of Singapore Corporation (GIC) is investing US$6.88 billion (S$9.82 billion) in the troubled American banking giant Citigroup, it said last night.

It is GIC’s second largest investment and came on a day of dreadful news for Citi, which has been battered by the credit crisis rocking the global financial system.

Citi reported US$9.83 billion in net losses for the fourth quarter, and is reportedly planning to axe 20,000 staff or more. It also took a massive US$18.1 billion write-down for exposure to dodgy sub-prime mortgages.

But GIC stressed yesterday that what at first glance might look like a risky investment has built-in safeguards that will protect its downside. The use of a certain kind of security means GIC gets a relatively lower rate of return, but has more protection if Citi’s share price plummets further.

Indeed, the investment’s structure ‘gives appropriate downside protection’ and meets GIC’s ‘long-term investment objective in terms of risk and return’, said Dr Tony Tan, GIC deputy chairman and executive director, in a statement yesterday.

Dr Tan described Citigroup as ‘an excellent addition to GIC’s portfolio as it is one of the largest banks in the world with an attractive global franchise’. He added that GIC has confidence in Citigroup’s board of directors, who have taken ‘decisive action to… strengthen the balance sheet and profitability of the bank’.

The Straits Times understands that the long-standing ties between GIC senior executives and Citi’s leadership were partly why GIC was one of the first institutions the US bank approached during this most recent round of cash-raising.

Citi chief executive Vikram Pandit told a results briefing in New York yesterday that GIC is ‘a widely respected, long-term oriented investor’ and that he has ‘known the principals for years’. The announcement caps a dismal period for Citi, which has been desperate to shore up its capital base.

GIC’s investment was the largest in a new round of fund-raising that netted a total of US$12.5 billion from private investors, including the Kuwait Investment Authority, Saudi Prince Alwaleed bin Talal and asset management firm Capital Research & Management.

Citi is also raising US$2 billion more from a public offering.

GIC made a similar strategic investment less then a month ago, spending 11 billion Swiss francs (S$14.45 billion) to buy a stake of about 9 per cent in the beleaguered Swiss bank UBS, another victim of the sub-prime meltdown.

The two deals are structured differently. The UBS investment is in the form of ‘convertible notes’, which pay an annual return of 9 per cent. These must be converted into UBS stock within two years of the date of issue.

The Citi deal employs a type of security called a perpetual convertible security. This provides a fixed annual dividend of 7 per cent and allows GIC to hold the securities for as long as it chooses, subject to certain conditions. GIC may convert these securities into shares at a fixed price, which will be 20 per cent above the stock’s average price over the next few trading days.

Citigroup shares closed in New York on Monday at US$29.06, a drop of 47 per cent over the last year.

GIC, which manages Singapore’s reserves, already holds a 0.3 per cent stake in Citi. The new investment will allow it to raise its holding to about 4 per cent, making it one of the largest single shareholders. But GIC stated that it is not seeking a board seat at Citi.

 

Source: The Straits Times 16 Jan 08

Goldman Sachs cuts Asia’s growth forecast

Expected US recession seen eroding demand for region’s exports

(SINGAPORE) Goldman Sachs Group has lowered its growth forecast for Asia on concern that an expected US recession will erode demand for the region’s exports.

Asia, excluding Japan, will expand 8.3 per cent this year, down from an earlier estimate of 8.6 per cent, Hong Kong-based economist Michael Buchanan said in a report. The investment bank last week cut its forecasts for US and Japan.

Goldman, which last year said Asian growth was decoupling from the US, is now forecasting that a US recession may hit shipments to Asia’s biggest export destination. South Korea and Taiwan have already warned that easing demand for semiconductors, mobile phones and computers portends weaker growth in 2008.

‘There could be a ‘tipping point’ at which the US slowdown has a more significant impact on Asia than before,’ Mr Buchanan wrote. ‘The further deterioration in the US economy comes as Japan is also teetering on the edge of recession.’

Morgan Stanley and Merrill Lynch have also forecast that the US would slip into recession this year for the first time since 2001 amid fallout from the subprime mortgage crisis.

Goldman is predicting a 50 per cent chance of a recession in Japan, the world’s second-largest economy. It lowered its growth forecasts for all 10 Asian economies that it covered in the report, including China and India.

‘We’ll probably see suppressed US import demand because of an anticipated slowdown in consumer spending,’ said Thomas Lam, an economist at United Overseas Bank Ltd, Singapore’s second-largest lender. ‘The contribution from export- led growth for Asia from the US will be impacted. Larger Asian economies will not be spared.’

East Asia’s exports are forecast to climb 15.2 per cent this year, after jumping 17.8 per cent in 2007, the World Bank said in its Global Economic Prospects 2008 report released last week.

The region is almost twice as reliant on exports as the rest of the world, with 60 per cent of shipments abroad ultimately destined for the US, Europe and Japan.

Still, the US may need to go through a larger-than- expected slowdown before Asia’s growth will reach a ‘tipping point’, Mr Buchanan said.

‘The greater acceptance of the decoupling of Asia from the US that has built up over the last year or so may mean the tipping point for Asian households, firms and markets is at a lower, more negative growth rate than normal,’ he said. ‘There may still be a growth rate at which Asia caves in and consumption and capex slow more appreciably, but it may now take more than just a very mild technical US recession.’

China will expand 10 per cent this year, from an earlier forecast of 10.3 per cent, Goldman predicted. The US buys about 19 per cent of China’s exports.

The company cut India’s growth estimate to 7.8 per cent from 8 per cent, and expects export growth to probably halve. The Reserve Bank of India may cut interest rates twice in 2008, once in April and again in the second half, it predicted.

In Singapore, where consumer price gains are at the highest in a quarter of a century, Goldman expects inflation to outweigh growth concerns. It is ‘even less confident’ of growth in Thailand as political uncertainty hampers policy decisions.

Taiwan remains the ‘most-exposed’ to a US slowdown, while a greater-than-expected decline in Philippine exports will ‘take its toll’ on the country’s economy, Goldman said.

‘Overall, these forecast reductions are meaningful but not disastrous,’ Mr Buchanan said. ‘The impact on currencies is in general likely to be contained, although equity markets could be in for more volatility.’

 

Source: Bloomberg (Business Times 15 Jan 08)

Inflation in S’pore may hit 6.5% this month

CONSUMER prices in Singapore may surge a staggering 6.5 per cent this month, bringing full- year average inflation to an equally eye-popping 5 per cent, according to Citigroup.

Higher housing and food costs are likely to cause a spike in price levels this month, while low interest rates may stimulate property prices later in the year, said the Citigroup economist Kit Wei Zheng yesterday.

Mr Kit said his higher estimate stems from ‘pent-up price pressure from the strong growth of the past two years’.

Citigroup’s new forecast comes days after United Overseas Bank predicted that inflation in Singapore would exceed 6 per cent this quarter.

Economists have been scrambling to keep their forecasts up with the relentlessly rising pace of inflation in recent months.

Inflation hit a 16-year high of 3.6 per cent last October before accelerating to 4.2 per cent in November, the fastest rate of price increase since 1982.

The Government has since raised its forecast, saying prices may jump as much as 5 per cent in the early part of this year, with full-year inflation coming in between 3.5 per cent and 4.5 per cent.

But those estimates may still be too conservative.

‘We are upgrading our inflation forecast for this year to 5 per cent from 3.8 per cent previously,’ said Mr Kit.

He expects inflation to stay around 5 per cent to 6 per cent in the first six months of the year before moderating to about 4 per cent in the rest of the year.

Accommodation costs will jump up this month, as HDB annual values have recently been revised for the first time since 2004.

Food prices may also spike, as wholesalers renegotiate prices held down by contracts that expire this month, said Mr Kit.

Other economists are sitting tight for now, preferring to wait for more actual figures before changing their predictions for Singapore’s inflation rate.

A slowing world economy may put the brakes on oil prices and ease inflationary pressures, they said.

 

Source: The Straits Times 15 Jan 08

Slowing Europe may be bigger concern for S’pore, region

FOR Singapore and other Asian economies that are heavily dependent on exports, a decelerating Europe may be a cause for greater concern than a slowdown in the United States.

While the US economy will slow down in the first half of the year, it is unlikely to sink into a recession, said Deutsche Bank chief Asia economist Michael Spencer.

‘We are more concerned about growth slowing down in Europe than in the US, partly because the ECB has been persisting with a tight monetary policy,’ he said, referring to the European Central Bank (ECB). ‘Europe, we think, is under more distress now than the US.’

Asia’s red-hot economies are expected to slow this year as growing concerns of a US recession dominate the horizon.

Financial turmoil and a flagging housing market are expected to plague the world’s largest economy, which has also been the key growth driver of Asian exports.

Dr Spencer said that while US growth will moderate in the first half of the year, the economy should find its feet in the later part of the year.

In fact, the bank is predicting US growth to hit 2.5 per cent this year, up from last year’s 2.3 per cent.

He said that while the housing recession will deepen and consumers will finally trim their spending, the slowdown will not be that serious since wage growth has been sustained and interest rates are still relatively low.

‘We’ve never had a recession induced by housing alone,’ he said, noting that previous US recessions had been accompanied by oil price spikes, runaway inflation and tight monetary policy.

As for the still-brewing sub- prime mortgage debacle, US banks are sufficiently well-capitalised to stomach the huge write-downs, unlike Asian banks during the 1997 crisis.

It is a less reassuring story in Europe, where the economy is weaker than in the US, said Dr Spencer.

‘Industrial production and retail sales both probably contracted in the fourth quarter of last year when the US grew 2 per cent.’

And with inflation running higher in Europe than in the US, the ECB will be less keen to cut rates until actual economic contractions are recorded, he said.

 

Source: The Straits Times 15 Jan 08

Developing nations to lift world economy amid US slowdown

They will be the biggest drivers of global growth as pace slows to 3.3% this year: World Bank

DEVELOPING nations will be key in helping the global economy mitigate the drag from a slowing United States.

With their domestic economies coming into their own, poor countries will be the world’s biggest growth driver this year, the World Bank said in a report yesterday.

And Singapore is especially well-poised to take advantage of this as it is located amid the hottest of the world’s emerging economies.

‘I do believe that there is an impact from whatever happens in the US economy on the developing regions,’ World Bank lead economist Hans Timmer said at a press conference to present the bank’s outlook for the world economy.

‘But the result is not that the world economy will be on its knees.’

The bank is predicting global economic growth will moderate to 3.3 per cent this year, due mainly to a slowdown in the US, the world’s biggest economy.

The US, mired in a severe housing market downturn that has caused much financial turmoil worldwide, is widely expected to decelerate further this year.

While the World Bank has estimated that the US should manage a modest 1.9 per cent expansion this year, fears of a recession appear to be rising, prompted by recent economic data.

‘We can certainly smell a US recession although we can’t taste one yet,’ said United Overseas Bank economist Thomas Lam.

Against this ominous backdrop, developing economies are emerging as a bright spot for the year. They are expected to grow 7.1 per cent this year, with East Asia’s growth stars clocking in at an average of 9.7 per cent.

‘Singapore benefits from its location in Asia, which has shown the strongest dynamism in the world,’ said Mr Timmers, who cited the region’s red-hot economies of China and Vietnam. He pointed out that developing nations have become much more resilient to external demand shocks in the past few years.

The US housing slowdown, for instance, began two years ago and has been hurting US imports of goods made in poorer countries.

But that has not derailed the developing world from its growth path as its robust domestic economies – bolstered by better economic policies, open borders and stronger supply-side structures – have been picking up the slack.

Many emerging economies have also been largely unscathed by financial problems caused by the US subprime crisis as their direct exposure to the crisis has been limited.

‘With that resilience, with their strong performance, developing countries are now mitigating the slowdown that is occurring in the US,’ said Mr Timmers.

He noted that the developing economies together equal the US economy in size.

‘But they are growing more than three times as fast. That means their contribution to global demand is more than three times as important as the contribution of the United States.’

Still, a sharp and drastic slowdown in the US remains a key risk to the developing world and the global economy.

Also, an overreaction by policymakers might result in bigger problems down the road.

The World bank warned that if central banks overstimulate the economy with over-aggressive rate cuts, asset bubbles could be created.

‘Commodity markets could tighten further, inflationary pressures would mount and financial imbalances would increase rather than recede.

‘Such a scenario could sow the seeds of a much sharper downturn in the medium term.’

 

Source: The Straits Times 10 Jan 08

Businesses stay upbeat on S’pore economy: survey

Optimism balance is still at 84% despite greater uncertainty

(SINGAPORE) Despite a gloomier outlook and inflation fears, Singapore businesses remain optimistic about the local economy, a global survey of private businesses has found.

Accounting firm Grant Thornton International’s latest International Business Report ranked Singapore fourth, with an optimism balance of 84 per cent, unchanged from the previous year.

The optimism balance is the proportion of upbeat respondents less those who report negative sentiments on prospects for the country’s economy in the next 12 months.

The survey of 7,800 businesses in 34 economies worldwide found an average optimism score of 42 per cent, three percentage points lower than in January last year.

The most bullish responses were from the Philippines and India (95 per cent), Vietnam (87 per cent) and Hong Kong (82 per cent).

Japanese businesses were among the most pessimistic (minus 44 per cent, from minus 5 per cent last year). Thai businesses, perhaps reflecting concern over the country’s unstable political climate, reported a score of minus 30 per cent.

Despite a housing downturn and a shuddering credit market, sentiment in the US improved slightly, from 14 per cent to 22 per cent.

Aw Eng Hai, a partner with Foo Kon Tan Grant Thornton, the Singapore member firm of the global group, said: ‘Although we have entered a period of greater uncertainty, amid concern over fallout from the US sub-prime mortgage crisis and the increased business costs, it is encouraging to know that businesses in Singapore remain confident in the country’s economy.’

In Singapore, there were mixed expectations for prospects in specific business areas. Turnover expectations were slightly down at 71 per cent from 79 per cent last year, but businesses were just as optimistic on profitability as in 2007 (64 per cent).

In the present tight labour market, businesses reported lower expectations of employment growth (31 per cent against 38 per cent last year), but also said they were more optimistic regarding investments in new buildings, plants and machinery compared to 2007.

The relatively upbeat survey findings show a markedly different picture from an earlier business confidence survey. The BT-UniSIM quarterly survey found last November that confidence had slumped amid emerging signs of a slowdown in business activity.

The prospects net balance in that survey, reflecting sentiment in the third quarter last year for the next six months, was just 39 per cent, down 17 percentage points from the previous quarter. The figures from different surveys are not comparable.

The purchasing manager’s index, a leading indicator for the manufacturing industry, showed the sector expanded but at a slower pace in December. Manufacturing grew just 0.5 per cent in Q4, pulling down early estimates for the quarter’s GDP growth to just 6 per cent, the slowest in three years.

 

Source: Business Times 8 Jan 08

US slowdown won’t eat into S’pore growth: MM Lee

Temasek, GIC comfortable with Merrill, UBS, he says

(SINGAPORE) A slowdown in the American or European economy will not reduce the rate of Singapore’s economic growth, according to Minister Mentor Lee Kuan Yew.

Barring a ‘big recession’, China and India – where the economies are tipped to expand by 8-10 per cent yearly – will provide the dynamism to pull the rest of Asia’s economies along in the next five years, Mr Lee said last night at a dialogue session hosted by the Institute of Southeast Asian Studies (ISEAS).

At the end of the five years, Singapore will reach a new plateau, leaving the ‘old Singapore’ behind as more Singaporeans can enjoy the finer things in life, including arts and culture.

Mr Lee said the economy should then do well as the two integrated resorts (IRs) will be in full operation to give the tourism and hospitality sectors a big boost.

And if things go well in another five years, he said Singapore will be like Italy or Austria today.

Which is not a bad thing, considering where it had started from – zero resources and given a low chance of survival, according to Mr Lee.

Singapore must now consolidate what it has achieved, and not risk it, he said. When it had few ‘chips’ in the early days, it could take more risk; now that it has more, Singapore should move cautiously, Mr Lee said.

With no natural resources like oil to fall back on, he said Singaporeans have been toughened and motivated to succeed. If Singapore had been rich in oil, Mr Lee said it would not be where it is today.

Responding to a question on the Government of Singapore Investment Corporation’s (GIC) acquisition of a 9 per cent stake in Swiss bank UBS in the wake of the US sub-prime mortgage woes, Mr Lee said Singapore is not averse to American banks or financial institutions.

He noted that Temasek invested US$4.4 billion in Merrill Lynch, the American investment banking giant.

GIC paid $14 billion for a 9 per cent stake in UBS – making it the biggest shareholder – because GIC has confidence in the bank’s management and growth potential, Mr Lee said. ‘It is comfortable with UBS.’

But he also pointed out that Temasek is also comfortable with Merrill Lynch and believes that the investment bank will recover from the losses it suffered.

Touching on the United States presidential race, Mr Lee said whoever is elected the next US president will have a plateful of foreign policy issues to deal with, including a more assertive Russia and a rising China and India.

Still, at the end of the day, he said the US remains an unbeatable economic and military power. Time and again, the US economy has made a strong comeback after showing signs of faltering.

Mr Lee said the US economy stays resiliently strong and that it is well ahead on the technology front.

The Chinese are keenly aware of this – and would not engage the Americans in a confrontation that would upset China’s economic development, he indicated.

 

Source: Business Times 8 Jan 08

Hot 2008 topic: The rising cost of living

WHEN Trade and Industry Minister Lim Hng Kiang announced last November that inflation could hit 4 per cent or 5 per cent in the first quarter of this year, analysts and consumers sat up.

It would be a ‘historic high’ in the 25 years since 1983. The previous high was in July 1991, when it hit 4 per cent.

But today, some analysts are even more pessimistic, predicting that inflation could surge past 6 per cent on the recent wave of increases in taxi fares, electricity tariffs and the continued rise in oil prices.

Views are also divided on whether inflation will taper off by the second half of the year, averaging around 3 per cent, or persist at current levels.

The way the numbers are looking, the impact of these increases is not only on the low-income and retirees living on their savings, but also on the middle-income, MPs tell Insight.

Among them, those who feel it most are the ones who earn too much to benefit from help schemes, but too little to manage the demands of supporting both growing children and ageing parents.

Pasir Ris-Punggol GRC MP Michael Palmer says: ‘You’d hear a bigger noise from them this time round because they feel squeezed.’

Prime Minister Lee Hsien Loong has said the Government is against imposing controls on food or utility prices to curb rising inflation.

In his New Year message, he promised that the coming Budget should have something to help the low-income and older Singaporeans.

 

Source: The Straits Times 5 Jan 08

Economists unfazed by weaker quarterly growth

Only 1 in 6 polled revises first-quarter estimates despite latest data being weaker than expected

ANALYSTS are upbeat about the economy’s outlook in the current first quarter despite some weaker-than-expected economic figures yesterday.

In fact, out of six analysts polled by The Straits Times, only one was revising her first-quarter estimate.

The rest are sticking to their guns despite the lower-than-forecast advance estimates for Singapore’s fourthquarter growth.

Many said a key factor behind the weaker results last quarter was a cyclical slowdown in the pharmaceutical sector, which meant lower manufacturing contributions to economic growth.

This was more a reflection of the industry’s volatility and less a sign of weakening demand. Also, continued strong performances from other sectors, such as services and construction, will buoy the economy, they said.

The Ministry of Trade and Industry yesterday released economic growth estimates for the fourth quarter of 6 per cent on a year-on-year basis, after a 9 per cent gain in the third quarter.

On a quarter-on-quarter seasonally adjusted annualised basis, economic output actually fell by 3.2 per cent compared with a 4.4 per cent gain a quarter earlier.

This translates to a 7.5 per cent economic growth for the full year, which falls at the bottom end of the official government forecast range of 7.5 per cent to 8 per cent full-year growth.

Advance estimates are computed largely from data from the first two months of the quarter and are subject to revision when more comprehensive data becomes available.

Of the six analysts polled, only Ms Selena Ling, an economist with OCBC, lowered her first-quarter forecast to 5.8 per cent from 6.2 per cent after reviewing the advance fourth quarter estimates. She also lowered her full-year 2008 estimates by half a percentage point to 6 per cent.

A key financial indicator of how the first quarter will perform is if the notoriously volatile pharmaceutical sector remains suppressed this year or bounces back rapidly, she said.

However, United Overseas Bank economist Ho Woei Chen believes there is no need to panic.

Although surprised at the weaker numbers, she said: ‘It’s down to the routine shutdown of plants in the pharmaceutical industry, which is part of the production process.

‘The sector tends to be inelastic to global business cycles, and I expect the biomedical industry to do well in the first half of this year and offset any potential slowdown in the electronics sector.’

She maintained her first-quarter estimate of 5.5 per cent and expected full-year gross domestic product to grow by 6.3 per cent.

The construction sector is expected to benefit from work on two integrated resorts and the Marina Bay Financial Centre, which are moving into the higher-value stages of development, Ms Ho added.

‘Services and tourism will also receive a boost when attractions and events, such as the Formula 1 race, come to town,’ she said.

When asked if fears of a technical recession – when the economy contracts for two quarters in a row – are wellfounded, Action Economics economist David Cohen said it was not an impossibility.

‘We have to wait and see how things play out in the rest of the world. But the unemployment rate is at its lowest in almost a dozen years, so any contraction would literally be ‘technical’ because it is obviously not a downturn here in Singapore.’

He also said he expected the latest numbers to encourage the Monetary Authority of Singapore (MAS) to exercise patience when it came to adopting an aggressive monetary policy to handle burgeoning inflation.

A stronger Singapore dollar will help reduce prices of imported goods, but will also make exports more costly and less competitive. Singapore’s latest November consumer price index surged 4.2 per cent – a 25-year high.

Mr Cohen said: ‘The moderating growth is likely to encourage the central bank to exercise patience when it comes to steepening currency appreciation to handle inflation.

‘Any pickup in inflation this year could also be attributed to the hike in the goods and services tax, which cannot be dealt with through monetary policy anyway.’

Ms Ling agreed, saying: ‘The moderating growth should dampen speculation that the MAS will shift to a more aggressive monetary policy before its policy review in April.’

 

Source: The Straits Times 3 Jan 08

Fourth-quarter growth slower than expected

Economists derive a figure of 6.4 per cent based on full-year growth of 7.5 per cent

THE Singapore economy appears to have slowed more than expected.

In his New Year address yesterday, Prime Minister Lee Hsien Loong said gross domestic product (GDP) – economic output – had expanded by 7.5 per cent last year.

Private sector economists have calculated that this means the economy grew by 6.4 per cent in the fourth quarter, from a year earlier. While that is still very robust growth, it follows sizzling expansion of nearly 8 per cent in the first nine months.

The derived fourth-quarter figure is below a median forecast of 7.7 per cent taken from a poll by Bloomberg of 15 market economists.

The economy roared ahead by 9.4 per cent in the July-to-September quarter.

‘Most people were expecting fourth-quarter growth to be around 8 per cent. The latest figure shows the economy is likely to have contracted from the third to the fourth quarter,’ said Standard Chartered Bank economist Alvin Liew.

A major letdown came from drug manufacturers, which dragged down overall industrial performance, said economists.

In addition, the financial services sector, one of the stars of Singapore’s economic boom for much of last year, was likely to have been hit by the global credit crunch, said DBS Bank economist Irvin Seah.

‘After the sub-prime crisis surfaced in August, there was a bit of recovery, but the underlying fear remains.

Volatility and fear still rule the financial markets,’ said Mr Seah.

Economists widely expect the slowdown to become more pronounced this year.

Besides a less-than-rosy growth outlook, there is also an added headache to grapple with: inflation.

‘In previous years, we had a fairy tale sort of economy, with very high growth and incredibly low inflation. But the boom cycle has turned,’ said Citigroup economist Chua Hak Bin.

After enjoying above-trend growth for a few years, the supply crunch has hit home, he said. ‘There is a real likelihood of inflation hitting 6 per cent in January.’

Inflation, which reached a 25-year high of 4.2 per cent in November, will be a key worry in the new year, said United Overseas Bank economist Ho Woei Chen. ‘With the substantial hike in taxi fares, and food supply prices still rising, we could see inflation average 5 per cent throughout 2008,’ she said.

Economists said there was also a risk of ’second-round’ effects of inflation. Workers will probably demand higher wages to make up for higher living costs, Ms Ho said. ‘But with the economy slowing down, employers are less likely to raise salaries by too much.’

Mr Seah of DBS agreed: ‘We are likely to see a period of higher inflation and slower growth.’ But in the longer term, this would not persist, as the underlying fundamentals of Singapore’s economy remain strong, he added.

On the jobs front, the new year will probably not bring about the same bumper jobs growth seen last year.

However, massive jobs cuts announced by beleaguered financial giants are not likely to hit Singapore’s redhot financial services sector severely, Mr Liew said.

‘Asia remains a growth area for banks. In the 2001 slowdown, major banks slashed jobs in the region, only to have to rehire aggressively and pay much more when things got better,’ he said, arguing that employers will not repeat the same mistake.

‘It’s a good finish for 2007,’ said Dr Chua of the latest GDP figures. ‘But the challenges for 2008 will be a lot more.’

 

Source: The Straits Times 1 Jan 08

Will investors’ confidence in bank stocks improve this year?

Developments and results in next few weeks will be closely tracked

WITH 2007 behind them, investors in the Singapore-listed banks will be closely watching developments in the next few weeks to see what 2008 has in store.

Analysts expect core lending to continue to do well, given strong loans growth so far. But the banks are unlikely to be spared if economic growth here slows in the year ahead.

One of the questions expected to be answered soon is who will take the helm of DBS Group as chief executive to replace outgoing CEO Jackson Tai.

The banks’ fourth-quarter results, expected in February, will also play a crucial role in restoring – or further denting – investor confidence in their shares.

Top of the list of things to look for in their earnings reports will be any further write-downs in the value of their collateralised debt obligation or CDO holdings.

In early November last year, OCBC Bank stunned shareholders when it slashed the value of its portfolio of CDOs, comprising pools of asset-backed securities (ABS), by $221 million to just $48 million – less than a fifth of the original value.

OCBC chief executive David Conner said at the time that the move was intended to ‘prepare for the worst’ after it became clear that the market for such debt securities had dried up amid the financial market turmoil.

OCBC’s write-down of its ABS CDO holdings against its earnings was the most aggressive so far among the three banks listed here, although it has another $372 million invested in corporate CDOs – those backed by corporate bonds – that could still see a fall in value.

United Overseas Bank (UOB) has charged $55 million so far against its earnings for its CDO investments of $388 million, of which some $90 million are in ABS CDOs.

And DBS took an $85 million charge against its third-quarter earnings for its CDO exposure, including a $70 million write-down of its $275 million investment in ABS CDOs. It has total CDO exposure of $2.36 billion – including $1.1 billion held by a special purpose vehicle.

The possibility of further writedowns has kept the banks’ share prices depressed in the weeks since they announced their Q3 earnings.

DBS and UOB have been buying back their own shares, which may suggest the banks believe their stocks are undervalued.

Equally important to watch out for will be signs of any weakening in the banks’ core revenue, operating profit and interest margins that would suggest they are in for a rougher ride in 2008.

In recent months the banks have benefited from the surge of activity in the property market and broader economic growth.

Overall bank lending to the property sector – including home loans to individuals and commercial loans to property developers and other businesses in the building and construction industry – has climbed steadily since January and reached an all-time high of $107.2 billion at end-November, according to the most recent estimates from the Monetary Authority of Singapore.

So far then, the impact of the global financial market turmoil that began in late July has been limited to writedowns in the value of the banks’ CDO holdings, losses suffered on trading securities and derivatives from widening credit spreads and – less directly – from lower interest margins resulting from a defensive shift of funds into lower yield short-term assets in the face of volatile financial markets.

These effects – while significant enough to drag the banks’ profits down for the second half of 2007 – are unlikely to last into 2008 and are relatively easy for the banks to manage.

Of greater concern is whether the malaise will affect the banks’ core lending business. That could happen if, as widely expected, broader economic growth worldwide slows and companies here – squeezed by higher costs and lower demand – start cutting back on expansion plans and new investments.

Slower loans growth – particularly to property developers, home-buyers and small businesses – would be one of the first signs of this.

Other symptoms of longer-lasting effects of the financial storm on the banks would be a rise in the proportion of bad loans if the businesses they lend to run into financial trouble, or a decline in fee and commission income from investment banking and wealth management, if the appetite for such services wanes.

In Singapore, the banks’ retail business will likely face greater competition from Citigroup’s consumer subsidiary Citibank Singapore, which has been expanding rapidly into the heartland through its tie-up with transport operator SMRT Corp.

With stiff competition at home, it will also be important to see how well the banks fare in new markets, particularly China. All three Singapore banks have now received approval from Chinese regulators to set up local subsidiaries and are expected to expand their operations there.

But other overseas ventures have proved difficult. Over the past year, Thailand’s banking sector has been particularly troublesome for DBS and UOB.

The value of DBS’s 16 per cent stake in Thailand’s TMB Bank plummeted some 40 per cent in 2007. In July, DBS took a $159 million charge against its Q2 earnings. And in Q3 it wrote down the investment by another $38 million to $270 million.

Since the end of September, TMB’s share price has dropped a further 20 per cent. At a rough estimate, that would make a $50 million dent in DBS’s Q4 earnings if it decides to write down the value of the investment a third time.

Meanwhile, sharply higher charges for bad loans led UOB to a pre-tax loss of $25 million for its Thai operations in the first half of 2007 – the most recent published figures for the group’s business there – reversing a $19 million profit a year earlier.

Also from Jan 1, 2008, the three Singapore-listed banks and Citibank Singapore will be subject to the new Basel II rules governing how much capital banks need to set aside based on the risks they face.

That will put to the test the millions of dollars the banks have poured into new computer systems and staff training over the last two years. Among other things, the international guidelines are supposed to help banks deploy their capital more efficiently while guarding against the risk of collapse.

But events in recent months – especially the reluctance of large banks in the US and Europe to lend to one another at prevailing interest rates – have revived old criticism that the Basel II framework puts too much emphasis on how to measure the credit risk on loans, even though the collapse of British bank Northern Rock suggests a lack of ready funds – liquidity risk – can ruin a bank just as easily as a mountain of bad debt.

 

Source: Busines Times 2 Jan 08

Bombs, security fears mar revelry as world greets 2008

(NEW YORK) Millions staged midnight parties at iconic landmarks around the world to ring in 2008, but bomb attacks and security fears quickly darkened New Year festivities in places.

In New York, hundreds of thousands of revellers crowded the fabled Times Square, braving cold temperatures and stringent security measures to see Mayor Michael Bloomberg release the New Year’s Eve ball on its 100th lowering, with a dazzling display of new environmentally-friendly lights.

But it was Sydney that got the global party going as more than a million people lined the harbour for fireworks. The giant steel archway of the Sydney Harbour Bridge was again the centrepiece of the traditional display in Australia’s main city, with a giant neon hourglass illustrating the theme of time passing.

An estimated 700,000 people were out on the damp London streets and crammed on riverbanks to watch the 10-minute fireworks display on the Thames, which focused on the giant London Eye observation wheel, police said.

However, bombs planted by suspected separatist rebels at discos and other entertainment centres rocked Thailand’s troubled south as revelry was at its peak. In Pakistan’s biggest city, Karachi, police stopped thousands from attending a traditional gathering on a beach overlooking the Arabian Sea amid security fears after the assassination of Opposition leader Benazir Bhutto.

Belgian authorities cancelled a traditional fireworks show in Brussels as the country went on maximum alert over possible terror threats. French authorities put 13,000 police on the streets of Paris and its troubled suburbs to deter any repeat of riots last month. But an estimated 400,000 French and foreign visitors still turned the Champs Elysees into a mass of car-honking festivities. Even more people – around one million according to police – packed streets around the Brandenburg Gate in what German media billed as the world’s biggest New Year’s party.

In China – set to host the 2008 Olympics in Beijing – President Hu Jintao called for world peace and development in his New Year address. ‘We sincerely hope people of all nations live under the same blue sky freely, equally, harmoniously and happily, and enjoy the achievements in peace and development of the humankind,’ he said. Thousands in Hong Kong ignored unusually low temperatures to see the fireworks in Victoria Harbour. In the northern Chinese city of Harbin, tourists strolled through a display of ice structures and some toasted the New Year in a bar made from ice blocks.

As tens of thousands of people flocked to Moscow’s Red Square, Russia’s President Vladimir Putin used his final New Year address as president to congratulate Russians on a ‘national renaissance’ driven by ‘colossal resources’, in a pre-recorded broadcast.

In Iraq, crowds surged into the streets of strife-torn Baghdad, setting off firecrackers and firing weapons and dancing in a rare moment of freedom from the daily violence that has recently eased.

 

Source: AFP (Busines Times 2 Jan 08)

IMF expects to lower global growth outlook

(ZURICH) The International Monetary Fund will lower its growth outlook as the continued credit crisis hurts the US and European economies, while global imbalances also weigh on growth, its top economist was quoted as saying.

‘Given this background, the numbers will indeed be weaker than in our latest World Economic Outlook,’ IMF chief economist Simon Johnson told Switzerland’s Finanz und Wirtschaft business newspaper in an interview on Saturday.

The IMF already lowered the forecasts from its July World Economic Outlook in October. But the numbers would in all likelihood have to be revised down again at the Fund’s next update in January, when it gives a preview of its April official forecasts. ‘We will not be able to stick to 1.9 per cent 2008 gross domestic product growth for the United States, nor to 2.1 per cent for Europe,’ Mr Johnson said. ‘By how much we will have to lower our GDP forecasts, we will know in January.’

The Fund already warned in November that the global economic growth outlook had dimmed, because of a troublesome mix of tighter credit terms and rising energy prices. The US dollar remained overvalued despite its continued drop since 2002, Mr Johnson said, which could be an obstacle for the US trade deficit to gradually diminish. Too high oil prices and the undervalued Chinese currency boosting exports in US trading partners formed the other side of the trade imbalance equation, he added.

The IMF did not have a foreign exchange target in mind for the greenback, but it should fall even further despite its persistent decline, to help diminish the US trade deficit and the chance of disorderly currency movements.

 

Source: Reuters (Business Times 17 Dec 07)

Job market outlook brightens for professionals

THE job market outlook remains bright, particularly for white collar employees, but may be stabilising.

Some 35,500 jobs were unfilled in September, or a vacancy rate of 2.4 per cent, according to data released yesterday by the Ministry of Manpower (MOM).

This third-quarter scenario was ‘better’ than a year earlier when 29,900 jobs went begging in September 2006, or a 2.2 per cent vacancy rate. But June this year saw higher vacancies – the 37,400 unfilled posts were a 10-year high.

MOM said that the manpower shortage in Q3 was larger for professionals, managers, executives and technicians (usually known as PMETs) and clerical, sales and service staff. Their vacancy rate of 2.7 per cent was markedly higher than the 1.8 per cent for production operators, cleaners and labourers.

Across sectors, more jobs in services (2.8 per cent of total manpower demand) went unfilled in September, compared with manufacturing (1.8 per cent) and construction (1.4 per cent).

Wages continued to rise, but at a slower pace. After accelerating for three straight quarters, monthly earnings rose a slower 6.9 per cent in Q3, down from 8.5 per cent in Q2. In real terms, after adjusting for inflation, Q3 wage growth was 4 per cent, down from Q2’s 7.5 per cent.

The latest data sees the Q3 job creation figure revised up to 58,600 from an early estimate of 57,600 announced last month. This, again, was higher than a year ago but below Q2’s record high of 64,400. In all, the first nine months of 2007 saw the net addition of 172,400 jobs to the economy – not too far from the 2006 total of 176,000.

Retrenchment numbers have also been updated, and going by the 5,709 total for the first three quarters, the number of lay-offs in 2007 should be sharply lower than last year’s 9,388.

As earlier reported, the jobless rate eased to a near-decade low of 1.7 per cent. And at 8,500, the number of ‘long-term unemployed’ residents – those job-hunting for 25 weeks or more – also fell to a 10-year low in September.

About the only blemish in the labour market report is productivity, which went from a marginal 0.4 per cent gain in Q2 to flat in Q3.

 

Source: Business Times 15 Dec 07

Consumers are more upbeat about outlook: survey

But sentiments over stock market, quality of life, regular income slide

SINGAPORE consumers are now more bullish about their prospects in the next six months than a year ago, despite the recent spike in market volatility and US sub-prime troubles, according to a MasterCard Survey of consumer confidence in the Asia-Pacific.

The twice-yearly study said the city state posted a confidence rating of 83.6 for H1 of 2008 – higher than the 82.5 reading seen in the year-ago period. This is also higher than the 83.3 rating posted six months earlier.

A score above 50 reflects the extent of optimism, while one below 50 indicates pessimism.

The study also measures consumer confidence according to five indicators – employment, economy, regular income, stock market and quality of life.

Confidence in the employment and economy is up from six months ago, while sentiments on stock market, quality of life and regular income are down.

For example, the employment confidence score was 86.3 – higher than the 83.7 seen six months earlier, and 86.1 a year ago.

Similarly, consumers here gave the economic outlook here a score 88.3, compared with a reading of 81.6 posted half a year ago and the 83.9 posted last year.

In contrast, stock market sentiments dipped to 75.4 – down from 76.6 last year, and the 78.9 scored six months ago.

Similarly, the current confidence in the quality of life dropped to 82.6, compared with 84.8 posted a year ago and 86.9 six months earlier.

MasterCard says the drop in sentiments stemmed from the financial market volatility and rising costs of living.

Elsewhere in the region, the overall outlook on economy (68.3), regular income (81), stock market (66.5) and quality of life (66.7) has improved from the previous survey done in May this year. The view on employment remains constant, the survey adds.

Out of 13 Asia-Pacific markets, MasterCard says 10 posted an increase in consumer confidence levels, with Vietnam topping the charts with a score of 94.3.

This is followed by Hong Kong (85.9), China (85.5) and Singapore (83.6).

‘This latest consumer confidence reading of the region is broadly consistent with the short-term outlook of economic conditions of the key regional markets,’ said Dr Yuwa Hedrick- Wong, economic adviser, Asia-Pacific, MasterCard Worldwide.

However, he remained cautious about the longer term prospects next year, adding that ‘the big uncertainty in 2008 is to what extent those real economic conditions can still stay positive.’

Indeed, he sees an economic slowdown in the US next year, amid a higher correlation between inter-regional Asia exports and US non-oil imports, which had risen six fold in the past 25 years.

Furthermore, there are signs that the European economy is weakening, judging from falling economic indicators like imports, industrial output and retail sales there.

On a four-month moving average basis, the year-on- year growth of imports in September slowed to 2 per cent from 7.8 per cent in July 2006.

Similarly, European industrial output growth slowed to 3.3 per cent in September – down from 4.6 per cent in July 2006.

Therefore, ‘the critical uncertainty next year is China, which is now an important exports market for the rest of Asia,’ Dr Wong said.

‘Depending on its market performance, outlook for the second half of 2008 might be very different.’

 

Source: Business Times 14 Dec 07

Inflation in S’pore to taper off as growth slows: economist

He blames energy prices for recent surge in inflation

(SINGAPORE) The recent surge in the pace of inflation here is mostly due to a sharp increase in energy prices and is unlikely to last as economic growth slows next year, a senior economist maintained yesterday.

Meanwhile, Asian economies still have a lot of tools at their disposal to keep their economies afloat even if growth in the US slows down more than expected, said Jan Lambregts, head of research in Asia for Rabobank International.

‘In my mind there is no inflation problem’ for Singapore, he said. Although inflation has been rising everywhere, ‘I’m not pessimistic when it comes to this because the MAS (Monetary Authority of Singapore) already a couple of years ago adopted a tightening stance, so they were very early to the game when it came to fighting inflation,’ he said.

‘Energy prices are mainly to blame for the recent surge in inflation and I would expect some of that to taper off as growth moderates next year.’

Like several other economists who have in recent weeks published their forecasts for next year, he expects the US economy to avoid a recession, although he predicts it will grow at a much slower pace before recovering in the second half of 2008.

The main reason is that although housing prices there are likely to fall further, he believes that the impact on US consumer spending will not drag the overall economy down as much as some people expect.

‘Research shows that consumers’ response is asymmetrical. That is, when prices go up, they tend to consume quite a bit more, but when prices go down, they sit on their houses and they don’t tend to lower their consumption in a comparable way.’

And while a US slowdown would typically hit small, open economies such as Hong Kong and Singapore hard, the vibrant domestic economy in both cases will cushion the blow, he said.

But the outlook for equities in most markets next year is ‘mixed’, he said. Although companies’ profits and margins are likely to suffer from higher energy and raw material prices, their balance sheets are strong and their stock prices relative to expected profits and cash flows are still reasonable, he said.

Also, with the US Federal Reserve expected to lower interest rates further to revive the slowing US economy, interest rates in Singapore and Hong Kong – where central banks focus on managing their currency exchange rates rather than interest rates – are likely to follow ‘and that’s traditionally going to help equity markets’.

For Singapore’s economy, he expects next year’s growth to be 5.3 per cent – lower than an earlier Rabobank forecast and the 6.3 per cent median forecast by private sector economists in an MAS survey published last week, but ’still very decent’.

As a result, he expects the Straits Times Index of blue-chip stocks to reach 4,000 points at the end of next year, about 12-13 per cent above its current level.

 

Source: Business Times 11 Dec 07

Fight inflation with CPF, GST: economists

Cool labour demand by raising employer contribution, roll back July GST hike

(SINGAPORE) The government should restore some of the CPF employer contribution cuts as a way to cool labour demand, which in turn will moderate growth.

That should help ease inflation and help people cope with runaway prices that are biting into the lives of most Singaporeans, said Chua Hak Bin, Citi economist.

Another way to help people cope with higher prices is to target the punitive 2 percentage point increase in the Goods and Services Tax, other economists added. This is because when the 2 per cent GST hike was pushed through on July 1, the government had not reckoned on food and energy prices shooting up the way they have done.

‘Higher CPF (Central Provident Fund) contribution rates will help cool labour demand and moderate growth,’ said Dr Chua.

Economists expect the government to soon announce more specific measures to help the poor, who are especially hard hit by inflation.

But Dr Chua thinks more has to be done for the wider population, and restoring CPF employer contribution cuts will go a long way towards tackling the problem.

Inflation jumped to a shocking 3.6 per cent in October – a 16-year high – and the projection is that it could go as high as 5 per cent early next year, before easing.

Standard Chartered economist Alvin Liew said while the policy of having a stronger Singapore dollar can ‘quite effectively deal with import inflation, it is less effective against domestic price pressures such as rising rents and higher wage expectations’.

‘We are likely to see more government measures to moderate rental increases, business costs and wage expectations,’ said Mr Liew.

Some measures could be to increase property tax rebates and raise the corporate tax exemption threshold, said Mr Liew.

Dr Chua thinks it’s strong growth that must be tackled, and one way would be to restore the CPF contribution cuts by one percentage point and more for older workers .

‘Job growth is running at too strong a pace, given such a tight labour market,’ he said.

Job growth is running at 200,000 a year, or at an 8 per cent pace and the unemployment rate is now down to below 2 per cent. Easing the rules on hiring foreigners is not the solution, he said.

‘Where will you house the foreigners?’ Dr Chua asked.

Higher CPF rates will also help the middle class cope with rising living costs, by giving them more cash to pay for things which have become too expensive, he said.

When the CPF rates were cut, many had to dip into their disposable income to help with their monthly mortgage payments.

CPF cuts over 2003-06 (which brought the employer’s rate to 13 per cent) were probably overzealous, especially for older workers, Dr Chua said.

This year, the government restored by 1.5 percentage points the employer’s rate to 14.5 per cent, bringing the total CPF savings to 34.5 per cent for younger workers. But for employees past 50, the contribution rates are much lower to encourage employers to hang on to these older workers.

Suan Teck Kin, economist at United Overseas Bank, thinks the government will not restore CPF rates because it will add on to the wage pressure.

And companies enjoying strong growth will just hire more, he said.

To reduce some of the cost pressures, the government should do more to defray the punitive 2 per cent hike in GST, Mr Suan said.

Dr Chua agrees.

‘With the benefit of hindsight, hiking the GST by 2 percentage points was probably unnecessary, given the fiscal windfall and inflation impact,’ he said.

Dr Chua listed the windfalls.

The Ministry of Finance had projected tax revenue to increase by only 7.9 per cent, according to the 2007 Budget, but actual tax revenue increase may be more than double that rate.

The government projected income taxes to rise by 7.5 per cent. But income taxes for the first 6 months of the fiscal year actually rose by about 20 per cent.

The government expected GST revenue to rise by about 23 per cent. But GST collected (for the first 6 months of the fiscal year) has risen by about 49 per cent.

The 2 percentage point GST hike was expected to raise $1.5 billion, and the government was projecting a primary deficit of about $600 million (with the 2 per cent GST hike).

‘But even without the $1.5 billion proceeds from the 2 percentage point GST hike, back-of-the-envelope calculations suggest the government will likely run a small primary fiscal surplus,’ Dr Chua said.

 

Source: Business Times 10 Dec 07

How S’pore stays at the top of the game

With its 7.9 per cent growth last year, it has been called a developed country growing at developing-nation rates. Bryan Lee explains this anomaly.

IT IS almost a given that in the global rankings for economic growth, poor countries typically fill the top spots while rich nations bring up the rear.

Last year’s top three – Azerbaijan, the Maldives and Angola – clocked in impressive expansion of between 18 and 31 per cent.

But they were anything but wealthy: Their citizens took home an average income of less than US$3,000 (S $4,300) that year.

In contrast, the United States, the world’s biggest economy, grew a paltry 2.9 per cent.

Against this long-standing trend, Singapore stands out as an anomaly.

At 7.9 per cent, Singapore’s economic performance puts it more in the league of emerging growth stars such as China and India than in the comparatively tired ranks of the US, Europe and Japan.

Yet the Republic is one of the most affluent countries in the world, coming in at No. 25 in per capita GDP terms. In Asia, it is beaten only by Japan and Brunei, and may well leapfrog both to the No. 1 position this year.

In fact, out of the 180 nations ranked by the International Monetary Fund, only two rich countries grew faster than Singapore – oil-rich Qatar and the United Arab Emirates.

Indeed, this phenomenon was picked up in a recent report in The Economist magazine, which described Singapore as ‘a developed country that grows at developing-country rates’.

The report was quoted by Prime Minister Lee Hsien Loong at an NTUC conference in October, when he said economic growth this year will hit the upper end of the official forecast of 7 per cent to 8 per cent.

So, how has this tiny country with no natural resources managed such a feat? Is it just sheer survival instinct gone into overdrive?

The rise – and fall – of productivity

THEORIES about long-term economic growth come in several flavours but virtually all the major ones stem from a common foundation.

An economy’s capacity to produce goods and services is essentially constrained by two ingredients – capital and labour.

Growth therefore is determined in a big way by the rates at which a country is expanding its stock of machinery, infrastructure and workers.

It is also largely dependent on the productivity of these two production factors which tends to decline as capital and labour are accumulated.

A baker, for instance, would be more efficient if he were given a whisk. But hand him another whisk and it would probably do little to get the cake out of the oven faster.

Little surprise then that developing countries, with their explosive population growth rates, can expand their economies quickly simply on the back of a fast-growing workforce.

Also, as their factories are relatively poorer equipped, and other supporting infrastructure such as roads less developed, the output boost from additional capital investments will be bigger than in developed countries.

This in turn translates into a higher rate of capital accumulation, since investment spending equals the portion of a country’s output or income that is not consumed by households and the government.

In this simple model, Singapore’s economic prospects look bleak.

With a population that is struggling to replace itself and factories, roads and ports that are top-flight, the Republic would seem to be doomed to slow growth rates.

But the Singapore Government estimates that the country’s long-term potential growth rate lies between 4 per cent and 6 per cent, well ahead of those in the developed world.

And in the past three years, helped in no small part by a buoyant global economy, its economic growth would appear to be no less than miraculous, reaching an annual average of about 7.8 per cent.

A nimble labour force, thanks to foreigners

THE magic, say economists, lies in Singapore’s flexible labour markets.

‘Most of the growth comes from our elastic labour supply, where we can rely on bringing in more foreign workers,’ said Citigroup economist Chua Hak Bin.

Step into a shop or restaurant these days and there’s a good chance you will be served by a Filipino or a migrant from China.

Shipyards, construction sites and factories are also well staffed by workers from the region.

Government statistics show that Singapore’s non-resident population has swelled 34 per cent in the past four years to one million.

In contrast, the resident population expanded just 7 per cent, a figure likely to have been helped by a fair number of expatriates who have taken up permanent residency here.

While some may wonder if this absorption of foreigners is at the expense of local workers, recent employment figures point to a labour force that is maxed out, so labour imports are necessary to keep the economy growing.

Marching up the technological ladder

OF COURSE, the Singapore growth phenomenon is not just a simple recipe of adding more workers.

The country has undergone major economic restructuring to upgrade itself to take on higher value-added activities.

In economic growth theory, technology and human capital – that is, education and training investments – are two key factors that can help mitigate the diminishing productivity of labour and capital.

And unlike labour and capital, these two factors have a certain self-sustaining, self-propagating element.

Returning to the baker, he would prefer to be given a Kitchen Aid rather than 100 whisks of the same value.

Not only is the mixer much more efficient, it may even enable him to come up with different and better cakes.

And if he is sent to the finest pastry school in France, he could make a lot more money selling souffles than pandan chiffon cakes. He could even pass on his new skills to his friends, spreading the benefits of his training beyond himself.

In a similar way, Singapore has moved from making calculators to semiconductors, and embraced high-value service industries such as financial services.

Much of this has been achieved through targeted government policies that create a suitable business environment for foreign investors, promoting in particular several key sectors.

These measures, which may take the form of tax breaks, are costly. But they have helped attract investments from overseas that inject not just capital into the economy but new technologies as well.

Efforts, including direct public funding, have also been made to build up research and development activities here. These would go some way towards helping the economy sustain a continuous rise up the technological ladder.

The same is being done in the human capital side of the equation, with constant improvements to the education system.

‘With the resources accumulated over the past four decades, the Government has a large enough war chest to prepare the economy for the next stage of development,’ says CIMB-GK economist Song Seng Wun.

Reality of a supply crunch

SO HAS Singapore achieved economic nirvana, where wealth creation fears little abatement?

DBS Bank economist Irvin Seah reckons Singapore’s small size has made it especially nimble to respond to threats and opportunities in the global cycles of boom and bust.

‘The economic structure is well diversified. Singapore has a unique collection of strengths that is hard to emulate and that has allowed us to enjoy a mid- to long-term growth higher than many countries.’

But all that nimbleness ultimately requires acute judgment and some degree of clairvoyance on the part of the Government, whose policies have played no small part in Singapore’s success.

As it stands, trouble is brewing, and ironically, it is partly a consequence of the ‘developing economy’ growth rates of the past few years.

Inflation, while low by world standards, hit a 16-year high of 3.6 per cent in October and is set to rise even more next year.

While due in part to high global oil and food prices, this has come about because the surprisingly rapid expansion of the economy is using up spare capacity in the system. In the property and labour markets, in particular, demand is far outstripping supply, and this imbalance is pushing up prices.

The Government is releasing more land for developing homes and offices, but it will take some years before these are built.

There is also the tried-and- tested foreign labour solution. Certainly, the large populations of Singapore’s Asian neighbours would ensure a ready supply. But simply allowing more immigrant workers into the country, as the Government is doing next month, may not be enough.

High rentals, coupled with rising living costs, mean employers will need to pay foreign workers higher wages to bring them in.

Indeed, this has prompted the Government to hold back $2 billion worth of public construction projects to ease the supply crunch.

‘The economy is currently facing a serious supply-side constraint. Shortage of land and labour has driven up rentals and wages,’ says Mr Seah.

All this goes to show that even the most efficient of governments can do only so much to bend economic realities.

For sure, many of the current issues will subside in time.

But in the meantime, the pain of higher electricity and restaurant bills will, for the man on the street, take off some of the shine from the trend-breaking achievement of the Singapore economy.

 

Source: The Sunday Times 9 Dec 07

S’pore economy tipped to grow more than 6% next year

Experts revise forecasts down slightly but say construction and property will sizzle

DESPITE a cloud of gloom over the United States, private economists here expect Singapore’s economy to grow at a still-respectable rate of more than 6 per cent next year.

The upbeat finding came in a Monetary Authority of Singapore (MAS) quarterly survey of local economists.

The survey produced a median growth forecast of 6.3 per cent for next year. The median is the midpoint across the spectrum of predictions of those surveyed.

This represents a very slight downgrade from the 6.5 per cent median obtained in the previous survey conducted by the MAS in September.

‘The most likely outcome, according to the respondents, is for the Singapore economy to grow by between 6 per cent and 6.9 per cent next year,’ said the survey report.

Analysts say the US faces a possible recession in the wake of the sub-prime mortgage crisis that has triggered a global credit crunch in recent months.

Nevertheless, Singapore’s growth for this year is expected to come in higher than the market had forecast three months ago.

The median of 18 economists surveyed is for Singapore’s gross domestic product (GDP) to expand by 8 per cent this year.

That is up from the 7.5 per cent economic growth rate tipped in the previous survey.

This higher forecast follows stronger-than-expected third quarter growth of 8.9 per cent.

Economists predict that the sizzling construction sector, fuelled by the red-hot property market, will continue to power ahead at a double-digit growth rate.

However, they expect the financial services sector to expand at only slightly over half its pace this year.

The manufacturing sector is also tipped to grow at a slower rate next year.

On the other hand, the market outlook for inflation – the general rise in the price of goods and services – is that it will increase next year.

Economists’ forecasts for inflation range from a low of 2.5 per cent to a high of 4.2 per cent, but the median forecast is for consumer prices to rise by 3.7 per cent next year.

As for this year, the inflation projection was also lifted to a median of 2 per cent from 1.5 per cent in the September survey.

The higher predictions came after inflation hit a 16-year high of 3.6 per cent in October.

Although the global economy is likely to slow down further, the market is forecasting a slight improvement in Singapore export growth next year.

A stronger Singapore currency is on the cards – at least versus the US dollar, which has been on a weakening track, according to most analysts.

The Singdollar is predicted to end next year at $1.40 to the US dollar, says the median consensus.

Yesterday, the Singdollar was trading at about $1.44 to the greenback.

At least one analyst believes the local currency will strengthen to reach $1.34 to the greenback. At the other end of the range is a forecast of $1.46.

 

Source: The Straits Times 8 Dec 07

Rising inflation putting pressure on S’pore firms to raise pay by over 5%

Current budgets may allow for measly 0.5%-1% hike in real wages

THE higher inflation tipped for next year is pressuring companies to raise wages by more than what they are currently prepared to give, according to human resources services company Hewitt.

Companies have, on average, budgeted a 5 per cent wage hike for next year, according to an April-May survey conducted by Hewitt covering 180 companies across sectors like hospitality, energy, retail and logistics.

About 11 per cent of the firms polled were Singapore-based; the rest are from overseas. Ninety are units of United States-based firms.

Inflation next year was expected to hit around 2.5 per cent when the survey was carried out. Recent data, however, suggests prices could shoot up by as much as 4 per cent to 5 per cent in the first half of next year.

If companies keep to their budgeted figures, real wage increases could come to only a measly 0.5 per cent to 1 per cent, at least during the early months of next year.

That may, in turn, spark a fresh round of musical chairs for junior and middle managers, especially in talentstrapped, high-growth sectors such as financial services, said Ms Tan Yee Deng, a Hewitt executive covering remuneration issues in Singapore and Malaysia.

These employees, who have typically worked two to five years and earn $3,000 to $5,000 a month, will be hit hardest by escalating costs of living.

‘These people are the most likely to move to other jobs which offer much higher pay hikes than 5 per cent.

So, we may see turnover rates much higher than the current 8 per cent to 12 per cent range for these positions in the first half of the year,’ Ms Tan said.

In the last few years, real wage increases among Singapore companies averaged about 3 per cent and closely tracked gross domestic product (GDP) growth and inflation.

The spectre of a US economic slowdown that could hit Singapore’s GDP growth next year, however, has placed Singapore companies in a quandary.

They must lift wages to retain talent in a tight labour market but they need to keep a lid on business costs, given the prospect of a slowing economy.

A senior executive of a US-based multinational electronics company said his firm ‘may revise the wage budget to address concerns about rising inflation’.

But retaining talent, rather than factoring for inflation, was the key element pushing Singapore companies, like power outlet maker Eubiq, to raise wages for most employees by between 7 per cent and 20 per cent.

‘We offer competitive wages to retain talent. It is also clear that living expenses are rising, so the minimum wage increase for our staff is 5 per cent,’ said Mr Ng Joo Kok, the firm’s director of global business.

Hewitt’s Ms Tan said companies could make their junior and middle-management staff feel more reassured in their current jobs by enlarging the fixed portion of their annual pay, so that they get a higher salary every month.

 

Source: The Straits Times 7 Dec 07

Be vigilant about asset bubbles: Jackson Tai

Falling lending standards among key risks in Asia

FALLING standards of lending due to intense competition among banks and ‘too much money’ driving asset prices up are some of the main risks to Asia’s financial industry, said outgoing DBS Group chief executive Jackson Tai last week.

‘Underwriting standards for loans and financings have deteriorated in the region, and this development comes on top of the US sub-prime mortgage problems,’ he said in an interview with The Asian Banker. ‘Intense competition, including that from foreign banks and institutions who have rediscovered Asia, have brought credit spreads to unsustainably low levels. The risk-adjusted return on loans is not where it should be.’

He was responding to a question on what worried him most in Asia’s financial industry.

Lax lending practices at US mortgage lenders have been blamed for the sharp rise in bad loans there – especially in the sub-prime or high-risk mortgage segment – that triggered the recent turmoil in global financial markets. In Singapore, banks have seen rapid loans growth in recent months, although the proportion of bad loans remains low.

Last week, the latest monthly figures from the Monetary Authority of Singapore (MAS) showed that total loans made by banks and other financial institutions here grew by 15.5 per cent to $224.1 billion at end-October from a year ago – the fastest yearly rate of growth since December 1996.

Some $16.2 billion or more than half of the $30.1 billion in loans added over the year were made to the property sector, comprising consumer home loans and business loans to the building and construction industry.

While Asian economies have recovered well from the financial crisis of 1997 and the region is now ‘bounding with growth and optimism’, ‘we can’t get too carried away about Asia’s prospects’, said Mr Tai.

Besides falling underwriting standards, ‘we have the risk of asset values in the region going through the roof’, he added.

‘Yes, property and asset values have only just returned to pre-Asia financial crisis levels in many markets, but there is too much money and too much optimism chasing after assets.’

‘We must be vigilant about asset bubbles in the region,’ Mr Tai said.

Asia’s rapid economic expansion in the past few years has attracted large amounts of foreign investment into financial assets such as shares, and fixed assets including property and infrastructure from global fund managers seeking higher returns and cash-rich countries in the Middle East.

Some economists fear that a sudden steep fall in share prices in China – which have nearly tripled over the past 12 months – could dampen economic growth there at a time when Asia is bracing itself for a sharp slowdown in US demand for exports.

On Monday, MAS warned in its latest twice-yearly Financial Stability Review that Singapore banks’ profits could be hit in the short term by higher volatility in financial markets.

 

Source: Business Times 6 Dec 07

MONEY MATTERS: Correction? What correction?

GLOBAL equity markets have been volatile in the past few months. Losses on sub-prime mortgages have morphed into a more general credit crunch problem arising from the loss of confidence within the global financial system.

Due to the lack of transparency, banks find it difficult to determine what sub-prime exposure banking counterparties have, although this has become more apparent recently as more billion dollar mea culpas emerge. Indeed, each announcement brings the problem closer to a close as the ultimate loss is a fairly deterministic amount (US$200-300 billion).

Moreover, a bailout by the US government is highly probable as 2008 is an election year and no politician is interested in throwing four million Americans out of their homes. Unlike the Asian Financial Crisis, where borrowers had to find US dollars to repay, the US has full control over its monetary printing presses. What is interesting is the cause of all this – an oversupplied real estate market which responded to excessive demand stoked by easy credit and lax lending standards. Indeed, this appears very much like what we had in Singapore in 1996.

Before we discuss the Singapore residential property market, let’s examine the US situation.

Is there a US bottom? Too much supply relative to demand and inventories bloat and prices fall. For prices to bottom, inventories must stabilise. Will US home inventories stabilise soon, then?

Core demand is a function of demographics and jobs (one needs to service the mortgage). The US has a growing population. As for jobs, the weak US dollar has boosted exports. It has also reduced imports, thus allowing local US companies to regain market share and create even more jobs. The chart on new home sales show that the support level stands at around 800,000 annualised units for single-family homes, which is about the rate of new household formation. Interestingly, new home sales for single-family homes are running around 750,000 annualised units.

On the supply side, housing starts are falling as developers cut back rapidly. At the margin, this supply is needed to meet the needs of new households and replacement housing. From the accompanying chart support stands at around 1.1 million units. Currently, starts have fallen to around this level on an annualised basis, of which 880,000 are single-family homes. Thus, inventories appear to be stabilising – which has been the case in the past few months.

Indeed, when asked in Congress as to when he expected housing to bottom, Fed chairman Ben Bernanke was quite forthright – 2Q2008. His reason: US demographics and falling housing starts. Indeed, if his prediction is correct, the stock market which forecasts events 6 to 12 months ahead, would be putting a bottom on US home builders soon (currently trading at 0.65 times book value!). This could only be good for all equity markets.

Is Singapore peaking? There has been a hiatus in the residential property market in the past few months, but is this the peak or the pause that refreshes? For the market to go down, supply must overwhelm demand. Let’s look at demand first. Demand is expected to be very firm. Singapore will have a growing population and labour force (mainly foreign-sourced); and strong job creation growth over the next five years. Strong investment flows (especially exciting are those in alternative energy) amounting to at least 3 to 5 per cent of GDP annually over the next three to five years are your kicker. This would translate to at least 5 to 7 per cent real GDP growth over next five years.

This would not only ensure full employment but real increases in wages as well as additional foreign labour imports. Indeed, the need is now to restrain further stimulus because of economic overheating.

Maybe we should send 50 per cent of the Economic Development Board on sabbatical. The bottom line is that the demand for housing and better housing would be sustained at current high levels.

On the supply side, the URA data shows that the vacancy rate appears to be steadying at a low level of 5 per cent in 3Q2007 (against 10 per cent three years ago). The vacancy rate measures the availability of existing private residences and it cannot go to zero because some homes will always be vacant at any one time. Five per cent tells us that the current supply is not plentiful and that’s why rents continue to rise. But what about the future supply? Will there be a glut in two to three years?

‘Inventory’, which I define as ‘unsold homes which are completed or under construction’, continues to fall from 9,284 units to 8,443 units in 3Q2007, according to the URA. The rest of the 29,570 ‘uncompleted’ units is potential (uncertain) supply – they have planning approval but construction has not started. Indeed, as construction has not started, they would not count as ‘inventory’. This is because developers, whose cash flows are fairly strong, will defer projects (even with leasehold land) when demand becomes uncertain.

We have seen them doing this in the past and current media reports indicate that this is indeed occurring.

Should only two-thirds of the 29,570 come on stream in the next three years and if current demand levels prevail, there will be no glut. For those waiting for a significant price correction in the next three years, I fear the wait would be futile.

The author is CEO of financial adviser New Independent. He welcomes feedback at josephchong@ni.com.sg. This article is for information only. Readers should seek independent advice before making any investment decisions.

Source: Business Times 5 Dec 07

Industrial output gauge climbs on strong exports

FACTORY orders continued to pour in for local manufacturers last month, despite the spectre of a global economic slowdown.

This was among the key findings of a forward-looking indicator called the Purchasing Managers’ Index (PMI).

Strong export orders pushed the PMI from 52.9 in October to 53.8 last month, the sixth straight month that the index had gained.

Compiled from a monthly survey of purchasing executives at more than 150 manufacturing companies, a PMI reading above 50 indicates an expansion in the industrial sector.

The overall new orders index was 57.6, the highest reading since August 2004.

Besides more orders, factories also reported higher output last month, the index indicated.

Despite entering its ninth month of export decline, the electronics industry, according to the PMI, appears to be in the pink of health.

The electronics sector PMI was 53.7, indicating a 16th month of expansion, buoyed by rising orders.

The Singapore Institute of Purchasing and Materials Management produces the report.

Its executive director, Ms Janice Ong, said the PMI showed that ‘the local manufacturing economy is likely to be on a path of growth towards the end of the year’.

There was a concern earlier that demand for overall new orders in the overseas market was slowing down, she noted.

‘However, it may not be the time to pop the champagne yet, given that the United States economy may well experience a sharp slowdown due to the sub-prime problem, deteriorating housing demand, as well as escalating oil prices,’ Ms Ong added.

Manufacturers must also contend with rising input costs and supply shortages, which will affect their bottom lines, she said.

 

Source: The Straits Times 5 Dec 07

MAS WARNING: Credit squeeze, US slump could hit banks

A SHARP slowdown in the United States and an increased aversion to risk in the part of investors spooked by the sub-prime fallout could hurt the profitability of local banks, the Monetary Authority of Singapore (MAS) said yesterday.

Volatile financial markets may lead to trading losses, markdowns in collateralised debt obligation assets and lower fee income, said the central bank. Local banks have reported limited exposure to the US sub-prime problems, but their share prices have still been hit.

Despite the upheaval in global financial markets, Singapore’s economy has remained sound. Full-year gross domestic product growth is expected to be closer to the upper end of a 7.5 per cent to 8 per cent range.

‘The vulnerabilities in the international financial system exposed by the recent turbulence have heightened the risks to the region’s growth outlook,’ the MAS said in its Financial Stability Review.

The US economy could well experience a sharp slowdown due to the sub-prime crisis, in addition to the ongoing correction in the housing sector and soaring oil prices, it said.

‘Slower US growth would affect Asia, given the region’s high dependence on exports,’ the MAS said.

A significant challenge for Asia remains the management of strong capital inflows, as these have posed risks like asset price inflation and volatile exchange rates, it said.

 

Source: The Straits Times 4 Dec 07

Expat cost of living in S’pore gaining on HK’s

S’pore and Chinese cities move up the ranks due to strong currencies, inflation

(SINGAPORE) The Republic is catching up with Asia’s leading cities in one area it probably does not wish to make strides in – expatriate cost of living.

While some of the region’s most pricey cities became relatively less expensive in the past year, Singapore, along with Beijing and Shanghai, have climbed the rungs in the latest cost of living survey by ECA International.

Singapore is listed as the ninth most expensive city in Asia – behind Seoul, Tokyo, Yokohama and Kobe, as well as Hong Kong, Taipei, Beijing and Shanghai. Worldwide, Singapore ranks 122nd, but that is 10 spots higher than in the 2006 survey.

In comparison, the Japanese cities and Taipei have all dropped in the global rankings in the past year, primarily due to a weaker currency, while Hong Kong stayed put at its 79th spot. This means that the gap is closing between the two ‘traditionally competitive’ locations, Singapore and Hong Kong, says ECA.

Conducted every March and September, the cost of living survey by the Hong Kong-based HR consultancy tracks a basket of 128 consumer goods and services commonly consumed by expatriates in more than 300 locations worldwide.

Multinational firms use the findings as a guide in determining expatriate remuneration packages and allowances.

But the survey excludes significant items such as housing, utilities, car purchases and school fees because, ECA says, expatriate packages usually include separate compensation for these.

Apart from the two-percentage-point hike in the Goods and Services Tax in July and overall rising inflation, the appreciating Singapore dollar is also driving up costs in Singapore ‘in a significant manner’, says Lee Quane, general manager of ECA.

‘While this is good news when sending international assignees from Singapore, those companies who need to send employees into Singapore will now have to apply higher cost of living indices to salaries to guarantee their personnel’s spending power when in Singapore.’

Seoul, Asia’s most expensive city, has climbed one rung in the global rankings to seventh in the latest findings.

Tokyo, on the other hand, has dropped out of the top 10 for the first time, moving from 10th to 13th.

A strengthening yuan against the US dollar, along with soaring oil, food and grain prices, have added to living costs in the Chinese cities, including ’second-tier’ ones. According to ECA, living costs for foreigners in Chongqing, for instance, have risen by 12 per cent, or twice as much as in Beijing.

Luanda in Angola emerged as the world’s most expensive city for expatriates. Two other African cities – Kinshasa and Libreville – also feature in the top 10. European cities, led by Oslo and Moscow, make up most of the top spots.

 

Source: Business Times 27 Nov 07

Inflation rises with policy posers in tow

Analysts expect swift counter-measures as monthly numbers climb to a 16-year high

(SINGAPORE) The need for further policy action to stem price pressures – sooner rather than later – has grown with an unexpected surge in October’s inflation rate to 3.6 per cent, economists say.

The market consensus estimate was 2.8 per cent. ‘We thought we had a high inflation forecast for October at 3 per cent,’ said HSBC Bank economist Robert Prior-Wandesforde.

In fact, the latest rise in the consumer price index (CPI) has leapt well beyond these estimates. Climbing from a 2.7 per cent third-quarter average (itself a sharp jump from the first six months’ 0.8 per cent pace), it was driven by rising food and oil prices, and is the highest monthly inflation rate since August 1991.

‘I don’t think it’s a one-off (spike) to be ignored,’ said Chetan Ahya, chief economist for South-east Asia and India at Morgan Stanley Asia. ‘The risks of more policy reaction have increased with this latest data. One more month with figures like these may mean that the government needs to move quickly.’ The urgency will be apparent if crude oil prices touch US$120 a barrel, he added.

Most economists believe there will be further monetary tightening via a steeper appreciation of the Singapore dollar at the Monetary Authority of Singapore (MAS)’s next half-yearly policy review in April 2008.

The question, Mr Ahya said, is whether MAS needs to act sooner than April, following its move last month to allow the Sing dollar to rise at a slightly faster pace to help curb imported inflation.

At a media briefing on the Q3 economic data on Monday, MAS deputy managing director Ong Chong Tee said there were no plans for any intermeeting monetary policy review. The current policy stance of allowing the local currency to strengthen gradually and modestly remains appropriate, he said, though economists have asked, in the light of rising price pressures, if the nudge-up was enough. Yesterday, when contacted, a senior MAS official would not comment.

But Morgan Stanley’s Mr Ahya reckons that managing current inflationary pressures calls for the use of not just monetary tools.

While the exchange rate can be employed to deal with ‘tradeable’ inflation in food, transport and other oil-related items, the bigger cost pressures now stem from demand-induced resource constraints in an economy that has been growing above its potential pace, he said.

There is basically a need to slow demand and economic growth, he reiterated.

For the year to October, consumer inflation averaged 1.6 per cent. The 2007 year-round pace is now estimated at about 2 per cent. Next year, it may well hit 5 per cent in Q1 before easing.

Inflation rates of 4-5 per cent would be high against the muted figures of the last two decades. But inflation in Singapore actually ran past 8 per cent in 1980 and 1981, and averaged over 20 per cent during the 1973 and 1974 oil crises.

While MAS has maintained that, even amid the recent CPI uptrend, underlying inflation has remained steady, Mr Ahya said that, with the persistent climb in the headline figure, core inflation will inevitably and eventually pick up too.

Said HSBC’s Mr Prior-Wandesforde: ‘Even if inflation is set to fall in the second half of next year, the worry will be that wage growth will rise higher still, leading to second-round effects on underlying inflation.’ He believes the government will consider additional cooling measures.

‘While denying that the economy is overheating, the government has clearly shown its concerns for the future via the various measures to cool the housing market as well as the delay to several construction projects, an increase in immigration and a contraction in real government spending,’ he noted.

And while there is little Singapore can do about rising energy and food commodity prices, cost pressures from a booming economy also reflect strong consumer confidence, in his view.

‘The fact that retailers have been able to push through virtually all the GST rise and sustain it smacks of strong confidence in the consumer,’ Mr Prior-Wandesforde said. Even with rising inflation, he believes the robust wage growth will be reflected in stronger consumer spending.

‘Notwithstanding concerns about the US economy and a wobbly equity market recently, Christmas should be a good one for retailers,’ he said.

 

Source: Business Times 24 Nov 07

October inflation hits 16-year high of 3.6%

Figure surprises economists, who say Govt may do more to cool economy

CONSUMER prices rose at their fastest pace in 16 years last month as food, housing and transport costs all accelerated their rate of increase.

Inflation hit 3.6 per cent, resuming an upward trend after September’s 2.7 per cent breather.

Yesterday’s figure caught out virtually every economist in town – ‘I almost fell off my chair,’ said DBS Bank’s Irvin Seah – and sent them scrambling to raise forecasts.

Last month’s number beat all estimates in a Bloomberg News survey of economists. ‘We thought we had a high forecast at 3 per cent as the market was at 2.8 per cent,’ said HSBC’s Robert Prior-Wandesforde.

Analysts said the Government may do more to cool the red-hot economy, but the pain of rising living costs will be felt for some time as these measures do not have an immediate effect.

‘This is way beyond market analyst expectations,’ said Mr Seah. ‘We knew inflation would go up. We just didn’t know it would come so quickly.’

Monthly inflation figures going forward are likely to track last month’s figure, as prices seldom fluctuate sharply unless there is a significant change in the economic environment. For instance, noodle prices that were raised last month are unlikely to come down any time soon.

Yesterday’s Department of Statistics figure follows Monday’s new inflation figure from the Monetary Authority of Singapore (MAS).

It forecast inflation to hit 3.5 per cent to 4.5 per cent next year, up from an earlier estimate of 2 per cent to 3 per cent. The figure is expected to be 2 per cent this year.

Inflation is rising across Asia as oil and food prices increase. China, for instance, reported that prices last month rose the fastest in a decade.

In Singapore, a 2 percentage point hike in the goods and services tax in July is bumping up prices even more.

Food costs, which make up the biggest part of the consumer price index, surged as dairy products, eggs, meat and poultry became more expensive. Eating out was 3.2 per cent more costly, too.

Transport and communication, the next big item, rose as spiralling oil prices lifted petrol costs for cars and buses.

High energy prices have also sent electricity rates up twice since July. This and higher rentals bumped up housing inflation to 2.3 per cent.

Health-care costs, which make up just 5 per cent of the index, were up 6.2 per cent.

Mr Prior-Wandesforde said the Government may consider more cooling measures after recent initiatives to dampen the housing market and delay several major construction projects.

If inflation does hit 5 per cent early next year, as suggested recently by Trade and Industry Minister Lim Hng Kiang, the MAS may move to let the Sing dollar strengthen even faster, as it did last month. A stronger local currency can help counter price rises in imported goods.

But these measures take time to kick in, said Mr Seah. He suggested that the Government provide more help to low-income families in next February’s Budget.

But Mr Prior-Wandesforde said help may not come as wage growth may be strong enough to enable the poor to cope with the price rises.

For people like freelance publisher Chiam Choon Yong, it is belt-tightening time. The 44-year-old father of four has been hit by increases in petrol costs – up about 10 per cent to $500 a month – and utility rates – up from $140 a month to $160.

‘We just have to be more economical and stay away from things like seafood and exotic fruits,’ he said.

 

Source: The Straits Times 24 Nov 07

SINGAPORE INTERNATIONAL – Big market in projects from int’l agencies

S’pore firms can grow their overseas businesses and leverage on the IOs’ facilities

Many Singapore companies do not realise how big the market is for projects awarded by international organisations (IOs) like the Asian Development Bank (ADB) and World Bank. The World Bank and ADB jointly award about US$31 billion of business projects annually through loans, grants and technical assistance programmes to developing countries.

In fiscal 2007, the World Bank committed US$34.3 billion in loans, grants, equity investments and guarantees to its 185 member countries. ADB approved US$7.9 billion of loans and US$241.6 million in grants in 2006.

According to ADB, from January 2001 to June this year, Singapore companies won US$548 million of contracts from ADB-financed projects. In terms of World Bank-financed projects, local firms were awarded just US$158 million in contracts from 2000 to 2007.

Besides these two huge organisations, others like the Inter-American Development Bank, the Andean Development Corporation, the African Development Bank and the various agencies of the United Nations also award contracts for development projects.

These IOs are an additional and viable source of business for Singapore companies. The channel funds to health care, education, transport, water and sanitation, agriculture, public administration and governance, financial sector development and the environment.

Apart from the obvious financial aspect, there are many benefits to be had by partnering and working with IOs.

They are a good way to grow international business through overseas consulting projects, civil works contracts and the supply of equipment and goods. And ventures in developing markets are slightly less risky because IO-funded projects typically come with payment guarantees.

While dipping their feet into overseas markets, companies can also leverage on the IOs’ facilities like political risk insurance and debt/equity project finance. Access to these facilities helps strengthen the value proposition when striking out abroad.

A subsidiary benefit of taking part in such projects is the satisfaction of contributing to the long-term needs of developing countries.

‘International organisations like the ADB and World Bank have established systems and networks to serve the financial and technical needs of developing economies,’ says IE Singapore’s deputy chief executive officer, Chua Taik Him.

‘Singapore’s knowledge and experience in developing its economy, particularly infrastructure development and urban management, are highly relevance to these countries.’

According to IE Singapore’s IO division assistant director G Jayakrishnan, areas in which Singapore companies can participate are bidding for contracts for consultancy work, goods and civil works, as well as in public-private partnership and other projects.

Consultancy and procurement contracts range from providing advice, education, training and health care to urban planning, transport and logistics, infocomm technology, water and environmental management, he says.

But Singapore firms may be unfamiliar with the typical cycles of IO-funded projects and may not have a strong track record if they are new to a market.

Recognising the huge potential of the IO-related market, IE Singapore set up a dedicated International Organisations division in 2004. IE helps in two main areas:

1. First, it raises awareness of opportunities while equipping companies with the knowledge and competencies to partner IOs. IE Singapore, in collaboration with the IOs, organises regular procurement and business opportunities seminars and workshops, said Mr Jayakrishnan. These broad-based outreach activities are supplemented by one-toone company-level advisory sessions that aim to provide in-depth information to companies.

2. Second, IE Singapore identifies IO-related project opportunities and channels these to Singapore-based companies. The referrals are backed up by on-the-ground market assistance and intelligence from IE’s overseas offices.

   IE also helps by raising awareness among IOs of the capabilities, pools of expertise and track record of Singaporebased companies. For example, sector-specific briefings are organised for IOs, at which Singapore companies can present their solutions to IO officials and project team leaders, while the latter give more information about upcoming projects. Programmes to showcase Singapore’s development experience in sectors such as education, water resource management and urban management are also arranged.

   IE is also establishing longer-term institutional partnerships with IOs, like the Asia Training and Research Initiative for Urban Management (Atrium), which it signed with ADB in March. Under this initiative, which focuses on cooperation activities in the areas of urban master-planning, urban transport management, water and environmental management, Singapore will provide up to US$1 million over the next three years, while ADB will complement this with up to US$2 million of ADB-supported technical assistance and loan projects in the various developing countries.

   ‘IE Singapore aims to help Singapore-based enterprises leverage on IOs to participate in international projects and contribute to the growth of developing countries,’ says Mr Chua.

   The IO projects market is large and Singapore companies have unique strengths that enable them to take advantage of it. With the help of IE Singapore, it seems likely their market share will continue to grow.

    

   Source: Business Times 22 Nov 07

MTI raises ‘08 forecast for ‘hotter’ economy

Easing resource crunch, cyclical downturn will prevent overheating: officials

(SINGAPORE) The Ministry of Trade & Industry has raised slightly its forecast of GDP growth in 2008, but maintains that the economy has not become ‘too hot’.

In a somewhat unusual move, it has upped the 2008 growth forecast by half a point to 4.5-6.5 per cent. For 2007, with the year’s growth pretty much in the bag, MTI has narrowed the forecast to 7.5-8 per cent.

GDP growth in the third quarter has turned out a slower-than-expected 8.9 per cent – lower than the flash estimate of 9.4 per cent, due mainly to weaker manufacturing growth. This brings GDP expansion in the first nine months of 2007 to 8.1 per cent, which spells, going by the official forecast, a slowdown in Q4. But MTI says it expects the growth momentum to continue into Q4 as sustained growth in the EU and Asia offset a somewhat softer pace in the US.

MTI’s forecast for 2008, however, amounts to a ‘moderation in growth towards the economy’s underlying potential rate after four years of abovetrend growth’, the ministry says.

The economy should grow in the upper half of the 4.5-6.5 per cent range next year if – as the market consensus expects – the US economy rebounds in the second half of 2008 from a first-half slowdown, MTI says.

But, if the US sub-prime problems worsen or if oil prices continue to soar, and a sharp, protracted US slump ensues, Singapore’s growth could be nearer the lower end of the forecast.

At a briefing on the Q3 GDP data yesterday, MTI’s second permanent secretary Ravi Menon told reporters that Singapore’s 2008 growth forecast should be intact even if US economic growth slows to about 1.5 per cent next year.

MTI’s forecast also assumes that oil prices will round out the rest of the year at an average US$90 a barrel, and ease to US$80-85 in 2008.

As for the weak US dollar, Mr Menon said the concern, if any, is not so much on any impact on Singapore’s exports, but if it should see a precipitous decline that triggers off massive selloffs in the financial markets and second-round effects on the global economy. ‘It’s one of the wild cards,’ he added.

For now, the key concern here remains centred on rising price pressures, though Mr Menon reiterates the government’s assessment that there is no overheating in the system.

Resource constraints are being eased as supply catches up with demand, he said, citing the release of vacant land and state buildings for lease, and increased land sales in business parks for companies’ backroom operations, all of which should check the rise in office rental costs.

Foreign worker quotas will also be increased to ease the labour bottlenecks in construction.

Not least, a cyclical slowdown in the economy next year will help cool demand pressures, Mr Menon said.

‘Has the economy gotten hotter? Yes,’ he said. ‘Has it got too hot? No.’ Singapore’s short and medium-term economic prognosis remains good, he added.

The Monetary Authority of Singapore’s officials at the briefing also maintained that – apart from the one-off technical effects of the Goods and Services Tax hike and the taxman’s upcoming revision of the annual values of HDB flats, which will boost the consumer price index – underlying cost pressures haven’t gone out of whack.

The underlying inflation rate – excluding housing and private road transport costs – is still expected to average 1.5-2 per cent this year and next.

MAS deputy managing director Ong Chong Tee said its monetary policy stance ‘remains appropriate’ and will be reviewed, as scheduled, next April.

Economists such as Citigroup’s Chua Hak Bin reckon the risk of further MAS tightening is high early next year, as the move to a ’slightly’ steeper slope last month ‘may be too gentle a move’.

Citigroup has raised its 2008 inflation forecast to 3.8 per cent from 3 per cent. It expects CPI inflation to swing from a 5 per cent average in the first half of 2008 to 2.8 per cent in the second half. A 20 per cent rise in imputed rents could drive up headline CPI by 1.5-2 percentage points, Dr Chua estimates.

Merrill Lynch’s Emerging Asia currency strategist, Simon Flint, says he is not concerned about overheating risks here.

‘MAS reacted very quickly to rising price pressures,’ he said, referring to last month’s monetary tightening. ‘They’re being reasonably prudent about inflationary threats. ‘I’m optimistic about sustainable growth,’ he added.

 

Source: Business Times 20 Nov 07

Asia faces the inflation test

As long as economic policymakers act responsibly and transparently, Asia can avoid excessive price increases

By WILLIAM PESEK JR

ASIANS sure are unique; they don’t eat and they don’t use energy. That’s nonsense, of course, yet it’s how some are viewing Asia. Even as prices rise faster in some places than during the 1990s, investors are pushing the ‘core inflation’ argument.

If you strip out the most volatile items, such as food and energy, the rationale goes, Asian inflation looks pretty tame. Oh, it’s only high pork prices, China bulls say. It’s only because crude oil keeps rising, Asia-market enthusiasts retort.

Yet such arguments are taking on shades of denial as 2008 approaches and inflation accelerates. It’s hard to generalise the price environment. After all, Japan, by far the region’s biggest economy, still faces deflation.

In India, Asia’s No 3 economy, pressures have eased this year. And overall consumer prices are growing at a 3 per cent annual rate, or less, in Hong Kong, Malaysia, the Philippines, Singapore and South Korea.

The data may be masking the inflation already coursing through economies such as Bangladesh, China, Indonesia, Pakistan, Sri Lanka, Taiwan and Vietnam. For example, Singapore’s consumer prices could accelerate from 2.7 per cent now to as much as 5 per cent in the first quarter of next year, says Chua Hak Bin, Singapore-based economist at Citigroup Inc.

It’s also hard to generalise about why Asia is heating up. In some cases, meat or agriculture prices are helping to drive increases. In others, it’s everything from new taxes on goods and services to campaigns to stamp out corruption. Yet there are a few common threads: high oil prices, low short-term interest rates and undervalued currencies.

Asia’s brush with inflation needn’t be a disaster. It’s a natural side effect of strong growth and the increasing amount of foreign capital heading into the region’s markets. So long as central bankers and economic policymakers act responsibly and transparently, Asia can avoid excessive price increases. That’s easier said than done. The costs of inaction will be higher public debt yields, slower growth and less buoyant equity markets.

It may be very difficult for central bankers, for example, to get away with raising interest rates as much as inflation risks warrant. It may be equally hard for politicians and exporters to stomach stronger currencies. All this is a reminder that some Asian capitals may lack the political will to do what’s necessary here.

The World Bank last week said East Asia’s economies will expand at the fastest pace in more than a decade in 2007, even as US import growth slows and the fallout from the sub-prime-loan crisis unfolds. East Asia, which excludes Japan and the Indian subcontinent, is expected to grow 8.4 per cent this year and 8.2 per cent in 2008.

China is a perfect example of the risks that policymakers face. ‘The authorities are rightly aiming at avoiding excess demand and the spillover of high food prices into generalised inflation, and mopping up liquidity and raising interest rates will continue to be needed,’ the World Bank said in a Nov 15 report.

‘However, the main macroeconomic task remains to contain the rising trade surplus, and a stronger real exchange rate is the most obvious tool.’ Obvious, but also politically explosive. China’s consumer prices rose 6.5 per cent in October from a year earlier, matching August’s gain, the biggest in more than a decade.

The news has economists such as Wang Qing of Morgan Stanley concerned that the world’s fourth-biggest economy is on the verge of overheating.

China shows the futility of finding comfort in core inflation figures. Price increases for non-food items were just 1.1 per cent in October, the same as September.

‘Food is still the primary force driving prices upward, although in a poor country where one-third of the CPI basket is food, I would think that rising food prices must affect wages and, through wages, the rest of the economy,’ says Michael Pettis, a finance professor at Peking University.

The same goes for higher oil prices, which can only be dismissed for so long. When crude oil hit US$50 a barrel, analysts told investors not to worry.

Similar noises are being heard as oil approaches US$100 a barrel. How much longer can economists and investors live in denial that commodity prices will eventually filter into economies? Some nations are becoming more serious about inflation.

In Indonesia, prices rose 6.9 per cent in October, near the upper end of the central bank’s range of 5 per cent to 7 per cent.

Deputy central bank governor Hartadi Sarwono says Bank Indonesia wants the currency to be ’stable and strengthen’ to help ‘tame inflation.’

Accelerating inflation may give Asian policymakers their biggest test in a decade. It doesn’t help that the challenge comes amid turmoil in global credit markets, an uncertain outlook for the US and increasing ‘hot money’ capital flows.

Asia really needs to stand and deliver to prove it can handle the investment flowing its way. The region now has the chance to show how far it has come from the dark days of the 1990s – or hasn’t.

William Pesek is a Bloomberg News columnist. The opinions expressed are his own

 

Source: Bloomberg (Business Times 20 Nov 07)

Consumer prices could rise by up to 4.5% next year: MAS

Central bank sticks to policy of letting Sing$ strengthen gradually, modestly

PRICE pressures ranging from rising oil prices to a squeeze on resources at home, are likely to push consumer prices up by 3.5 to 4.5 per cent next year, after rising by about 2 per cent this year.

Singapore’s central bank announced its new 2008 forecast yesterday, raising it from the 2 to 3 per cent projected last month.

But the Monetary Authority of Singapore (MAS) added that its stance on the Singapore dollar’s exchange rate remains ‘appropriate’, and it has no plans for an earlier-than-scheduled policy review before its April meeting.

MAS’ policy is currently to allow the Singdollar to gradually and modestly strengthen.

Changing the policy to allow it to strengthen more quickly will help battle inflation. This is because Singapore imports many of its goods from overseas and these will become cheaper if the Singdollar is strong.

MAS deputy managing director Ong Chong Tee told a quarterly press conference yesterday that an intermeeting review was ‘not on the cards’.

At the same briefing, Mr Ravi Menon, second permanent secretary of the Ministry of Trade and Industry, maintained that government measures to ease the squeeze on the supply of office space and labour will help to cool cost pressures.

A host of factors are behind the faster rise in the consumer price index (CPI), including ‘technical’ factors such as July’s one-off goods and services tax hike.

Another factor is next January’s revision to the annual assessed values of homes by the tax authorities, which will in turn lift the housing cost component of the CPI.

‘Neither of them represents a sustained rise in inflationary pressures,’ said Mr Menon. ‘The effects of both will wear off over the second half of 2008.’

In addition, prices of crude oil and agricultural produce – which Singapore imports – have been rising globally.

The MAS’ move last month to allow the Singdollar to rise at a slightly faster pace would go towards curbing imported inflation.

The economic boom at home is driving up wages and rents amid a tight labour market and a shortage of office space. However, measures have been taken to increase the sale of land in business parks, lease out more vacant state buildings and release land for transitional offices, said Mr Menon.

And raising the foreign labour ratio and S-Pass (Employment Pass) quota will help ease manpower bottlenecks in the rapidly growing construction sector, he added.

‘In short, has the economy gotten hotter? Yes. Has it gotten too hot? No,’ he said.

While a slowing United States economy will cause Singapore to expand at a slower tempo, inflationary pressures are shaping up to be a more pressing concern than slowing economic growth, said economists.

‘Growth concerns have become secondary to inflationary concerns,’ said Standard Chartered Bank economist Alvin Liew.

Fortis Bank strategist Joseph Tan believes further monetary tightening via a faster appreciation of the Singdollar is likely at the next policy review. ‘The policy stance may change from a ‘gradual and modest’ appreciation of the Singdollar to an ‘immodest’ appreciation,’ he quipped.

However, Mr Liew said: ‘We believe the current Singdollar policy stance is enough to deal with imported inflation. The worry lies with domestic cost pressures, that is, wages and rents rising too much. If these are the concerns, there might be more measures to keep these pressures in check.’

What is pushing up the consumer price index?

• July’s one-off hike in the goods and services tax.

• Next year’s rise in the housing cost component of the CPI, due to higher annual assessed values for homes.

• Domestic cost pressures due to a squeeze on labour and office space.

• Rising prices of crude oil and other commodities.

Source: The Straits Times 20 Nov 07

S’pore needs to slow growth: economists

Economy will be fully stretched if it maintains 7-8% growth

(SINGAPORE) While Singapore’s underlying growth potential has risen in recent years, the economy will be fully stretched at the seams if it continues to grow between 7 and 8 per cent, as it has on average between 2004 and 2007, economists say. They now see a need to bring GDP growth down to around 6 per cent.

Against a backdrop of slower global economic growth next year, economists say Singapore’s GDP expansion has to be moderated before overheating pressures – now nascent – build up further. Apart from moves underway to ease the pace – such as the delay of some S$2 billion worth of public building projects – it also means ‘not taking active measures to improve growth if they are going to cause overheating’, says Chetan Ahya, chief economist for Southeast Asia and India at Morgan Stanley Asia.

Concerns about overheating risks – in the form of both consumer and asset price inflation – dominated discussions at a recent economic roundtable organised by the Institute of Policy Studies and BT. Speaking about the Singapore property market at the forum, Mr Ahya and his colleague Deyi Tan said they see in the ongoing real estate boom speculative excesses in the private residential segment, but genuine demand – and possibly further upside – in the commercial office market. Beyond the property market, resources are also being stretched. Does the growth trend need to take a breather, they ask.

‘My personal view is that we probably need to slow the overall demand in the system right now… demand is so strong… The supply response function in all pockets of the economy does not catch up to the shift in demand,’ Mr Ahya said.

He pointed out that the average annual growth between 2001 and 2003 was only 1.6 per cent – well below its underlying potential. There was therefore quite some excess capacity. In the four years since, the economy has ramped up sharply, growing almost 7.8 per cent on average, assuming GDP growth this year amounts to 7.7 per cent, which is Morgan Stanley’s forecast. The official forecast is ‘between 7 and 8 per cent’.

Growth of near-8 per cent for four years is ‘clearly above the underlying potential’, Mr Ahya said, even if the trend growth has risen in recent years. The government now estimates the economy’s medium-term trend growth at 4-6 per cent, while most private sector economists put it higher at 5-7 per cent, some going as high as 8 per cent.

In the first few years from 2004, the economy could sustain the robust expansion without signs of strain because there was all that excess capacity from the recent lean years. But now ‘there is stretch in the system’, Mr Ahya says.

‘We now have to go back to 6 per cent.’

He believes that Singapore can easily grow 6-7 per cent a year in the next two years if there were no overheating pressures in the last two years. ‘Everything that can be done to ensure that we moderate growth down should be done,’ he told BT. ‘The Singapore government is actively boosting the economy by measures such as the integrated resorts but it (the economy) does not have the capacity to absorb the necessary labour or provide the infrastructure that allows for that growth without causing overheating.’

At the roundtable, Khor Hoe Ee, assistant managing director (economics) of the Monetary Authority of Singapore, said: ‘I would say there has been a tightening of financial conditions this year. We are growing at a pace greater than what the resources are capable of accommodating. That is something that monetary policy can’t deal with very easily, whether through interest rates or exchange rates.

‘We are going to have to manage some of these pressures over the next two years until the supply comes onstream. In the meantime, the appreciation of the exchange rate does help to lower tradable prices and help to keep prices down.’

While there has been concern about the jump in inflation in recent months, Dr Khor pointed out that, apart from the effect of July’s 2-point hike in the Goods and Services Tax, the increase in the underlying inflation here is still within the norm.

 

Source: Business Times 19 Nov 07

Business confidence takes a dive

Sentiment indicators for next 6 months sliding amid signs of nascent slowdown: BT-UniSIM survey

(SINGAPORE) Business confidence here has taken a dive, according to the latest BT-UniSIM quarterly survey of business activity. Companies are much less optimistic about the next six months and there are signs that a slowdown in business activities has started.

The survey of 137 local and foreign companies found that all indicators for Q3 were down from the previous quarter.

In particular, the business prospects net balance – the difference between the percentage of companies that expect better times and those that expect worser – slumped 17 points to 39 per cent from the last quarter.

Similarly, the sales net balance fell 6 points to 35 per cent, while the profits net balance slid 2 points quarter-on-quarter to 25 per cent.

The orders and new business net balance sank 8 points to 32 per cent – its first decline since the fourth quarter of 2006.

Noting that the overall balances on all indicators were down, survey director Chow Kit Boey said: ‘This implies that the strong business performance in the past six quarters has weakened.’

The previous downturn, which started in the second quarter of 2006, lasted four quarters.

But Ms Chow said that a future downturn is not likely to be drawn out, adding that it could result in lower growth rates for two to four quarters.

The BT-UniSIM survey found that foreign companies generally reported improvements from the preceding quarter, unlike their local counterparts which registered lower balances.

Foreign companies had a sales net balance of 36 per cent, up from 28 per cent, and a profit net balance of 21 per cent, up from 15 per cent in the previous quarter.

The respective figures for local companies were 29 per cent, down from 41 per cent, and 22 per cent, down from 32 per cent, quarter-on-quarter.

In terms of orders and new businesses, foreign companies reported a 2-point rise to a net balance of 26 per cent, while local companies reported a 11-point drop to 33 per cent.

In terms of business prospects in the next six months however, local firms were less pessimistic than foreign companies, although the number of optimistic local firms declined from three months earlier.

A net balance of 42 per cent of local companies reported positive sentiments – down from 64 per cent in Q2 this year.

Even though the comparative figure for foreign firms is at a lower 35 per cent, this was still an improvement over the 31 per cent seen three months ago.

Smaller companies reported a decrease in all indicators compared with the preceding quarter’s survey, and their sales, profits and orders and new business net balances turned into negative territory.

Small companies reported a 29-point plunge in sales net balance to minus 10, indicating that more companies reported lower rather than higher turnover.

Larger companies reported a 4-point drop in sales net balance to 40 per cent.

Among smaller companies, the orders and new businesses net balance plunged 33 points to minus 12 per cent, and their profits net balance shed 25 points to minus 9 per cent.

The business prospects net balance for small companies lost 29 points to 8 per cent, while larger companies reported a 16-point drop to 42 per cent.

A comparison of overall and overseas sales, orders and business prospects indicated that business activities were stronger in other countries than in Singapore.

In particular, foreign firms were the only group with better sales and orders in Singapore than abroad.

‘The net balances have generally fallen for the second consecutive quarter, suggesting that the business environments in domestic and overseas markets have weakened, particularly for small firms,’ the report added.

In Q3, the financial and business services sector replaced the construction sector narrowly as the star performer, capturing marginally over half of the total top positions.

The construction sector followed closely occupying the remaining slots, suggesting that expansion in Q3 this year was less dispersed than in previous quarters when more than two sectors occupied the top positions.

For the seventh consecutive quarter, the construction sector has been voted as providing the best prospects by all types of firms.

Irrespective of size and ownership, the financial and business services sector was the best performer in profits.

And it was also the best performer in terms of sales, profits and orders/new business for small and foreign firms.

 

Source: Business Times 19 Nov 07

Bigger but unequal pay gains seen for ‘08

(SINGAPORE) With the economy still hot and workers harder to come by, bigger pay hikes are expected in the coming year. But not everyone will get an equal share of the bounty, according to a recent poll of 126 companies by human resource services firm Hewitt Associates.

The survey showed that salaries will rise by an average 5 per cent in 2008, up from 4.7 per cent this year.

But it is the professionals, supervisors and managers who are likely to see their pay rise by 5 per cent or more next year. The wages of manual workers and general employees are projected to increase by less than 5 per cent.

Senior and junior managers as well as supervisors and professionals are expected to get a raise of 5.1 per cent on average in 2008, up from 4.8 and 4.9 per cent in their respective categories this year. By comparison, manual workers’ salaries are tipped to go up 4.2 per cent. They were given a raise of 3.7 per cent this year.

Employees higher up the corporate ladder are also likely to be rewarded with higher merit increases, which are projected to average 4.6 per cent for all workers, against 4 per cent in 2007, according to the Hewitt poll. Top executives are expected to take home merit increases averaging 4.8 per cent, marginally higher than this year’s 4.7 per cent.

Manual workers, again at the bottom of the payout scale, are likely to get a merit raise of 3.7 per cent in 2008, compared to 3 per cent in 2007. Those in the manufacturing sector will be better off again in the pay hikes next year, with most expected to receive a raise of 5 per cent, up slightly from 4.9 per cent in 2007.

According to the poll, employees in the electronic and electrical industries will enjoy the highest pay increase in 2008 – 6.7 per cent, up from 6.2 per cent this year. But those in the consumer products-non durable goods sector are likely to see their pay rise slip a little, from 6.3 per cent in 2007 to 6.2 per cent.

But their counterparts in the industrial machinery and equipment sector are likely to see increments of barely 4 per cent.

The telecommunications industry is likely to be among the least generous again. It has budgeted for a pay increase of 4 per cent, still an improvement over 2007, when salaries rose only 3.4 per cent.

 

Source: Business Times 19 Nov 07

Services workers most willing to jump ship amid tight labour market: poll

In manufacturing, managers are the least loyal group

(SINGAPORE) Job-hopping is more rampant in the services sector than among manufacturing employees, a survey has found.

But while it is manual and general staff in the services sector who are more ready to jump ship in Singapore’s current tight labour market, in the manufacturing sector, it is employees up the corporate ladder – junior and middle managers – who are the least loyal.

A poll by human resources firm Hewitt Associates between July and September shows that manual workers in services have the highest attrition rate (16.2 per cent) in the sector, followed by general staff (15.8 per cent).

The dubious distinction of being the most frequent job-hoppers in the manufacturing sector belongs to junior managers, supervisors and professionals, who have a turnover rate of 9.9 per cent. Those in middle management positions are not far behind with an attrition rate of 9.6 per cent.

But in both the services and manufacturing sectors, the people at the top are the most loyal to the company – their turnover rate is just under 2 per cent, according to the poll.

Overall, the services sector is losing staff faster than the manufacturing sector in the full employment situation. The attrition rate in the services sector is 8.2 per cent, against 7.4 per cent in manufacturing.

Across the board, junior managers, supervisors and professionals have the highest turnover rate – 11.6 per cent.

Top executives, in contrast, have an attrition rate of 1.7 per cent, the lowest.

According to the poll, higher pay offered by other companies was the most cited reason (71 per cent) offered for job-hopping.

Limited growth opportunities (32 per cent), relationship issues with manager (39 per cent), role stagnation and work-life balance (32 per cent) were other major reasons listed for staff resignations.

The most common measure (56.5 per cent) taken to stem the outflow of employees is ‘accelerated career development opportunities’. Other commonly cited steps taken were short- term incentives (45 per cent), pay above market rates (43.5 per cent), timely and meaningful feedback from managers (45 per cent) and improved work- life balance (40 per cent).

While about two-thirds of the companies polled felt their reward programmes were ‘partially’ successful in attracting and keeping talent, less than 29 per cent thought they had ‘fully achieved’ the goal.

The majority of them (69 per cent) said ‘budgetary constraints’ were the problem. Some (almost 31 per cent) also pointed to the ‘lack of adequate communication’ and ‘administration of the programme’ (23.6 per cent).

 

Source: Business Times 19 Nov 07

S’pore, China to jointly develop eco-city

Tianjin Eco-City to be a model of sustainable devt

(SINGAPORE) In a highly anticipated landmark signing at the Istana yesterday, the governments of Singapore and China inked a framework agreement to jointly develop an eco-city in Tianjin, which will deepen cooperation and bring bilateral relations to greater heights.

The vision is for the Sino-Singapore Tianjin Eco-City to be a model of sustainable development that is socially harmonious, environmentally friendly and resource-efficient.

It will be developed by a joint venture between a Singapore consortium led by Keppel Corporation and a PRC consortium comprising Chinese companies such as the Tianjin Binhai New Area Urban Infrastructure Construction Investment Co Ltd, Tianjin TEDA Investment Holdings Co Ltd and the China Development Bank.

Prime Minister Lee Hsien Loong said he was pleased with the decision and was confident the Chinese central government and the Tianjin government will give the project their full support.

This project is yet another flagship of bilateral cooperation between Singapore and China since the 13-year-old Suzhou Industrial Park, visiting Chinese Premier Wen Jiabao said.

‘The Suzhou Industrial Park has become a crystallisation of the friendship between our two countries, and with the eco-city to be built in Tianjin, it will become another highlight in our relations,’ Premier Wen added.

The two leaders signed a framework agreement that set the parameters for collaboration, while a supplementary pact that guide the implementation details was signed by Minister for National Development Mah Bow Tan and China’s Construction Minister Wang Guangtao.

Under the framework agreement, China and Singapore will share their expertise and experiences in the formulation of policies and programmes to engender social harmony, urban planning, environment protection, resource conservation, recycling, ecological infrastructure development, use of renewable resources, reuse of wastewater and sustainable development.

Deputy Prime Minister Wong Kan Seng and Vice- Premier Wu Yi will jointly chair a Singapore-PRC Joint Steering Committee (JSC) to oversee all major issues relating to the development of the eco-city project while a Joint Working Committee (JWC), co-chaired by Mr Mah and Mr Wang will address issues and problems related to the development. The JWC will report to the JSC, which will be under the Joint Council for Bilateral Cooperation (JCBC).

The key outcomes spelt out under the supplementary agreement are a vibrant local economy with good environmental conditions, the formation of socially harmonious and inclusive communities, good environmental technologies and practices, and a reference for other cities in China in the management, technological and policy aspects.

Further details of the eco-city are being finalised.

Earlier on, the leaders met for about an hour, where they reviewed the 17 years of Sino-Singapore bilateral ties and discussed other issues such as Singapore-China free trade agreement, cross-straits situation and Myanmar.

Both leaders expressed confidence in the current state of relationships that are based on mutual interests and respect.

‘Our relations are good because the foundations of the relations are based on compatible strategic views of the way Asia is developing, of China’s development, and peaceful emergence into the world order,’ PM Lee said.

‘Therefore, we believe that there’s room for us to work together for mutual benefit and on the basis of equality and mutual respect.’

Yesterday’s state visit by Premier Wen also saw the official launch of the Singapore China Foundation (SCF) which seeks to strengthen people-to-people ties between Singapore and China through cooperation in education and human resource development.

The SCF currently offers two scholarship schemes to Singaporeans and PRC nationals to pursue Master programmes and executive programmes in Singapore and China and has awarded scholarship schemes to more than 20 Singaporean and Chinese officials since its inception under a memorandum of understanding in 2004.

PM Lee also hosted Premier Wen to an official dinner banquet yesterday at the Istana Banquet Hall.

In the days ahead, Premier Wen will be attending a series of high-level regional summits here, including the 11th Asean Plus Three Summit and the Third East Asia Summit that are held alongside the 13th Asean Summit. He will deliver a keynote speech at the National University of Singapore today.

 

Source: Business Times 19 Nov 07

The incredible shrinking dollar

How do we ensure that our savings are not eroded by inflation? Finance Correspondent Lorna Tan looks at how rising prices affect the value of your money and highlights the need to start financial planning early

INFLATION could hit 5 per cent in the first quarter of next year. This would be a 25-year historic high.

Trade and Industry Minister Lim Hng Kiang told Parliament on Monday that record oil prices and higher food and transportation costs could take their toll on the Consumer Price Index (CPI).

The last time inflation hit a high level was in July 1991, when it reached 4 per cent.

The CPI has been on a steady uptrend this year: It rose 0.5 per cent in the first quarter, 1 per cent in the April-June period and 2.7 per cent in the third quarter. It is expected to rise at least 2.7 per cent for the current quarter.

Inflation and value of money

SIMPLY put, inflation is the increase in prices of goods and services over time, which means it diminishes the purchasing power of today’s dollar in the future.

While $3 buys you a cup of coffee today, you might need $4 in the future. So we end up buying less in the future with the same amount of money.

There are exceptions. Prices of electronic goods such as DVD players can go down over time because of the product cycle and economies of scale.

‘With rising inflation, if you don’t look at your investments carefully and do something about it, you will find that eventually inflation will erode your purchasing power and thus your wealth,’ said Ms Anne Tay, OCBC Bank’s vice-president of group wealth management.

Mr Leong Sze Hian, the president of the Society of Financial Service Professionals, suggests using the ‘rule of 72′ to work out the number of years it will take for our purchasing power to be halved or prices to double.

This is done by taking 72 and dividing it by the inflation rate. So if annual inflation is 5 per cent, it will take 14.4 years to erode the value of today’s dollar by half.

Risk-averse investors

IT STANDS to reason then that conservative investors who put their money mainly in bank deposits will eventually end up worse off.

Investing at 2 per cent while inflation is running around 4 to 5 per cent will see your wealth steadily eroded.

Financial consultant Dennis Ng said: ‘I believe that people who play safe are actually taking very high risks. If a person puts his money mainly in bank deposits thinking he is being conservative and safe, in the long run, due to inflation, this person’s savings would actually shrink over time and he would become poorer, not richer.’

The reality is that the return from a term deposit is unlikely to keep pace with inflation and the cost of living over the long term, said Mr Gary Harvey, the chief executive of ipac Wealth Management Asia.

‘If we take a retrospective view from 1985 to 2006, a $10,000 term deposit (principal only) made in 1985 was worth only $7,500 in 2006, with an average inflation rate of 1.29 per cent per year,’ he said.

‘If inflation is 3 per cent per year moving forward, $10,000 today will be worth only $5,200 in 2028. If inflation hits 5 per cent, the same $10,000 will be worth only $3,400. Almost 70 per cent of the value will have been eroded.’

This concern is behind Ms Tay’s advice to keep only enough cash for emergency purposes, say, three to six months of your monthly expenses. Invest the rest.

Alpha Financial Advisers chief executive Arthur Lim said that when factoring the rate of return needed to meet a specific financial goal such as buying a home, retirement or children’s education, one should consider inflation.

‘An ‘inflation-proof objective’ will consider the impact of inflation and factor it into the growth needed in the investment portfolio to meet the desired goal,’ he said.

‘This will result in the investor having the precise amount needed to meet the goal, despite the price increases of assets over time.’

Starting early

HAVING a financial plan early on lets you take a long-term investment horizon, which is beneficial on various fronts.

‘The young are best-placed of course, as they stand to gain the most from compounding, dollar-cost averaging, investing at a lower risk level and maximising of returns over the long term’, said Mr Lim.

To illustrate the power of compounding, Ms Tay cites an individual who started a yearly investment of $1,000 at age 25 for 10 years, at a rate of return of 6 per cent. He allowed his investment to continue growing at 6 per cent from age 35 to 62 without any further annual inputs of $1,000. At age 62, his investment would total $71,420.

In contrast, take the case of another individual who embarked on a yearly investment of $1,000 only from age 35. He must continue the yearly input of $1,000 all the way to age 62 before the total value of his investment grows to $72,640.

That is a 28-year investment of $1,000 per annum, compared with the 10-year investment in the first example. This is simply because the first individual started 10 years earlier.

‘That’s the power of compounding, said Ms Tay.

Young working adults may not earn much but ‘they have time on their side and can always start small’, said Mr Tony Tan, a consultant with independent private wealth manager Providend. Many unit trusts allow for regular savings plan contributions from as little as $100 a month.

‘Start on a regular savings investment plan which allows you to make small monthly contributions towards the realisation of the defined objectives. What is most important though is that you start as early as possible and make time work for you,’ said Mr Tan.

Mr Leong of the Society of Financial Service Professionals says a young working adult could start with as little as $1,000, which could be invested in a global balanced fund.

He would need about $5,000 to $10,000, which could be from the Central Provident Fund (CPF) or cash, to set up a globally diversified portfolio of about a dozen funds.

‘Assume a 25-year-old is earning $1,450 a month, with $60,000 in CPF. If he can get an average return of 5 per cent on his CPF accounts, his investments can grow to over $900,000 by the time he reaches 65. At 6 per cent, it can grow to over $1.2 million,’ said Mr Leong.

To take care of rainy days, keep six months of expenses as emergency cash in a money market fund or a fixed deposit, one-month renewal account at a bank.

Older investors

IF YOU have a shorter time horizon, common sense dictates that you shouldn’t be investing mainly in risky instruments.

However, with the longer lifespans these days, investing your entire nest egg in something too conservative may not give you the returns required to fund your retirement needs, said Mr Tan.

A balanced globally diversified portfolio would typically comprise about a dozen investment funds made up of approximately 55 per cent equities, 5 per cent commodities and 40 per cent bonds, said Mr Leong.

If and when you need money, he suggests liquidating the funds that have gone up the most so you will always be exiting the funds with gains.

On a positive note

THE good news is that inflation is generally not a ‘bad’ thing, as it is typically accompanied by a robust economy, which in turn results in higher incomes.

The increase in wages should be more than enough to offset the increase in the prices of goods, said Mr Tan.

For instance, inflation in Singapore should be viewed against rapid economic growth, with gross domestic product rising more than 6 per cent on average since 2003 and wages also on the increase.

Moreover, inflation is expected to moderate in the second half of next year.

The spike in inflation to 5 per cent in the first quarter of next year is likely to be followed by a plateau, as the rate reverts to more normal conditions in the second half.

For the whole of next year, the average inflation rate is likely to be around 3 per cent.

 

Source: The Sunday Times 18 Nov 07

US credit woes hurt foreign funds to Asia

While inflow is fast slowing for HK, China and India, S’pore is experiencing outflow

THE flood of foreign funds surging into Asian bourses over the past four weeks has been reversed by the ongoing credit woes in the United States.

Singapore has started experiencing an outflow, with a net sale of US$2.1 million (S$3 million) last week by funds investing exclusively in Asian equities, according to Citigroup Investment Research.

This is a striking contrast to the situation in end-September, when US$110.4 million flowed into local equities in the space of a week.

And in other bullish regional markets such as Hong Kong, China and India, the inflow of foreign funds into equities has slowed down considerably.

Only US$84.3 million was invested in H-shares – shares of China firms listed in Hong Kong – between Nov 1 and Nov 7, compared with US$576.5 million between Sept 27 and Oct 3.

Over the same period, foreign funds spent just US$29.9 million on Hong Kong stocks, excluding H-shares, an 86 per cent plunge from the US$216.5 million they spent in the week of Sept 27 to Oct 3.

The slowdown in fresh investments in Asian equities coincided with the bearish mood in the US, where banks have been writing down billions of dollars in their pool of debts.

That has been coupled with the greenback plunging against regional currencies following two US interest rate cuts.

It raises fears of an unravelling in the carry trade – hedge funds taking out huge yen loans because of Japan’s low interest rates to invest in higher-yielding assets.

Sentiment has also been spooked by perception that H-shares have shot up too fast, fuelled by foreign investors entering Hong Kong and Singapore in anticipation of China allowing domestic funds to invest in overseas equities.

Fund managers’ appetite for risk has also weakened considerably. Merrill Lynch’s latest survey of Pacific Rim fund managers showed that defensive sectors – insurance, retail and consumer products – are now preferred over sexy growth stocks.

And despite oil soaring close to US$100 a barrel, fund managers have started to pare down positions in the energy sector.

Despite the falls in regional markets, the Merrill Lynch report noted that fund managers are still ‘overweight’ on shares, having reduced cash holdings to 2.8 per cent from 3.7 per cent last month.

And even as Hong Kong’s Hang Seng Index has dropped by more than 10 per cent from its record high in September, Merrill Lynch said fund managers continue to favour Hong Kong and ’sharply increase their enthusiasm for frontier markets’.

‘Fund managers have also returned to Singapore and reduced their exposure in other Asean markets,’ it added.

But Morgan Stanley’s head of global emerging markets equity strategy, Mr Jonathan Garner, said that next year may be more difficult than this year.

While the focus is on the impact any slowdown in the US economy could have on emerging markets, Europe is a much bigger export market for developing countries. ‘Weakness in the US economy could spill over to the euro zone. Emerging markets may survive a slowdown in the US, but not the US and Europe combined,’ said Mr Garner.

He expressed particular concern over a possible ‘contraction in valuations’ in China and India, after their exceptional stock market performances this year. ‘H-shares valuations are back at the 1997 and 2000 peak levels.’

Morgan Stanley has adopted a defensive posture, adding Telekom Malaysia and removing China Mobile and Hyundai Heavy from its focus list last week.

 

Source: The Straits Times 17 Nov 07

The next step in reinventing S’pore

It must have a tool to attract foreign SMEs that are incipient MNCs before they are lured by Hong Kong or Shanghai

 

ATTRACTING regional offices here is not the only way for Singapore to achieve its ambition of being a regional hub by leveraging on the rapid rise of Asia. It’s timely to also consider the concept of the Outsourced Regional Office, or ORO, as a new economic initiative.

Prior to setting up a factory in Asia, most multinational corporations (MNCs) would usually set up a regional office, that is a fully owned subsidiary, as a precursor.

 

While Singapore has an OHQ Scheme to attract regional offices, it comes with such conditions that many small and medium-sized enterprises (SMEs) in the West do not qualify for the scheme. It is proposed that the International Trade Institute of Singapore (ITIS) under the International Enterprise (IE) Singapore’s banner lead this new initiative whereby we will go out to catch the incipient MNCs or now sizeable SMEs in the developed economies before they mature to the stage where they will find their way to Hong Kong or Shanghai.

For years, we have been making the clarion call to make Singapore the ‘gateway to Asia’ for companies in the Americas, UK, Middle East, Europe and Australia & New Zealand. Let us create a scheme that Western SMEs can ride on.

It was reported in The Straits Times on Oct 3, 2007 that there are 3.4 million SMEs in Germany alone. And the number of German companies in Singapore? A paltry 700. Most of them are large ones like Siemens and Daimler.

There are approximately 4.3 million businesses in the UK and over 99 per cent of them are SMEs. Again, there are just 700 UK companies in Singapore.

It is imperative that we have a tool to draw the SMEs that are incipient MNCs to Singapore before they are lured by Hong Kong or Shanghai, two very attractive commercial centres in Asia given the phenomenal growth in China. It is definitely not enough today to flog our good location, a deep water port, excellent infocomm technology infrastructure or even our banking critical mass. Even Korea and Taiwan are able to tout the same advantages to intending SMEs.

 

Let us beat the competition by offering these developed countries a cost-effective initiative – the ORO. This can help add another dimension to our claim to be truly the best ‘gateway to Asia’. The concept is to offer the SMEs in the West, many of which are searching for ways to join the economic party in Asia, especially China, a cost-effective option to come into the region. Many of them do not know where to turn for help to come into Asia apart from their own countries’ embassies in Asia. The Germans and the Nordic countries have set up their own business centres here with the same purpose in mind.

Such foreign government-led initiatives have their limitations. Such companies need hand-holding for an initial period of at least three to five years based on my experience as an export consultant to small as well as large Western companies in Asia.

This is something that governments, whether Singapore or foreign, cannot provide. Therein lies the idea of using a network of private-sector consultants to provide the same.

For an operational budget, we will have export consultants to play the role of their regional offices in Asia way before they can do it on their own. We will therefore act as incubators for them in Asia, helping these Western companies set up the agent and/or distributor network, the most commonly used method for market entry. Firms will be encouraged to set up to cater to the different fields, for example oil and gas, industrial products, information and communication technologies, pharmaceuticals, and hospitality.

Certified consultants

The ITIS, jointly with Benroth and the NUS Business School, can set up a certification process (or quality control mechanism) offering a short course to confirm these consultants’ credentials in international marketing. Only certified consultants will be put on the list of recommended consultants which will be marketed by the network of IE Singapore offices worldwide.

This is to protect the Singapore brand for reliability and integrity. The individuals who fit the bill must have held international marketing positions with some global companies managing the network of agents and distributors in Asia Pacific. Those who have been acting as distributors and agents, for instance, will not fit the bill.

In the long term, once they are accustomed to the environment in Singapore, they would continue to stay here upon their maturity into MNCs. If they go into China, chances are they will either seek a Singapore company as a partner or they will bring in Singaporeans as advisors or directors on their boards. Capital will be raised here if they need funding.

There are also other spin-offs to our economy by these same companies using Singapore logistics providers to back up the movement of goods. Singapore law firms will be called upon to provide legal inputs in seeking redresses or simply writing distributor agreements. Accounting firms will be called upon to provide accounting services, and the list goes on.

Singapore has a pool of international marketing talents comprising executives currently or once employed by the MNCs as regional marketing/sales directors. With our bi-cultural orientation, we have a headstart over both Hong Kong and Shanghai. For not only are we able to bring them into both northern (Mandarin-speaking) and southern (Cantonese-speaking) China, we have Malay and speakers of various Indian languages who can link them to the South-east Asian markets as well as fast-developing India. Many of these international marketing talents were retrenched during the recession in 2000-2003.

The ORO initiative will be able to absorb those with international marketing experience, with them forming small niche export consultant firms described above.

IE Singapore with its network of 38 offices overseas will play a lead role in the entire firmament by marketing the ORO scheme aggressively overseas to SMEs abroad.

It is very logical to leverage on Singapore’s national branding which only the overseas offices of IE Singapore can purvey beyond what an individual ORO consultant firm can. There will be an immediate level of comfort and trust once the potential entrant sees that there is a very dependable Singapore government behind the scheme. It is almost nigh impossible for any firm to have the kind of geographical spread that IE Singapore already has.

In one stroke, this move will strengthen IE Singapore’s strategic role with our own SMEs and thus better enable it to justify its existence amongst our public agencies. IE Singapore must serve our larger national purpose; this will in fact develop into a classic example of public-private collaboration that will bring the country synergistic spin-offs.

It is where the public sector provides the infrastructure (foreign offices) and environment (international confidence in Singapore’s branding) with the private sector providing the engine.

It is this factor that has led to InvestHK’s aggressive push to attract regional offices to Hong Kong. When a plant is established say in China across the border, the MNC would still retain the managerial, strategic marketing and decision-making processes in Hong Kong.

InvestHK reported that as of June 30, 2007, it has already attracted 147 companies to invest or expand in Hong Kong, achieving more than half of its annual target of 250. During the first quarter of 2007, foreign direct investment (FDI) inflows into Hong Kong reached HK$120.2 billion (S$22.3 billion). Total FDI inflow during all of 2006 was HK$333.2 billion.

FDI gains

Apart from creating employment, FDI creates multiplier effects that no government can ignore. Many supporting services like logistics, legal, banking, information and communication technology, accounting and advisory consultancy are needed whenever a foreign company operates in a host country like Singapore.

There is much scope to riding on the tail of the dragon. Bloomberg reported the following on July 12, 2007: ‘Foreign direct investment in China, the world’s fastest-growing major economy, climbed 12.2 per cent in the first half from a year earlier. Spending rose to US$31.9 billion, the Ministry of Commerce, said today on its website. The pace has quickened from a 9.9 per cent increase in the first five months. For June alone, foreign direct investment jumped 21.9 per cent to US$6.6 billion.’

While the pace of inward FDI continues to rise in China, the day is approaching when indigenous Chinese companies seek foreign markets as well. This is evidenced by the record number of companies seeking initial public offerings in both Singapore and Hong Kong. The purchase of Maytag in America by Haeir and IBM by Lenovo heralds this new phase that is still in its incipient stage. The Chinese are finding their way out of merely being the sweat shop for Western brands.

There is therefore another business flow that we can leverage on using the same OROs in the long term and beyond the influx of Western companies coming into the Asia-Pacific market. This is the opportunity to assist the PRC companies to export their branded DEM (designed, engineered and manufactured) goods worldwide, using Singapore as a reverse gateway.

In conclusion, the ORO initiative will give us an additional leg up in the regional competition for capital and technologies. We will be able to exploit the tremendous growth in China, leveraging on our human resource capital, our branding and bicultural roots. It will also bring in the much-needed additional value-added through the multiplier effects.

Most importantly, it will also help alleviate the structural unemployment that will continue to affect those professionals above 45 in this new age of globalisation and keen economic competition. And let us not count on the current boom in our economy to last too long. Economic cycles are predicted to be shorter these days owing to the many factors at play in the Internet age. We must and should continue to reinvent ourselves. The ORO is one such initiative at reinvention.

The writer is the managing director of Benroth International Pte Ltd

 

Source: Business Times 16 Nov 07

World Bank sees robust East Asia growth next year

But if oil prices hit new highs, region’s resilience will be tested, it cautions

 

IN TOKYO

THE East Asian economies will continue to see robust growth next year despite a likely US slowdown, but new highs for oil prices will test the region’s resilience, says the World Bank.

 

The bank has, in its latest East Asia & Pacific Update, raised its growth forecasts for emerging East Asian economies in 2007 and next year, despite heightened downside risks to global growth from financial turmoil and soaring oil prices.

 

‘We expect the stronger growth momentum in the region to carry through 2008,’ says Milan Brahmbhatt, principal author of the report. The bank’s optimism stems from a sharp spurt in East Asia’s growth in the first half of this year, and its confidence that the region’s domestic demand is strong enough now to offset a slowdown in exports.

 

Emerging East Asian economies are projected to grow at a robust 8.4 per cent overall in 2007 – the fastest pace in three years – and to moderate only slightly to 8.2 per cent next year. Its forecasts see the Singapore economy growing 7.4 per cent this year, and 6.4 per cent in 2008.

 

Even if the US falls into recession as a result of the sub-prime mortgage crisis and growth there plunges to zero in 2008, that should shave only one percentage point off the median growth of emerging East Asian economies, the bank says.

 

But rising oil prices are a key risk. The bank’s growth forecasts for 2008 are based on an assumption that oil prices will average US$70 a barrel next year. But if they stay at around US$90, this could shave a further one percentage point off growth projections, it says. Thus far, even though oil prices have more than doubled over the last three to four years, the impact on world growth has been fairly muted, the bank notes.

 

One reason is that the surge in prices has come mostly from strong global demand growth rather than a decrease in supply. The bank also cites research suggesting that the sensitivity of growth in developed countries to oil shocks has fallen sharply in the last two decades – with impact for East Asian economies. But further new oil price highs next year will test the robustness of the region’s and global growth, it cautions.

 

Overall, the World Bank is sanguine about the outlook for East Asia, saying that ‘the region’s performance in previous global downturns suggests that the impact on East Asia is unlikely to be especially severe or protracted given the region’s strong macroeconomic fundamentals and in the absence of a major downturn in global high- tech demand such as occurred in 2001′.

 

It ’substantially increased’ its growth forecasts for 2007 and 2008, compared with six months ago, mainly because of the ‘unexpected and large domestic demand-led acceleration of growth in China (which is forecast to grow at 11.3 per cent this year and 10.8 per cent in 2008)’. Growth has also picked up in most of the other larger economies of the region as a result of more buoyant investment and spending on consumption, it adds.

 

Emerging East Asian economies are defined by the World Bank to include those of China, Indonesia, Malaysia, the Philippines, Thailand, Hong Kong, South Korea, Singapore and some unspecified smaller economies in the region. In contrast to its upbeat outlook for East Asia, the bank revised down its growth projections for the US and the OECD area as a whole by one percentage point and one-and-a-half percentage points respectively. Growth across the OECD as a whole is likely to be only 2.2 per cent in 2008, it says, while growth in Japan is expected to fall from 2.2 per cent in 2006 to 2 per cent this year and to 1.8 per cent in 2008.

 

The outbreak of the US sub-prime crisis has had little adverse impact on East Asia so far, the World Bank notes. ‘Preliminary assessments suggest that direct exposures of East Asian financial institutions to sub-prime risks are relatively limited.’ But ‘risks may increase if global instability and tightening of credit markets intensify and lead to further declines of prices of various other structured assets held by banks.’

 

Source: Business Times 16 Nov 07

Rosy figures but forex losses, write-downs cloud horizon

Overall profits rise a third to $7.2b despite hiccups at some companies

THE profit numbers certainly look good but confidence has been shaken with investors left with more questions than answers.

 As of last night, the profits of 258 Singapore-listed companies with third quarters ending on Sept 30 totalled $7.21 billion. This is 32 per cent up on the $5.46 billion made in the same period last year.

But huge write-downs by foreign banks – and more modest ones locally – linked to the United States subprime mortgage sector and foreign exchange losses by local rig builders have put nerves on edge.

 Witness the schizophrenic stock market alternating between record highs and gloomy dips.

Underlining much of the jitters is the fear that more firms, particularly in the offshore and marine sectors, could face similar forex losses that have already claimed SembCorp Marine (SembMarine) and Labroy Marine.

 

SembMarine rocked the market, after it revealed that losses from unauthorised forex transactions by its group finance director had amounted to US$303 million (S$438.2 million).

 Labroy also reported an unrealised loss of $206.5 million, after it sold euros for US dollars earlier this year to hedge against exposure to the European currency. Investors are now asking if there will be more forex losses among offshore and marine firms. Market watchers are not betting against it, given the greenback’s continued weakness, which could force

more companies to disclose their positions.

 Analysts estimate that about 60 per cent of Singapore’s corporate order books are denominated in US dollars. ‘There are those who may be suffering more from exchange rate losses after translation, because the Singdollar strengthened. They receive in US dollars and they report in Singdollars,’ said CIMB-GK research head Song Seng Wun.

The chief investment officer of Fortis Private Banking Singapore, Mr Lim Kok Boon, said the losses at SembMarine, which caught the market by surprise, have served as a reality check.‘People are a little more cautious going into the final quarter of the year, especially when  forex movements in the second half of this year have been so volatile,’ he said.

 

Singapore banks – the traditional top earners – will also come under scrutiny in the next few months, with analysts not ruling out more write-downs on their portfolio of investments exposed to US sub-prime problems.

 DBS Group Holdings set aside $70 million last quarter, United Overseas Bank (UOB) made provisions of $55 million and OCBC Bank set aside $221 million to cover the fallout from risky debt.

‘There could be more provisions, but again it will be very similar to the third quarter at worst,’ said Daiwa Institute of Research analyst David Lum.

Mr Najeeb Jarhom, senior vice-president of research at AmFraser Securities, said DBS and UOB should not have to make ’significantly more of such provisions’ as the sub-prime crisis could fade away towards the middle of next year.

 Unlike interim earnings, the full-year figures will be subject to careful scrutiny by external auditors. ‘I suppose they will perhaps take a more conservative interpretation of valuations,’ Mr Song said. While banks might be most vulnerable to damage from the US mortgage mess, analysts say property developers also face much uncertainty, following the end of the deferred payment scheme for buying uncompleted private properties.

‘We’ve got the latest cooldown measure by the Government and to me, it’s not certain that prices would continue to steam ahead like they did for 21/2 quarters,’ Mr Lum said.

So do not expect the stock market to be smooth sailing, say observers.

 

The head of OCBC Investment Research, Ms Carmen Lee, said: ‘We expect market volatility in the short term to remain.’

LESS OPTIMISM‘People are a little more cautious going into the final quarter, especially when forex movements in the second half of this year have been so volatile.’MR LIM of Fortis, on the fourth-quarter outlook Source: The Straits Times 16 Nov 07

Credit crisis ‘unlikely to faze East Asia’

World Bank expects region to shrug off sub-prime woes, high oil prices to log in solid growth

THE sub-prime crisis in the United States is not posing a significant risk to East Asia’s rapid growth, according to the latest World Bank forecasts.

 

The region is expected to expand by a solid 8.2 per cent on average next year, shrugging off the subprime fallout and high oil prices, said the bank’s half-yearly report released yesterday.

 

This is slightly lower than the 8.4 per cent growth rate projected for this year, following last year’s 8.3 per cent expansion. ‘The impact of the US sub-prime housing crisis and the renewed surge in oil prices have clearly increased downside risks,’ said Mr Milan Brahmbhatt, the principal author of the report. ‘Nevertheless, we expect that the stronger growth momentum in the region will carry through in 2008.’

 

In fact, the bank’s overall outlook for East Asia – spanning economies from China to Vietnam – has turned rosier over the past six months. This is despite sub-prime woes shaving a projected 1 percentage point off US growth next year, which could lead to waning appetites for East Asian-made imports in America and other rich countries.

 

One reason is that the region’s strong expansion has so far been driven by domestic, not external, demand. This is especially so in countries such as China and Singapore, which are experiencing investment booms. ‘It is worth noting that this year’s pickup in East Asia has occurred despite a substantial decline in US import growth, and some more modest slowing in the region’s own exports,’ said the report.

 

The bank does not believe the US will slide into a recession, but even if that does occur, the impact on East Asia will not be severe, it said. ‘A fall in US growth to, say, zero in 2008 – a 2 percentage point growth decline – might be accompanied by a 1 percentage point fall in median East Asian economic growth from around 6 per cent to 5 per cent – significant but no disaster,’ it said.

 But it did warn about the impact of soaring crude prices: ‘New highs for oil…will test the solidity of the East Asian and global economic expansions in 2008. ‘We calculate that an average oil price of US$90 in 2008 will be associated with an income loss in East Asia

of about 1.1 per cent of gross domestic product.’

 In its latest regional outlook, the International Monetary Fund (IMF) also highlighted the issue of rising food prices in economies such as China. The fund’s resident representative in Singapore, Dr Ranil Salgado, presenting the outlook yesterday, noted that inflation has picked up in Asia’s newly industrialised economies as well as in China.

Furthermore, despite the run-up in global oil prices, China decided to raise its domestic oil prices only recently, with Malaysia and Indonesia likely to follow suit. Consequently, ‘there could be even more inflationary pressures than shown here’, he said.

The IMF predicts that Singapore’s GDP growth this year will hit 7.5 per cent before easing to 5.8 per cent next year. ‘Assuming that credit markets gradually normalise, the fallout from the global financial turmoil should be manageable for emerging Asia owing to strong economic fundamentals and healthy corporate and banking sector balance sheets,’ noted the report.  Source: The Straits Times 16 Nov 07

China’s prosperity a boon for S’pore: MM Lee

Minister Mentor lauds efforts at greening Beijing before Olympics

A GROWING and prosperous China is good for Singapore, Minister Mentor Lee Kuan Yew said yesterday.

 

Mr Lee, who is in Beijing to meet China’s top leaders, made the remarks when he held talks with Chinese Foreign Minister Yang Jiechi. Trade and investment between the two countries have grown significantly over the years.

 

Singapore and China are working to take already close ties even further with the signing of a new flagship collaboration – the eco-city project. The project aims to showcase how China can balance rapid economic growth with environmental protection.

 Achieving this balance is a top priority for the Chinese leadership, which is concerned that continued environmental degradation would eventually hurt the country’s booming economy.

‘A prosperous China is good for Singapore,’ said MM Lee. ‘That is why we want to see China stable and growing.’

 

He also praised the capital city’s successful greening efforts ahead of next year’s Olympics, adding: ‘Whatever China wants to do, it can do better than Singapore.’

 

Mr Yang, who spoke in English throughout the 45-minute meeting, said bilateral ties were ‘very good’ and noted that Chinese Premier Wen Jiabao would be paying an official visit to Singapore this Sunday.

 This is the first visit to Singapore by a Chinese premier in eight years.

During his trip, Mr Wen is expected to sign several bilateral agreements, including a pact on the eco-city project. Mr Yang, who returned from a trip to Iran on Tuesday, will also be part of the Chinese delegation visiting Singapore.

 

Commenting on the Chinese Foreign Minister’s hectic schedule, MM Lee said: ‘(China) is now a very important country’. ‘You are all over the world. Afghanistan, North Korea, and Iran … any trouble spot, (such as) Darfur, you are in.’

 

MM Lee and Mr Yang also discussed regional and international issues of ‘common concern’, the official Xinhua news agency reported without elaborating.

 

Mr Lee was accompanied by Mrs Lee, Minister in the Prime Minister’s Office Lim Swee Say, Senior Parliamentary Secretary for Education Masagos Zulkifli and senior officials during the four-day trip, which began on Wednesday.

 Defence Minister Teo Chee Hean will join the Singapore delegation today. They will meet Chinese President Hu Jintao, as well as Mr Xi Jinping, China’s sixth-ranked leader, and state councillor Tang Jiaxuan today. Source: The Straits Times 16 Nov 07

Credit crisis, inflation threaten world growth, says Fukui

GLOBAL economic growth is under increasing threat from two fronts – the United States sub-prime crisis and soaring commodities prices that may push up inflation.

The warning came from Bank of Japan governor Toshihiko Fukui at a function in Singapore last night. He said the sub-prime turmoil could severely disrupt financial markets, which could then have a ripple effect on economic growth. The risk of inflation is just as potent, presenting a challenge to central bankers who will need to use monetary policy to maintain price stability amid strong growth, added Mr Fukui, who spoke as part of the Monetary Authority of Singapore Lecture series.

 

Inflation expectations have been ‘generally contained’ in many markets. But rising oil prices, driven by high economic growth worldwide, especially in oil-hungry emerging markets, have increased the ‘risk of a rise in inflation expectations in the longer term’, Mr Fukui said.

 

Rising commodity prices will also ‘inevitably impair terms of trade for oil-consuming countries’, he added. Mr Fukui acknowledged that ‘downside risks for the US economy’ persisted, but the risk of stagflation – stagnant growth accompanied by high inflation – in the US and other economies was ‘muted compared to the 1990s’.

 

The credit market turmoil, linked to high-risk sub-prime home loans, was actually the result of many years of favourable growth and benign conditions in the world economy.

 

‘The crux of the problem, as I understand it, is that risk evaluation had become too lax under those benign conditions, and this has led to a correction through market forces,’ said Mr Fukui.

 Financial imbalances were allowed to accumulate that, in turn, triggered corrections and posed a risk to economic stability.

Central bankers, like goalkeepers in football teams, must, therefore, defend against turbulence arising from the increasing complexity in the international flow of funds, he said. They must accurately read the risks of the global economy and financial markets to ’stabilise the market when it is under pressure’. Source: The Straits Times 16 Nov 07

Still positive on Asian equities

Region will continue to expand at a respectable pace even if below-potential US growth extends into 2008.

DESPITE a credit crisis emanating from the US and fresh highs in oil prices, global stock markets have broken records again this year. In Asia, especially since the August turmoil, investors have experienced impressive returns. Most regional equity indices boast year-to-date gains well above the returns seen in the US or Europe. Economic growth has been strong and regional markets have risen on the back of robust earnings growth, PE multiple re-rating, and strong currencies.

Naturally, the question arises: Can this continue in 2008?

We believe it can. Valuations have increased but do not seem stretched. With the exception of China, PE multiples are not at astronomically high levels. Current PE ratios for the Asian indices (excluding China, India and Japan) range from 14 to 23, which are not a far cry from 18 for the S&P500.

We believe Asia will continue to grow at a respectable pace in 2008, which keeps us positive on Asian equities as an asset class. Asian economies should remain healthy, ie, continue to see more broad-based growth, current account surpluses and lower debt levels. They will also continue to see stronger intra-regional trade – rising dependence on China, in particular, and falling dependence on US demand.

Our central scenario is that Asia will continue to expand at a respectable pace even if below-potential US growth extends into 2008. A gloomier US growth outlook is not good news for Asia, but weak US growth for the past two years has not prevented Asia from accelerating modestly all the while.

Another year of 2 per cent growth in the US, should it be that weak, would make little discernible difference to Asia.

We believe the US economy will avoid a recession as the drag from housing construction fades and core consumption remains resilient. We continue to take confidence from the fact that in the far sharper downturn of 2000-01, when 2.5 million Americans lost their jobs, consumption growth remained above 2 per cent year-on-year.

Major risks

It is true that the balance sheets of Asian corporates, like the economies they operate in, are in much better shape than 10 years ago, before the financial crisis of 1997-1998. But although Asian stock markets are less vulnerable than in the past, they are not insulated from developments in the rest of the world.

There are, as always, a number of risks for Asian markets. What are they?

First, on a PE basis, Asia’s emerging markets no longer trade at a discount to developed markets.

Valuations have been catching up and re-rating (ie, stock price increases per dollar of earnings) over the recent years has helped push many Asian markets to a premium (Table 1). Clearly, investors are seeing better long-term earnings growth potential in Asia.

Second, on a price-to-book basis many Asian markets trade at higher multiples now than in 2004.

China and India, in particular, trade at huge premiums to developed markets. Thailand and Taiwan are the only exceptions, with the SET and the TWSE trading below and near 2004 levels (Table 2).

Third, borrowing costs have risen, as uncertainty has increased and risk has been repriced. This is evidenced by tighter liquidity and wider credit spreads in money markets and steeper yield curves. It has become more difficult for businesses to obtain loans, not only in the US but also in Europe.

Money markets are unlikely to normalise in the near-term but they should function normally again in 2008 after more information on financial sector exposure to certain credit markets has surfaced. If history is any guide, it will take a while before the credit crunch subsides.

Fourth, there is the risk that inflation will eat more aggressively into returns. Markets seem to have forgotten about this amid US growth concerns but policy makers have not. Inflation risk will almost certainly return as a major theme in markets in 2008. Central bankers are sure to remind markets of this.

Bottom line, we remain positive on the outlook for Asian equity markets, but risks surrounding this central scenario have increased slightly in recent months and the earnings outlook has become more cloudy.

Bonds, commodities

The outlook for Asian bond markets is bearish as yields are expected to rise. Inflation risks suggest that central banks will be biased towards tighter monetary policy in 2008. Moreover, inflation expectations, while currently very low, are likely to rise. Sentiment among bond investors is hence likely to be weak and returns in 2008 will be less impressive than in 2007. After a strong showing in 2007 and with slower global growth expected, the outlook for commodities appears less certain now and there are material downside risks in many markets.

Taking all the above into consideration, investors will have to come to terms with the idea that volatility is returning. The recent turmoil in markets likely marks the end of the low-volatility period we have witnessed from 2004 to 2006. But this is not a bad thing. As the swings in financial markets increase, opportunities for investors to achieve high returns increase too. But, as there is no more easy money, it also means that the portfolio approach to investing, ie, risk diversification, is becoming even more important.

The Chicago Board Options Exchange SPX Volatility Index (VIX) reflects a market estimate of future volatility in the S&P 500, based on the weighted average of the implied volatilities for a wide range of options. The Merrill Option Volatility Estimate (MOVE) is a yield curve weighted index of the implied volatility on Treasury options and reflects a market estimate of future Treasury bond yield volatility.

According to modern portfolio theory, investors should assess portfolios based on overall risk-reward characteristics rather than the individual risk-reward characteristics of the constituent securities. Put differently, investors should not assess the risks and rewards of securities individually but in a portfolio context, ie, how they affect the portfolio’s overall risk and return. This is because a portfolio’s risk is not only a function of the individual securities’ risks but also of their correlations.

Exposure to risk is reduced by combining a variety of securities, all of which are unlikely to move in the same direction. Because not all markets move up and down in value at the same time or at the same rate, a portfolio approach promises more consistent performance under a wide range of economic conditions.

Our asset allocation model, which helps us find portfolios that have optimal risk/return characteristics, suggests that for a 12-month allocation horizon 54 per cent of funds should be allocated to equities, 28 per cent to bonds, 18 per cent to cash and zero to commodities (Figure 1). The resulting portfolio has an expected return (annualised hedged return in SGD terms) of 15 per cent and expected risk (annualised standard deviation of daily hedged returns) of 8.4 per cent. It is an optimal portfolio, given our hedged-return expectations, historical risks, and the historical correlations between markets.

Within the portfolio context we favour Singapore, Hong Kong, China, Taiwan, and Malaysia among regional equity markets; and China, the Philippines, Korea, India, and Thailand among regional bond markets. While some markets are not accessible to all investors, we believe that keeping these markets in our framework provides the best summary of our investment outlook.

 

Source: Business Times 14 Nov 07

Inflation may hit 5% in Q1 ‘08 as oil, food prices head north

But Singapore’s competitiveness still intact: Hng Kiang

(SINGAPORE) Singapore’s inflation rate could hit 5 per cent in the first quarter of 2008 on the back of record oil prices and higher food and transportation costs, Trade and Industry Minister Lim Hng Kiang told Parliament yesterday.

‘We expect (inflation in) the first quarter of next year to reach the peak of between 4 and maybe even 5 per cent,’ Mr Lim said.

For the present quarter, the consumer price index (CPI) is expected to rise at least 2.7 per cent, he said.

The index rose 0.5 per cent in the first quarter of 2007, one per cent in the second quarter and 2.7 per cent in the third quarter.

‘Food prices have risen mainly due to dearer imports arising from supply disruptions in some of our major food import sources,’ Mr Lim said.

Similarly, oil prices have reached historical highs in recent months due to strong global demand, tight supply and low global inventories, he said.

The index in the first quarter of 2008 will also be high because it will be compared to the first quarter of 2007’s relatively lower base, he said. But inflation is expected to moderate in the second half of 2008, Mr Lim added.

Singapore’s central bank – the Monetary Authority of Singapore (MAS) – has an official inflation forecast of 1.5-2 per cent for 2007 and 3 per cent for 2008.

MAS has allowed the Singapore dollar to appreciate in recent months to ease inflation. The government has also taken steps to cool the booming property market, which experts said is contributing to inflationary pressure.

The new forecast for the first quarter of 2008 is ‘a bit shocking’, Citigroup economist Chua Hak Bin told a news wire.

Dr Chua said that the central bank may need to tighten policy again, possible before its next scheduled meeting in April.

Yesterday, Members of Parliament also voiced fears that rising prices could affect Singapore’s ability to attract foreign companies.

In response, Mr Lim said that Singapore is still competitive in this respect.

‘We are tracking our competitiveness position very closely and so far we are in quite a good position,’ he said.

Mr Lim pointed out that Singapore’s inflation rate was still lower than what other countries are seeing. And while wages here climbed in 2006 and in the first three quarters of this year, the increases came on the back of a long period where wages did not move up much, he said.

On Sunday, Prime Minister Lee Hsien Loong said that the government is unlikely to impose controls on food or utility prices in response to rising inflation, but will continue to use other ways to help Singaporeans cope with the cost of living.

He was speaking at the People’s Action Party annual convention after a party member had asked how the PAPcontrolled government could help lower-income Singaporeans cope with rising prices.

 

Source: Business Times 13 Nov 07

Sub-prime woes continue to hold sway

ST Index hits two-month low after 2.5 per cent fall, in line with Hang Seng Index

AS EXPECTED, the local stock market was unhinged yesterday by Wall Street’s continuing fears over the impact the sub- prime crisis might have on its earnings and the US economy, fears which have now rendered the two interest rate cuts of the past seven weeks nothing more than a distant memory.

The end of a weak session saw put warrants – instruments that gain in value in a falling market – occupy 18 of the 20 spots available in the top gainers list, while the Straits Times Index (STI) stood 88.55 points or 2.5 per cent down at 3,511.12, the lowest in two months.

This loss was very much in line with that in Hong Kong, where the Hang Seng Index closed 1,117.68 points or 3.9 per cent lower at 27,665.73.

Other than describe the market as ‘very nervous’ and ‘jittery’, brokers were at a loss to comment further on the present sentiment. ‘Who knows what might spook Wall Street next?’ asked a dealer, echoing the feelings of the majority. The December futures contract on the Dow Jones Industrial Average, usually a reliable guide to how Wall Street might open later that same day, first dropped 50 points but regained about 40 points by 5pm.

The broad market experienced one of its worst performances, registering only 61 rises versus 497 falls and 266 unchanged or untraded counters, excluding warrants. This works out to about eight falls for each rise.

Since peaking at an all-time high of 3,875 almost exactly one month ago, the STI has now lost 364 points or just under 10 per cent. A weak Wall Street has been chiefly responsible, with stocks coming under severe pressure following announcements by the major banks of large write-offs relating to the sub-prime problems in the US.

Here, banks have also led the decline. In yesterday’s session, falls in the three banks cut a total of 25 points off the index. DBS continued to lead the sector’s decline, losing 70 cents at $19.80 versus 50 cents for UOB at $19.60 and 15 cents for OCBC at $8.50.

With sentiment as shaky as it is, positive broking recommendations had little impact – Kim Eng’s ‘buy’ on construction firm Lian Beng with a $1.22 target price, for example, was shrugged off by the market, and the stock closed 2.5 cents weaker at 74 cents. The local broker based its call on the upswing in construction, the company’s healthy profit margins and sound financial management.

‘We are initiating coverage with a $1.22 target based on a sum-of-the-parts valuation with 16 times FY09 PE on recurrent income from its construction business, along with the addition of the present value of development profits,’ said Kim Eng.

On the outlook for Wall Street, US newspaper Barron’s Nov 5 issue carried the results of its latest Big Money poll of fund managers, which is always an interesting read. Some of the findings are: 22 per cent thought Wall Street (with the Dow at 13,595) was overvalued, 23 per cent undervalued and 55 per cent fairly valued.

The single factor seen which could lift stocks over the next few months was better-than-expected corporate earnings while, overall, 42 per cent of respondents said they are still bullish on stocks. However, this figure was down from the 64 per cent of a year ago.

 

Source: Business Times 13 Nov 07

Inflation could hit 5% early next year, then taper off

AS CONSUMER prices continue to rise, inflation in Singapore will likely surge to 4 or 5 per cent in the first quarter of next year.

But it should taper off by the second half of the year to ‘more normal conditions’, said Trade and Industry Minister Lim Hng Kiang yesterday.

The average rate for next year should be around 3 per cent.

Fuelled mainly by rising global oil and food prices, inflation recorded a 13-year high of 2.9 per cent in August.

It is expected to dip to 2.7 per cent in the last quarter, Mr Lim told Parliament.

But it was his 2008 forecast that made analysts and consumers sit up yesterday.

Citigroup economist Chua Hak Bin said that the 5 per cent rate predicted would be a ‘historic high’ in the 25 years since 1983. The previous high was in July 1991, when it hit 4 per cent.

Most economies, including Singapore’s, size up inflation by tracking the Consumer Price Index, or CPI. The CPI measures the cost of a basket of goods and services consumed by most households.

Yesterday, Mr Lim cautioned against ‘interpreting a rise in the headline CPI as necessarily reflecting an increase in the cost of living’.

It depends on the individual household’s spending. ‘Switching to cheaper products can reduce the cost of living despite a rise in the CPI,’ he added.

A CPI increase may also not reflect actual hikes in consumer prices. For instance, flat prices soared, but flat owners do not pay rent.

Higher inflation, he said, should also be viewed against rapid economic growth, with the gross domestic product rising more than 6 per cent on average since 2003 and wages also on the up.

‘Against this backdrop, we should not be surprised to see inflation rise above the unusually low levels seen in recent years.’

However, MPs such as Madam Halimah Yacob worry that residents, especially the elderly on fixed incomes, are feeling the pinch. ‘They go to the market with a similar sum of money. But they can buy less,’ she said.

Mr Lim promised: ‘The Government will continue to keep a tight watch to ensure that inflation remains low.’

He sketched out how the landscape will look like next year.

Explaining why there will be a spike in inflation before it plateaus, he cited two reasons: First, it is as compared to the first quarter of this year, when inflation was at 0.5 per cent and oil prices were low.

Second, the ‘one-off’ effect of the goods and services tax hike, which will be felt until next June.

Thereafter, the trend will ‘revert to more normal conditions in the second half of next year’.

The numbers come against a global backdrop of rising oil and food prices, such as more expensive chicken due to costlier feed. Adverse weather in food-supplying countries has also reduced supply, even as demand has risen.

Diversifying sources is one way to maintain more stable food prices, Mr Lim said, but there was a limit to this given the worldwide increase in food prices being seen now.

But inflation has not affected Singapore’s economic competitiveness, he said.

‘We are tracking our competitiveness position very closely and so far we are in quite a good position,’ he said, adding that inflation here was lower than in other countries.

He noted that imported inflation has been reduced because of the policy of gradually appreciating the Singapore dollar.

Other watchers suggest more aggressive measures. Citigroup’s Dr Chua, for instance, believes that the economy is in danger of overheating.

He called on the Government to re-prioritise projects, given that unemployment is already at a low.

‘The economy cannot be growing at that pace – it is reaching a bottleneck, there’s a supply constraint, with wage, price, rent increases. It is costly for everyone.’

 

Source: The Straits Times 13 Nov 07

S’pore won’t fight inflation with price controls: PM Lee

Rising cost of living for lower-income, elderly to be met in other ways

(SINGAPORE) The government is unlikely to impose controls on food or utility prices in response to rising inflation, but will continue to use other ways to help Singaporeans cope with the cost of living, said Prime Minister Lee Hsien Loong yesterday.

Although many other countries control oil prices, electricity prices and even bus fares to help poor people, ‘our approach in Singapore is different’, he said.

‘We help – we do a lot – but we don’t help by keeping the prices individually controlled. We help by making sure that the low-income are able to pay for their necessities, able to earn a living, able to have a house over their heads.

‘We help you through Workfare, so if you work, you get more. And then we have packages like the Progress Package.

‘This is the way we help Singaporeans and low-income Singaporeans to cope with the cost of living.’

He made the remarks at the People’s Action Party (PAP) annual convention at the National University of Singapore’s University Cultural Centre yesterday.

More than one party member had asked how the PAP-controlled government could help lower income Singaporeans cope with rising price inflation.

The difficulties faced by lower-income Singaporeans and the elderly were also raised by several Members of Parliament who spoke during the three-hour convention.

Mr Lee said: ‘We’ve had a period now where the cost of living actually has been very stable. Inflation has been very low, bus fares have not gone up very much, food prices have not gone up very much, housing prices have been stable.

‘Going forward, we’re not sure that we can keep the cost of living as stable and as low as it has been. Oil prices are high and may rise further. Food prices have gone up.

‘And bus fares will have to adjust when energy prices go up. Electricity prices have to go up. So I think this is something which people are going to be worried about.’

Although some expect the government to step in to keep prices low through controls, he said that it would be unwise to do so.

‘If you look at bus fares in many countries, these are controlled so the bus companies lose money, the government just coughs up. Electricity prices similarly in many countries are controlled. And that is one way those governments try to help the poor people.’

‘We do care,’ he said. ‘The principle is, you help yourself, you work, the government will help you. But you must make the effort. And that is how Singapore will succeed, that’s how you will succeed. And I think that’s an approach that’s worked for the economy, for the country, and we must keep that.’

 

Source: Business Times 12 Nov 07

S’pore still top HQ choice but China closing in: report

Republic scores on economic policies, infrastructure and political stability

MULTINATIONAL companies (MNCs) in the Asia-Pacific still see Singapore as the best place to base their regional headquarters but China is catching up fast, according to a survey.

The findings by Spire Research & Consulting show that manufacturing companies based in Asia-Pacific still consider Singapore the best location from which to manage their regional operations – for now.

But more companies are beginning to favour mainland China and Hong Kong, especially those with dual regional HQs, the report said.

‘Singapore will need to evolve new strategies to retain regional HQs in the face of fierce competition,’ said Spire’s group managing director, Leon Perera, in a statement.

Spire said that it surveyed more than 100 global companies located in the Asia-Pacific region. Of the 105 respondents, some 60 per cent said that they operate in at least three Asian countries and nearly a third operate in seven or more.

Fifty-seven ranked Singapore as among their top location choices for a regional HQ, mainly because of its economic policies, infrastructure and political stability. The information technology and lifestyle and leisure sectors were the main industries that ranked Singapore as the best location.

Mainland China came a close second with 56 votes. This was unsurprising, as ‘China is a mecca for international manufacturing companies, who account for roughly half of China’s manufactured exports’, said Spire.

Many MNCs increasingly want to locate their regional HQs in China because of the overwhelming importance of the Chinese domestic market, it added. While some companies have China HQs that serve the greater China market only, others such as General Motors and Fuji-Xerox have China HQs that manage their entire Asian  operations, it said.

In the future, ‘many international companies may be tempted to locate a South Asia headquarters in Singapore, with Malaysia providing keen competition, and a North Asia headquarters in Hong Kong, Shanghai or Beijing,’ it said.

The companies surveyed rated economic policies, domestic market size and infrastructure as their top three criteria in deciding how attractive a place is as a location for a regional HQ.

 

Source: Business Times 12 Nov 07

TAKING STOCK – S’pore bourse may face fresh selldown

Regional banks set to be hit hardest by fear of US fallout spreading to Asia

WALL Street’s late selldown last Friday bodes ill for Asian markets as they open for trading today.

What may un-nerve traders is the contagion that seems to be spreading across Wall Street, as more United States banks unveiled write-downs on their pools of debts backed by souring US mortgages.

Last Friday, it was Nasdaq’s turn to get hammered, as technology stocks fell by 2.5 per cent on fears that banks may trim their capital spending to preserve capital.

And while the Dow Jones Industrial Average’s 223- point or 1.7 per cent fall on Friday was nowhere as severe as Wednesday’s 361-point plunge, the precipitous nature of the sell-off during the final hour of trading is likely to weigh on investors’ sentiment today.

Colliding with the bad news coming out of Wall Street was an unwelcome move by China to tighten money supply by raising the reserve requirement for banks for the ninth time this year.

The biggest fear is again an unholy combination of fund managers selling down their holdings of Asian shares to meet redemption calls of investors back home and hedge funds taking advantage of the chaos to ’short-sell’ in the hope of buying back the shares more cheaply later on.

‘The fear factor is what traders will have to contend with. The selldown on Wall Street last Friday may extend to Asian markets,’ said a dealer.

And among the stocks likely to be hit the hardest are regional banks, even though their exposure to souring US mortgages may be small when compared with that of the European and US banks.

‘Call it collateral fallout. Billions of dollars of suspect mortgages have been diced up into bonds and sold all over the world. They can land anywhere, but financial institutions are the chief suspects,’ said an analyst.

This will weigh heavily on bank-dominated indexes such as the Straits Times Index (STI) and Hong Kong’s Hang Seng Index as banks come under selling pressure.

Last week, the STI fell 115.65 points, or 3.1 per cent, to 3,599.67, while the Hang Seng was down 1,685 points, or 5.5 per cent, at 28,783.41.

There will also be fresh concerns over a possible unravelling of the yen carry trade, as the greenback weakens further against the Japanese currency.

Many hedge fund managers had borrowed heavily in yen because of Japan’s very low interest rates to buy higher-yielding assets.

‘Given the volatile trading conditions, a 100-point drop in the STI and a 1,000-point plunge in the Hang Seng is quite possible. This will be a nail-biting week,’ said CIMB-GK research head Song Seng Wun.

 

Source: The Straits Times 12 Nov 07

two cents’ worth – Smart investors scout for the best place to park their money

SPORTS teams consider intelligent scouting vital to their long-term success. The same applies to financial investments.

Before deciding where to park their money, investors should scout around for the best bargain; that is, they need to gather and sift through information about the money managers they are considering and the strategies these managers employ.

Depending on their financial objectives, investors can invest with either active managers or index funds. For example, an investor seeking exposure to large-capitalisation stocks can place money with a large-cap active manager or an index fund that mirrors the S&P 500.

How do active managers fare against indexes? Not well. Over a recent five-year period, the indexes outperformed over 40 per cent of all the active managers; over 10 years, more than half of the active funds underperformed the benchmark. This type of result has been consistent over time.

Given how well the indexes have fared, investors can learn a thing or two from how these indexes choose the best candidates for investment, that is, for index inclusion.

The most widely used benchmark for equity fund performance is the S&P 500. The S&P Index Committee uses various criteria when looking for index candidates:

• Liquidity: The stock must have sufficient liquidity and float.

• Fundamental analysis: The company must have put in four quarters of positive net income on an operating basis.

• Market capitalisation: The figure must exceed US$4 billion (S$5.8 billion).

• Sector representation: The committee tries to keep the weight of each sector in line with the sector weightings of the universe (of all eligible companies). It typically does so by adding stocks in underweight sectors, not by removing stocks in overweight ones.

Excerpted from Michael Mauboussin’s More Than You Know, published by Columbia University Press.

 

Source: The Sunday Times 11 Nov 07

Spreading Orchard buzz

New outlets offering niche, top-end products liven up the ‘quieter’ part of Singapore’s premier shopping area

WHILE the talk in town a week ago was about the government’s $40 million makeover of Orchard Road, the part of Orchard Road that stretches from Wheelock Place to Tanglin Mall has been going through some positive changes of its own.

Most people know it as the ‘quieter’ part of Orchard Road, but since the middle of this year, a number of shops offering niche, top-end products have sprung up, not to mention Jackie Chan’s first cafe in the world. And then, of course, there’s the imminent opening of St Regis, slated to usher in guests through its five-star hotel doors on Dec 22. It will be the first international luxury hotel brand to open in Singapore in more than a decade.

The newest retailers on that block are optimistic about the prospects of that side of Orchard Road, and actually they don’t mind that it has less shopping traffic as long as they’re the ‘right’ shoppers. Not only that, they have booked their spots in Orchard Road in anticipation of the boom when events like Formula One zoom into town, and when the integrated resorts (IRs) open.

‘We wanted a prestigious address,’ says Mikael Andersson, owner of the Hastens store, a top Swedish bed and mattress marque, at One Nassim Road. ‘But we didn’t necessarily want to pay for one with high shopper traffic.’

The location also worked because it allowed Hastens to have large store-front windows, and rent is lower than if it had set up shop in the central part of Orchard Road.

‘We don’t depend on walk-in customers but those who are familiar with the brand because it’s a well-known European brand,’ he says, adding that that part of Orchard Road has a high concentration of top-end condominiums as well.

Fine furnishings store Atmosphere, next to Hastens, was set up with the same philosophy. ‘This end of Orchard Road is quieter and more suitable for a luxury brand,’ says its director Bharat Ram, of Himatsingka Singapore Pte Ltd.

‘The upper end of Orchard Road has become more premium in the last two to three years. With the development of St Regis, many high-end brands have moved here,’ he says. ‘With rentals moving up significantly in the middle Orchard Road area, it makes eminent sense to open stores in the upper end of Orchard Road which is on the same stretch of the road, premium yet more affordable.’

He believes that there’ll be a significant movement of premium brands to this location in the coming months.

Already, there are brands like Franck Muller, which opened its new 1,900-sq-ft boutique at Delfi recently. And its distinctive store-frontage has added ‘a sense of excitement’ to that part of Orchard Road, believes Carina Lee, the luxury watch brand’s marketing communications manager.

Even though well-heeled, brand-conscious shoppers are aware that this is the part of Orchard Road that has the most exclusive fashion labels, it doesn’t help reminding them so. Which is the aim behind The Shopping Gallery at Hilton Hotel’s advertisements booked in several glossy fashion magazines from September to December.

‘This is the first time that The Shopping Gallery Hilton Singapore has embarked on an advertising campaign to market the place as a luxury shopping destination,’ says Cedric Tan, creative director for Balrog Inc which produced the campaign.

‘The ‘Fashion High, Fashion Life’ campaign is meant to gear up the gallery’s visibility. This is the place, after all, where high fashion grew up in Singapore. We have all the first-tier luxury brands like Missoni, Armani, Donna Karan and Dolce & Gabbana so we think it’s important to highlight that,’ he says.

He says that the six-figure advertising campaign is to pave the way for more events held at The Shopping Gallery next year, especially with the impending F1 race. About the profile of its typical shoppers, Mr Tan notes that they aren’t browsers. ‘They pick up what they want and go. We may not draw a lot of traffic, but we get the right traffic,’ he adds.

This part of Orchard Road could do with something like a Rodeo Drive, the three-block ‘branded’ shopping destination in Beverly Hills, California, says Yngvar Stray, general manager of the soon-to-open St Regis Hotel.

‘Orchard Road has been a centre of attraction for Singapore, but this side has never been able to be the draw. We need to make sure that Orchard Road doesn’t stop at Shaw House or Wheelock,’ says Mr Stray. ‘But if this part was positioned to be more like Rodeo Drive, that will be phenomenal,’ he adds. ‘The Hilton Hotel has one of the best shopping arcades I can think of and that inspiration should follow through along the street – being more exclusive, more niche.’

When St Regis opens next month, Mr Stray expects the 299-room hotel to generate a buzz with its restaurants, bars and spa. But then again, it intends to keep corporate activity nominal – even corporate room bookings – as the hotel is targeted at the individual traveller, in line with the greater concentration of luxury residences in the area.

Growing market

‘Orchard Road needs multiple attractions – and this part has more branded products. You come here because you understand its value,’ says Mr Stray.

Singapore has focused on mid-market growth for a long time now, but the high-end market is now growing, he feels. Along with it, more personalised attention and ‘bespoke’ service. Some shops have already picked up on this tone which St Regis Hotel itself is setting.

Franck Muller’s interior, for instance, is fashioned like a lush, private residence, complete with a long dining tablelike show space.

And then there’s Glitterati Fashion Boutique, a new cocktail and evening wear boutique which set up shop recently at Tudor Court. Owner Latika Alok made sure the shop has been designed with separate sitting rooms and cosy corners to provide personalised customer service. Although she had been running the business from her home since the early 1990s, she decided to get a shop space now ‘to position Glitterati for the IR market’, she notes, when there’ll be more events happening in town for which people have to dress up.

What about the fact that there are commercial buildings in that part of the town that don’t come up to scratch in terms of their services or appearances? Mr Stray doesn’t think that those will be an obstacle.

Nicholas Mak, research director of Knight Frank property consultancy, says that the upper end of Orchard Road needs more high-end shops, and possibly needs a few buildings to get a facelift, although he reckons that would happen only if building managers have a reason to increase rental or face some competition.

‘But the tenant mix is partly art and partly science. It’s a matter of coming up with the right formula,’ he says. The upper end of Orchard Road will continue to be seen more as a ‘destination’ area, he thinks.

Atmosphere’s Mr Ram figures that better connectivity between the middle area of Orchard and the upper end will make the flow of customer traffic easier. But he also expects that Ion Orchard, with its retail and luxury residential space, along with St Regis, ‘will completely re-position upper Orchard to the more important and premium part of Orchard Road’.

Time will be the test of Orchard Road’s makeover – and whether the upper end will really shape up to be upper crust.

 

Source: Business Times 9 Nov 07

Turbulent time for Asian markets next year: S&P

ASIAN stock markets face a difficult 2008 and could slide sharply, ratings agency Standard & Poor’s (S&P) said yesterday, as regional share prices fell heavily.

‘Next year will be a more difficult one for stock-market returns and we would not rule out the risk of a sharp correction,’ Asia-Pacific equity research head Lorraine Tan said in a statement.

Asian equity markets have reached increasingly risky levels and there will be less scope for them to rise after this year’s strong performance, the report added.

‘Markets would be jittery over potential negative news, such as on inflation and further deterioration in the US and European economies,’ said Ms Tan.

The United States is struggling with a credit crunch and housing market slowdown, after record defaults on sub-prime mortgages extended to homebuyers with riskier credit profiles.

The report said markets in Hong Kong, South Korea and Thailand were likely to deliver better relative performances next year, but Japan is set to do less well.

S&P also expects more ratings downgrades for the corporate sector next year due to rising costs and less readily available credit.

Mr Ian Thompson, the firm’s chief credit officer for regional ratings services,  aid casualties were expected, especially outside the financial sector.

‘There may be more ratings downgrades than upgrades among Asia-Pacific companies next year’.

That contrasted sharply with the general improvement in credit quality this year, he said in the statement.

S&P expects South-east Asian economies to grow on average by 6.4 per cent next year, with Indonesia and the Philippines seen as bright spots.

Source: AGENCE FRANCE-PRESSE (The Staits Times 9 Nov 07)

NEWS ANALYSIS – Banks’ showing may be as good as it gets amid credit turmoil

IS THIS as bad as it gets? This was the question on many investors’ minds as they scrutinised the impact of the global credit market turmoil on the third-quarter results of the three Singapore banks.

They have reason to be jittery, given the financial haemorrhage suffered by Wall Street banks.

Merrill Lynch has made write-downs of $8.4 billion while Citigroup is owning up to US$11 billion (S$15.9 billion) of possible losses over risky debt instruments.

They are called collateralised debt obligations (CDOs) and are packaged from sub-prime, or risky, mortgages in the United States.

Analysts warn the worst may not be over for these investment banks. So it is hardly surprising attention in Singapore has been gripped more by local banks’ provisions for CDOs than by their robust core earnings growth.

They are reaping the benefits of a booming Singapore economy, which have helped them deliver a 13 per cent rise in combined net profits to $1.57 billion for the quarter. This came despite write-downs, volatile markets putting pressure on interest margins and a rising Singdollar, which affected the value of overseas earnings.

The quality of the banks’ overall assets remained pristine, with non-performing loans dwindling.

Meanwhile, each bank’s provisions for asset-backed CDOs proved quite different from expectations. OCBC’s provisions surpassed market estimates by up to eight times as it aggressively set aside $221 million, or 82 per cent of its total exposure to CDOs. Analysts praised the safety-first move as one of the most conservative by any bank worldwide.

DBS set aside $70 million, about a quarter of its $275 million of CDOs. This was much lower than the average forecast of $125 million in a Reuters poll.

UOB made provisions of $55 million, or almost 60 per cent of its total asset-backed CDOs.

Analyst opinions differ widely over whether the bad news on CDOs is almost over.

Daiwa Securities’ Mr David Lum is among those who say the three banks tend to be conservative in making loan-loss provisions, so the worst may have passed.

But others, such as JPMorgan analysts, warn: ‘It ain’t over yet.’ They note that the prices of asset-backed CDOs continue to fall, slumping 50 per cent since Sept 30.

They also predicted that DBS has further mark-to-market losses of $116 million in the fourth quarter, while UOB has just another $10 million to go.

But one thing is clear to all: The three banks’ core businesses have proved robust so far. Not surprisingly, lending has been a star performer for all three amid a buoyant property market.

OCBC posted loans growth of 15 per cent – lower than DBS’ 23 per cent but close to UOB’s 15.6 per cent.

Fee income was also going strong. DBS, in particular, benefited from what CIMB-GK analyst Kenneth Ng described as ‘unexpectedly powerful’ capital market related-fees. Its net fee income rose 38 per cent to a record $403 million, riding on activities like stockbroking and wealth management.

However, wider credit spreads for trading instruments, triggered by the sub-prime crisis, took their toll on trading income.

DBS recorded a net trading loss of $47 million compared with a net trading income of $100 million in the previous quarter. UOB’s foreign exchange, securities and derivatives income fell from $97 million to $26 million.

Despite the solid performance of their underlying businesses, the banks are warning of risks and challenges on the horizon. In the near term, there will be pressures on net interest margins, amid a downward trend in Singapore interest rates and widening credit spreads.

The spreads are the difference in yield between a riskier corporate bond and a relatively risk-free government bond. Wider spreads may force the banks to take larger mark-to-market losses, which in turn will whittle down trading and investment income.

In the third quarter, UOB’s net interest margin had already declined 0.04 of a percentage point to 1.93 per cent compared with the same period last year. This was because it had more investment in shorter-term assets – less risky but with lower yields.

The banks’ earnings growth momentum may also be stifled if there is a sharp slowdown in the US – Asia’s biggest export market.

Other risks include ‘peaking loans growth’, while the axing of the deferred payment scheme for housing loans in Singapore may cause the high-end residential property market to cool, noted Morgan Stanley analyst Matthew Wilson.

So perhaps investors should start asking instead if the third-quarter showing is as good as it gets – at least until the credit market turmoil simmers down.

 

Source: The Straits Times 9 Nov 07

Climate Change plans ‘green buildings’ fund

It will start meeting investors in Q12008 to raise ‘hundreds of millions’ of dollars

(SINGAPORE) Climate Change Capital, a London-based fund manager and adviser on global warming, plans to start a fund to invest in properties that use energy more efficiently.

Climate Change, which manages about US$1.6 billion, will start meeting investors in the first quarter of 2008 and aims to raise ‘hundreds of millions’, said James Cameron, vice- chairman. So-called green buildings cut energy usage and reduce carbon dioxide emissions.

‘We will build a portfolio of properties, either retrofitted or improved, and buildings built from scratch or those that already meet the high standards that we would like to own a piece of,’ Mr Cameron said in an interview in Singapore yesterday. ‘It is not yet proven but perhaps we will get more value because it’s green.’

Scientists say carbon dioxide is one of the main emissions causing temperatures to rise, which may lead to potentially irreversible climate shifts and rising sea levels that would threaten world economies, ecosystems and human health.

The Kyoto Protocol binds 35 industrialised nations to curb carbon emissions by 5.2 per cent from 1990 levels by 2012. Developing nations including China and India are not required to cut emissions.

The United Nations’ climate change body will host its annual meeting in Bali next month to discuss a successor to the Kyoto Protocol. The European Union (EU) introduced ‘The Directive on the Energy Performance of Buildings’ in January 2003, to increase awareness of energy use in buildings and result in a substantial increase in investments in energy efficiency measures, according to Frost & Sullivan, a research company.

European countries wasted at least 20 per cent of their energy due to inefficiency in 2006 and applying more stringent standards to new buildings and renovations will enable the EU to reduce greenhouse gas emissions and realise an energy-saving potential of more than 20 per cent by 2020, Frost & Sullivan said.

‘The case is not proven that we will get a premium at all, but what we are sure about is that the changes that are taking place in Europe will stratify the market,’ Mr Cameron said. ‘There will be winners and losers and there will be value shift in the property sector and we want to be on the right side of that value shift.’

 

Source: Bloomberg (Business Times 8 Nov 07)

OCBC’s $221m writedown to cut CDO losses

Bank hopes aggressive move will lift shadow from future earnings as market for ABS CDOs dries up

(SINGAPORE) The market for some debt instruments linked to US sub-prime mortgages that were popular with banks worldwide ‘has come to a virtual standstill’, said OCBC Bank yesterday.

This led it to slash the value of its portfolio of ABS CDOs, or collateralised debt obligations comprising pools of asset-backed securities (ABS) from $270 million to just $48 million – less than a fifth of their original value.

Its $221 million writedown of its CDO holdings is the most aggressive so far among the three Singapore-listed banks.

‘We can’t predict the future, but what we’ve done this quarter is prepare for the worst and there logically is not going to be any future earnings impact from this portfolio,’ said chief executive David Conner at a media briefing yesterday after the bank released its third-quarter results.

He said the bank decided in September and early October to value these ABS CDOs using a model from ‘one of the global banks’ after the market for the ABS CDOs became so illiquid that market quotations were no longer a reliable measure of their value. ‘The ABS CDO market is effectively closed.’

Based on the model, OCBC wrote down the value of its ABS CDO portfolio by 82 per cent. Had the bank continued to rely on market quotes, the value of the ABS CDOs would have been $65 million, instead of the $48 million suggested by the model, said the bank. Inputs to the model are based on observable US housing market data, including delinquency rates and foreclosures, it said, although it did not name the bank that provided the model.

OCBC has another $372 million invested in corporate CDOs – those backed by corporate bonds – that are not exposed to the US sub-prime market. For these corporate CDOs, ‘the market is still open and operating, it has not declined dramatically, so we’re still marking those to market’, said Mr Conner. The fair value of the corporate CDO portfolio at end-September was $357 million, said the bank.

He stressed that even with recent downgrades in the credit ratings of some of the CDO tranches, ‘the portfolio that we have is still rated investment grade’ and there had been no defaults on payments to the bank.

In its third-quarter earnings release on Oct 26, DBS Group said it made $70 million in allowances for its $275 million in CDOs that were exposed to US sub-prime assets.

On Oct 30, United Overseas Bank (UOB) said it had made an additional provision of $20 million for its CDO investments, bringing its total provision to $55 million so far. UOB has total CDO investments of $388 million, of which $90 million is in ABS CDOs.

Yesterday’s writedown by OCBC came at a trying time for banks elsewhere. In the US and Europe, large financial groups such as Citigroup, Merrill Lynch and Credit Suisse recently said they had suffered much bigger losses from the credit market turmoil than earlier estimates had suggested. The chief executives of both Citigroup and Merrill Lynch have since been forced out.

 

Source: Business Times 7 Nov 07

Jump in number of new PRs, citizens

Record number likely this year; upswing will help tackle population problem

THE number of foreigners becoming either Singapore citizens or permanent residents will likely hit a new record this year.

And the upswing will go some way in tackling Singapore’s population problem, a key long-term challenge.

About 7,300 Singapore citizenships were granted in the first half of this year, Deputy Prime Minister Wong Kan Seng told The Straits Times.

If the trend continues, Singapore will have 14,600 new citizens this year.

The figure is about 10 per cent higher than the record 13,200 citizenships granted last year. In 2005, 12,900 citizenships were given.

These numbers are a big jump from the typical tally of 8,000 becoming citizens annually in the previous four years.

More foreigners are also seeking the benefits of permanent residence. Some 46,900 of them were granted PR status in the first nine months of this year, compared to 57,300 for all of last year.

With falling birth rates and an ageing population, Singapore has been trying to attract foreigners to settle here.

As chairman of the National Population Committee, Mr Wong has been tasked with tackling the problem.

He said the new immigrants hail predominantly from South-east Asia, as well as South and East Asia, an ‘understandable’ pattern as they tend to share similar linguistic and cultural backgrounds with Singaporeans.

One such new citizen is former Chinese national Wang Jie, 43, who took up citizenship this year, together with her university lecturer husband and their 17-year-old son.

The main draw for them: Singapore’s education system.

‘My son’s studies have improved since we came here because the teachers are much better,’ said Madam Wang.

She is also getting a second wind in her career as a Chinese language tutor thanks to strong demand. ‘I even have plans to open my own tuition centre,’ she said.

The new citizens and PRs add to a pool of Singapore residents whose number stands at 3.68 million as of June. This is out of a total population of 4.68 million.

The remaining one million foreigners include 756,000 who are working. There are 110,000 here on an Employment Pass or S-Pass, and 646,000 on Work Permits.

While the newcomers add to the much-needed population numbers, social stresses have also resulted.

For instance, property agents have noted the formation of ethnic enclaves in certain housing estates.

Singaporeans have also complained about competition for jobs.

But Mr Wong said Singaporeans should recognise that immigrants are part of a diverse workforce that will enhance Singapore’s standing in the global economy.

‘Our challenge is not the number of jobs available; it is that we do not have enough people to match the current rate of job creation,’ he added, pointing to full employment numbers here.

On whether more could be done to inculcate in foreigners the ways of Singapore, he said he believed Singaporeans generally welcomed them. ‘While there is no need to pretend that there are no differences between new immigrants and native Singaporeans, we should recognise that and accept that integration takes time and effort.’

He cited ongoing outreach efforts by schools, grassroots groups and expatriate bodies but added that there was also ‘only so much the Government can do on its own’.

‘Integration is a dynamic process that requires sustained efforts across all segments of society,’ he said.

Sociologist Tan Ern Ser is sanguine about the challenges of integration. ‘My sense is there is already a process of self-selection in that only those who could adapt and integrate would choose to settle down in Singapore.’

 

Source: The Straits Times 7 Nov 07

Sentosa IR to cost $800m more, says Genting

Higher construction and labour costs and new attractions will bring the bill to $6b

THE price tag for Genting’s Resorts World at Sentosa will be bigger than expected as a result of higher construction costs and additional attractions, such as a new roller coaster, being lined up.

Genting International now expects to spend $6 billion on the project, 15 per cent more than its original budget of $5.2 billion, said its managing director Justin Tan.

Of that extra $800 million, $275 million will go into the higher-than-expected construction costs; another $275 million will pay for the added attractions, with the remaining $250 million being put aside for contingencies.

The company explained that while it had locked down the prices for concrete and steel, labour costs and contractors’ margins had shot up.

Mr Tan Hee Teck, the chief executive of Resorts World,said: ‘If you look at Singapore today, there is $20 billion worth of construction going on. And because resources are scarce, the cost has escalated by more than we had anticipated.’

Resorts World is not alone in being stung by the changing economics of the construction industry. Soaring demand and the high prices of sand and steel have also hit building projects across the island.

Just two months ago, the other integrated resort, Marina Bay Sands, also disclosed that it was ’struggling…to stay within budget’.

Las Vegas Sands president William Weidner reckoned in August that the project could cost up to US$1.4 billion (S$2.03 billion) more than expected as a result of higher construction costs, as well as refinements to the design.

The executive director of the Singapore Contractors Association Limited, Mr Simon Lee, noted that contractors were dealing with close-to-full order books and were therefore being ‘very selective’ about the projects they were taking on.

Projects are thus attracting fewer tenderers, he added – not good news for Resorts World, which will award about $1 billion in jobs by early next year.

But Mr Tan still expects the resort to be ready for a soft opening in early 2010.

Construction is on track, with more than half the excavation, piling and reclamation works already done.

Asked about the new attractions being planned, Mr Tan said that two new rides would be put into the Universal Studios theme park, including a new roller coaster.

He added that four new multimedia shows would also be added, some designed by Jeremy Railton, who was behind the 2002 Winter Olympic Games ceremonies in Salt Lake City in the United States.

Money was being put into these and design improvements, he said, in anticipation of a ‘bullish tourism outlook for Singapore and Asia in the next few years’.

Despite the higher budget, project returns to the resort are unlikely to be hit, the company said in its third-quarter results released yesterday.

It reported a loss of $393.4 million for the three months that ended on Sept 30, a reversal from the net profit of $86.9 million from a year earlier.

 

Source: The Straits Times 7 Nov 07

Inflation risks remain high: Citigroup

CPI may not be capturing full extent of inflation pressures: report

OVERHEATING and inflation risks in Singapore remain high and further monetary tightening may be on the cards, says Citigroup.

While recent government remarks suggest that the economy is not overheating, the US bank – in a Singapore Market Weekly report published yesterday – is less sanguine. Indeed, it is ‘concerned that inflation pressures are accelerating and that the CPI (consumer price index) statistic may not be capturing the full extent of inflation pressures’.

At 0.4 per cent in September, the rise in the CPI’s housing component lags actual steep increases in property prices and rents, Citigroup economist Chua Hak Bin points out. ‘These housing costs will show up more visibly next year and could potentially lift CPI inflation sharply to 4 per cent or above in the first half of the year.’

There are also considerable upside risks from escalating energy, food and wage costs in an economy now at full employment.

Other economists have also pointed to rising price pressures and overheating concerns amid robust growth. But the government maintains that the recent spike in inflation to near-3 per cent is due primarily to July’s two-point Goods and Services Tax (GST) hike, and that the CPI rise is likely to ease to perhaps 2-2.5 per cent in the second half of 2008.

The Citigroup report concedes that slower global growth next year is likely to cool demand and ease inflation pressures. But for now, the biggest challenge facing the government is overcoming supply bottlenecks and containing overheating pressures, it says. And ‘more tightening measures may be in the pipeline’ as new data show up the price pressures. ‘Some prioritisation and deferment of investment projects may also be necessary to manage demand pressures.’

Citigroup reckons that there is a good chance of ‘another move’ by the Monetary Authority of Singapore (MAS) next April, as its recent ’slightly’ steeper Singdollar appreciation bias ‘may be too gentle a move’.

Dr Chua says: ‘Prospects of a stronger Singdollar appreciation are therefore likely next year.’

Citigroup also does not expect the Q3 9.4 per cent gross domestic product (GDP) flash growth estimate to be downgraded despite weaker-than-expected September manufacturing data. Stronger services and construction growth will probably provide some offset, it believes.

And despite concerns about the global economy, Singapore will most likely outperform the early official forecasts of 4-6 per cent growth in 2008 – as it has every year for the past four years.

 

Source: Business Times 6 Nov 07

Market hit by property, bank fears

ST Index suffers 1.2 per cent fall, due also to sharp plunge in Hang Seng Index

SINGAPORE stocks started the week yesterday on a sour note due to renewed fears in the property and financial sectors, and a sharp plunge in Hong Kong’s main share index.

The Straits Times Index (STI) ended 45.14 points or 1.2 per cent lower at 3,670.18. Earlier in the day, it fell as much as 2.2 per cent below Friday’s close. Around the region, most major share indices also ended lower.

Hong Kong’s Hang Seng Index plunged 5 per cent – the largest one-day fall in percentage terms since Sept 12, 2001, the day after the terrorist attacks in the US.

Investors in the Hong Kong market were reacting to Chinese Premier Wen Jiabao’s remarks over the weekend, dampening hopes that a plan announced in August to allow mainland Chinese to buy Hong Kong stocks would be approved by Beijing in the near future.

The effects were felt in Singapore, as Hong Kong-based companies in the STI made up three of the top six laggards dragging the index lower at yesterday’s close.

Property developer Hongkong Land fell 4.9 per cent to US$4.64, while conglomerates Jardine Matheson and Jardine Strategic fell 4.3 per cent and 4.2 per cent to US$29.20 and US$15.80 respectively.

Singapore-based developers were also hit yesterday, as worries persisted over the impact of the government’s withdrawal of the deferred payment scheme for property purchases on Oct 26 to discourage speculative buying.

Among the large developers, CapitaLand fell 20 cents or 2.5 per cent to $7.70, while City Developments finished 20 cents or 1.3 per cent lower at $14.90.

Wing Tai, another developer, saw its share price slide 5.8 per cent to $2.94. It was the largest percentage loser among the blue chips yesterday.

In the banking sector, United Overseas Bank (UOB) led the losses in the STI, falling 50 cents or 2.4 per cent to $20.30 and dragging the index down 8.9 points. UOB’s share price has fallen $1.70 or 7.7 per cent since the close of Monday last week, the day before the bank reported its third-quarter earnings.

Its rivals DBS Group and OCBC Bank also saw their share prices dip in intraday trading, as some analysts said they expected to see more dents in the banks’ earnings due to further write-downs in the value of their collateralised debt obligation or CDO holdings.

Last week saw a slew of bad news from several major international banks which said they had suffered much bigger losses from the recent credit market turmoil than earlier estimates had suggested. The revelations led to Citigroup chief executive Chuck Prince quitting on Sunday – the latest high-profile casualty of the problems that started in the US sub-prime mortgage market.

Here, DBS’s share price closed 20 cents or 0.9 per cent lower at $21.40, while OCBC’s share price ended unchanged.

Of the STI’s 47 members, 28 fell and nine rose. Technology stocks were among the large gainers. Creative Technology saw the largest percentage gain among the blue chips, ending 5.6 per cent higher at $6.60, while electronics contract manufacturer Venture Corp rose 2.3 per cent to $13.50.

In the broader market, stocks mostly ended lower, with all but one of the SGX market sub-indices registering losses including the UOB Sesdaq index, which fell 7.66 points or 3.3 per cent to 225.58. Only the electronics sector showed a slight gain.

Overall, falling counters outnumbered rising ones by 445-86, excluding warrants and bonds. Trading volume, including warrants and bonds but excluding shares traded in foreign currencies, was 2.24 billion units worth $2.4 billion.

 

Source: Business Times 6 Nov 07

Markets shudder as Citigroup’s profit engine stalls, writedowns rise

CEO steps down; bank’s sub-prime hit may reach US$11b

(NEW YORK) Citigroup Inc, the profit engine built by Sanford ‘Sandy’ Weill, has seized up.

The biggest US bank by assets said yesterday that sub-prime mortgages and related securities lost as much as US $11 billion of their value in the past month, a decline that may wipe out half of the company’s profit so far this year.

The New York-based company also said in a statement that Charles Prince, Mr Weill’s hand-picked successor, has stepped down. Former Treasury Secretary Robert Rubin will become chairman and Citigroup’s most senior executive in Europe, Win Bischoff, will be interim CEO.

Citigroup’s woes left international banks and stock markets reeling yesterday, feeding fears that more banks will have to confess to major losses. British banks Barclays and Royal Bank of Scotland saw their stock shed about 3.0 per cent in value. In Tokyo, Mitsubishi UFJ Financial, Sumitomo Financial and Mizuho Financial fell by a similar amount.

The Morgan Stanley Capital International Asia Pacific Index lost 1.9 per cent to 165.43 as of 5:33 pm in Tokyo, having on Nov 2 slipped 2.2 per cent from a record close. Financial shares were the biggest drag among the benchmark’s 10 industry groups yesterday.

Japan’s Nikkei 225 Stock Average slid 1.5 per cent to 16,268.92 while Hong Kong’s Hang Seng Index slumped 5 per cent. Most South-east Asian stock markets also extended losses on credit fears. The Straits Times Index fell 45.14 points to close at 3,670.18.

Citigroup said that credit-market upheaval in October impaired by as much as a fifth its US$55 billion book of subprime mortgages and related bonds. The writedown costs, which will be recorded in the fourth quarter if markets do not recover, add to the almost US$7 billion of costs for bad debt, bond and loan losses recorded in the third quarter.

The fourth-quarter charges may leave the company with a loss of 26 cents a share, Punk Ziegel & Co analyst Dick Bove wrote in a Nov 5 report. It would be Citigroup’s first quarterly loss since at least 1998.

Before the announcement, the company was expected to report US$5.32 billion of profit in the fourth quarter, the average estimate of six analysts surveyed by Bloomberg.

‘Significant uncertainty continues to prevail in financial markets,’ Citigroup said in the statement. The company said that its capital ratios ‘will return within the range of targeted levels by the end of the second quarter of 2008′, allowing it to maintain the current dividend, the company said.

Citigroup is participating in a US$80 billion fund being set up by banks to draw investors back into the market for short-term debt. The fund, also backed by Bank of America and JPMorgan, was announced last month with the encouragement of Treasury Secretary and former Goldman Sachs CEO Henry Paulson.

The performance of remaining sub-prime investments, which totalled US$55 billion as of Sept 30, is partly dependent on ‘the underlying performance of the economy’, chief financial officer Gary Crittenden said in an interview.

Analysts at CIBC World Markets and Morgan Stanley told clients last week to get rid of Citigroup shares. CIBC’s Meredith Whitney said that Citigroup may have to sell assets because it needs to raise US$30 billion of capital.

The combination of US$25 billion of acquisitions in the past 19 months and the lowest cushion for losses ‘in decades’ increases the risk of owning the stock, she said.

Mr Prince, 57, is the third banking chief ousted amid a credit contraction that has saddled the world’s biggest lenders and securities firms with more than US$40 billion of writedowns during the past four months. The worst housing slump in 16 years has led to record US foreclosures and losses in the market for home loans to borrowers with poor credit histories or heavy debts.

Merrill Lynch & Co, the world’s biggest brokerage, ousted Stan O’Neal last week, after the New York-based firm disclosed US$8.4 billion of writedowns. UBS AG, the largest Swiss bank, fired CEO Peter Wuffli in July.

While the writedowns at Citigroup finally brought Mr Prince down, he had been under pressure for years because Citigroup’s performance under his leadership did not match what investors came to expect from Mr Weill, who demanded 15 per cent annual profit increases during his 17 years as CEO of Citigroup, Travelers Group and their predecessors. Powered by a series of blockbuster deals, climaxing with Travelers’ US$36 billion acquisition of Citicorp in 1998, Mr Weill delivered a 160 per cent stock gain during his last five years as CEO.

Mr Prince spent most of his career as Mr Weill’s top lawyer, advising on acquisitions. It was he who untangled Citigroup and Mr Weill from the federal and state probes of analysts who had allegedly talked up stocks to win underwriting business.

Mr Prince’s own stint has been hobbled by the sub-prime crisis. This year, he vowed to eliminate or reassign more than 26,500 jobs. Citigroup’s quarterly profit meanwhile has sunk to its lowest level in three years and the stock has plunged 32 per cent in 2007, twice as much as Bank of America and JPMorgan Chase.

‘I don’t think that all of a sudden, because of the credit crisis, the Citigroup model is broken,’ said Tim Ghriskey, cofounder of Solaris Asset Management in New York. ‘This isn’t a broken machine at all. It just needs some leadership that really understands the business.’

 

Bloomberg, Reuters, AFP (Business Times 6 Nov 07)

Inflation may hit record 4% next year

Citigroup forecast based on further tightening of labour and property sectors

INFLATION may hit a record- breaking 4 per cent in the first half of next year as a red-hot economy adds more strain on the already-tight labour and property markets.

The warning from Citigroup economist Chua Hak Bin also came with a call for the Government to allow the Singdollar to appreciate faster while possibly deferring less urgent major investment projects like the Marina Bay botanic gardens.

‘We maintain that overheating and inflation risks remain high,’ said Dr Chua in a research report out yesterday.

‘The economy is now at full employment, and the cost of hiring foreign workers has now increased considerably given higher accommodation cost.’

Despite greater uncertainty about the global economy, he said Singapore is likely to beat next year’s official growth forecast of 4 per cent to 6 per cent, as it has done so in previous years.

His assessment found backing among other economists while others felt a slowing world economy will keep prices in Singapore in check.

HSBC economist Robert Prior-Wandesforde agreed that the Monetary Authority of Singapore (MAS) may allow a faster strengthening of the Singdollar to curb inflation from imported goods at the next monetary policy review in April.

The tightening carried out last month is unlikely to have a dramatic effect on inflation, said Mr Prior- Wandesforde.

But Action Economics economist David Cohen brushed off overheating concerns, predicting that inflation in the first half of next year should come in at just over 3 per cent.

‘The bigger concern is a potential slowing in the world economy, so it’s a balanced outlook right now,’ he said.

Dr Chua’s report comes a month after Prime Minister Lee Hsien Loong said while there are shortages in office space, the economy, as a whole, is not overheating and inflation is well under control.

The MAS has attributed the rise in inflation largely to a July hike in the goods and services tax rate. It is expecting prices to increase by 3.5 per cent on average in the first half of next year, before moderating in the rest of the year.

‘We are probably less sanguine,’ said Dr Chua.

He said global energy and food prices are rising sharply, driven by record oil prices and adverse weather conditions in farming areas. But bigger challenges lie in the domestic property and labour markets.

Dr Chua said the consumer price index (CPI) is lagging behind the steep increases in property prices and rents.

Housing CPI costs rose 0.4 per cent in September. But official indexes show that residential rents surged 11.4 per cent in the third quarter, while those for commercial space jumped 14.8 per cent.

The labour market is also at its tightest in a decade, with unemployment at 1.7 per cent.

Unlike previous years when the Government could simply let more foreigners in to work, skyrocketing rents mean their wages have to be hiked to cover their housing costs.

Labour costs are thus likely to continue rising after surging 8.5 per cent in the second quarter, said Dr Chua.

 

Source: The Straits Times 6 Nov 07

INSIDE MARKETS – More sales deals than buys for the first time in 19 weeks

Bearish sentiment prevails with 17 firms recording 73 disposals last week

BUYING activity plunged while sales by directors and substantial shareholders remained constant last week based on filings to the Singapore Exchange from Oct 29 to Nov 2. The sentiment was bearish as sellers recorded more trades than buyers for the first time in the past 19 weeks, with 17 firms recording 73 disposals versus 29 companies with 71 acquisitions last week.

The sales figures were consistent with the previous week’s 21 companies and 75 disposals while the buy figures were sharply down from the previous week’s 42 firms and 122 purchases. There were also more sellers than buyers among institutional shareholders, with 10 fund managers posting 36 disposals against nine asset managers with 37 purchases last week.

The steep fall in the buying coupled with sellers posting more trades than buyers coincided with the 1.5 per cent drop in benchmark Straits Times Index last week to 3,715.32 points.

There were several significant sales by directors and substantial shareholders last week. Four stocks investors must watch out for are Asia Dekor Holdings, Banyan Tree Holdings, Hengxin Technology and Keppel Land. On the buying side, a top board member provided price support in underperforming stock OSIM International. The trade was significant as it was his first trade since his appointment in 2005.

Asia Dekor

Value Partners Limited (VPL) recorded its first sales in mainland laminated floor producer and distributor Asia Dekor since it became a substantial shareholder (for the second time) in June. The group sold 1.8 million shares on Oct 16 at an estimated price of 22 cents each and a further 8.9 million shares on Oct 29 at an estimated price of 19 cents each. The sales reduced its deemed holdings by 16 per cent to 55.5 million shares or 5.9 per cent of the issued capital.

VPL previously acquired 21.8 million shares from June 4 to Aug 8 at estimated prices of 17 cents to 22 cents each.

VPL reported an initial filing on June 4 of 500,000 shares at 17 cents each, which raised its interest to 5 per cent.

That initial filing was made after the share price rose by 31 per cent from 13 cents in April.

Prior to that purchase, the fund manager ceased to be a substantial shareholder on Jan 15 following the sale of 9.3 million shares at an estimated price of 15.5 cents each, which lowered its stake to 4.9 per cent. The counter closed at 18 cents on Friday.

Banyan Tree

The Capital Group Companies unloaded more shares of premium resorts, hotels and spas manager and developer Banyan Tree Holdings at lower than its previous sale prices.

The group sold 6.1 million shares from July 27 to Oct 30, which reduced its deemed holdings by 7 per cent to 76.1 million shares or 10 per cent. The stock during that period traded in the range of $2.49 to $1.69 each.

The group previously sold 25 million shares from May 29 to July 26 at estimated prices of $2.87 to $2.41 each.

Overall, Capital has sold more than 31 million shares since the last week of May, a reduction in its holdings of 29 per cent.

Prior to the disposals, the group acquired a net 30.5 million shares in the open market from June 22, 2006, to Feb 9 this year at estimated prices of $0.83 to $1.70 each.

The sales by Capital since May reduced its stake to its former level during the IPO. Capital acquired an initial 76.7 million shares or 10.2 per cent in the IPO in June last year at 82.8 cents each.

Banyan Tree announced its Q2 results on Aug 14 with a net profit of $3.2 million for the three months to June 30 versus a loss of $2.7 million in the same quarter last year. The stock closed at $2.10 on Friday.

Hengxin Technology

Sales by Siskin Investments in communications and technological products manufacturer and seller Hengxin Technology since the third week of May totalling 55 million shares reduced its direct holdings by 80 per cent to 13.7 million shares or 4.1 per cent.

The disposals were made from May 22 to Oct 24 at progressively lower prices from 42 cents to 26 cents each. The trades were hefty as they accounted for 32 per cent of the stock’s trading volume.

The bulk of those sales were made last week with 30 million shares sold from Oct 22 to 24 at an estimated average price of 28 cents each, which reduced its stake by 69 per cent.

Hengxin Technology announced its Q2 results in August with profit after tax down by 5.4 per cent to 27.38 million renminbi for the three months to June 30. Earnings in the first half fell by 10.6 per cent to 39.07 million renminbi.

The counter closed at 29 cents on Friday.

Keppel Land

Managing director Kevin Wong King Cheung recorded a rare sale in property developer Keppel Land with 150,000 shares sold on Nov 1 at $8.45 each. The trade reduced his direct holdings by 12 per cent to 1.09 million shares.

The disposal was made on the back of the 10 per cent rebound in the share price since September from $7.70. The sale was significant as that was Mr Wong’s first on-market trade since October 1994 when he sold his entire holdings of 20,000 shares at $2.49 each. (He was executive director prior to 2000.)

The sale this month was made at a huge profit based on the 983,000 shares that he acquired via exercise of options from January to April 2006 at an average of $1.67 each. Although the recent disposal by Mr Wong may have been made for personal reasons, the timing of the trade with the bourse trading at historical highs is a negative signal for the broader market. The shares of Keppel Land closed at $8.30 on Friday.

OSIM International

CFO Peter Lee Hwai Kiat recorded his first buy in healthy lifestyle products distributor and franchiser OSIM International since his appointment to the board in 2005 with 208,000 shares purchased on Oct 31 at 59 cents each.

The trade increased his direct holdings by 289 per cent to 280,000 shares.

The rare acquisition was made on the back of the 71 per cent decline in the share price since October 2006 from $2.06.

The purchase was also made after the group announced its Q3 results on Oct 24. OSIM posted a loss of $6.71 million for the three months to Sept 30 versus a loss of $9.42 million in the same period last year. For the first nine months, the group posted a loss of $26.91 million versus a profit of $5.38 million in the same period last year.

Founder, chairman and CEO Ron Sim bought shares prior to the results with two million shares purchased from May 8 to Sept 20 at 74 cents to 59 cents each, which increased his stake (direct and deemed) to 285.6 million shares or 52.7 per cent. He previously acquired 700,000 shares in November 2006 at $1.65 each. The counter closed at 64 cents on Friday.

The writer is managing director, Asia Insider Limited

 

Source: Business Times 5 Nov 07

Sub-prime woes won’t deter S’pore: SM

Financial sector devt will continue here; Asia must press on

(SINGAPORE) Singapore is not going to be deterred by the US sub-prime mortgage meltdown and will press on with developing its financial sector, Senior Minister Goh Chok Tong said yesterday.

Asia was relatively untouched by the sub-prime crisis because it has yet to move into sophisticated structured credit financing in a big way, said Mr Goh, who is also chairman of the Monetary Authority of Singapore (MAS).

‘However, I believe that Asia should press on with its efforts to develop its capital markets in order to complement the banking system and improve the robustness and efficiency of its financial system.’

Speaking at British banking group Barclays’ Asia Forum here, he said Singapore will not relent in its efforts to develop its financial sector.

The island is already a key centre for asset management and trading of financial products like foreign exchange and derivatives, he said. And it is making good progress as a regional centre for innovative equity products, business trusts, exchange-traded funds and project finance.

‘We envision Singapore as a centre of excellence for financial training, education and research,’ Mr Goh said.

‘Hence we are deepening specialists’ capabilities in fields such as risk management, financial engineering and actuarial science.’

But market players and regulators must refine their understanding of risk as more sophisticated products are introduced. They should be familiar especially with how shocks can be transmitted through these products, he said.

‘We must then develop tools to manage such risks. Much of the recent financial dislocation stemmed from opacity in the distribution and pricing of risks for derivative products.

‘The key lessons include the need to monitor off-balance-sheet exposure and institute better management and supervision of liquidity risks.’

SM Goh acknowledged that these are tough issues to tackle because they have to be dealt with without imposing excessive regulatory burdens on market players or stifling financial innovation.

The sub-prime crisis has brought home the reality of growing inter-dependence, he said. Central banks, financial regulators and guardians of the public purse must work in close coordination. ‘They must also work with key counterparts in other jurisdictions.’

Another key issue that requires special attention is the setting up of crisis management and resolution frameworks to lessen systemic fallout when financial institutions run into trouble, Mr Goh said.

 

Source: Business Times 2 Nov 07

US rate cuts won’t defuse sub-prime mess: ‘Mr Yen’

Asia, though not much affected so far, must be vigilant

(SINGAPORE) Interest rate cuts by the US Federal Reserve – which have amounted to 75 basis points since Sept 18 – are unlikely to defuse the US sub-prime mortgage crisis, according to the influential economist Eisuke Sakakibara.

Mr Sakakibara, formerly Japan’s vice-minister for finance and international affairs and now a professor at Tokyo’s Waseda University, also warned that global financial markets are likely to face further bouts of volatility. What we have seen thus far ‘is only the tip of the iceberg’, he said, adding that the problem will probably linger for 6-18 months.

Speaking at a lunchtime forum organised by newly listed Uni-Asia Finance Corporation, Mr Sakakibara pointed out that interest rate cuts by the Fed were likely to be ineffective in addressing the problems emanating from the US sub-prime mortgage sector because the cost of funding is not the key issue; rather it is the uncertainty surrounding the valuations of sub-prime assets and other structured products held by many financial institutions.

He indicated, however, that the ’superfund’ proposed by some major American banks (including Citigroup, Bank of America and JPMorgan) to buy sub-prime assets could be helpful, as might a move to provide government financial support to distressed borrowers, which is being discussed in the US Congress. But such initiatives would take time to work.

Mr Sakakibara, who was Japan’s vice-minister for finance during the Asian crisis of 1997/98, cautioned that although Asia has been relatively unaffected by the US sub-prime woes thus far, it needs to be vigilant. He recalled that during the Asian crisis, US policymakers thought that the American economy would be relatively insulated – until they were shocked by the Russian bond default of 1998 and the ensuing collapse of a large hedge fund.

The world economy is highly integrated now, he said, and it is highly possible that the US – still its primary engine – will slow down sharply or even go into recession. In such an event, Asia cannot be unaffected.

While Asian economies are doing well and will account for an increasing share of the global economy, right now, Asian asset markets are ’somewhat bubbly’, Mr Sakakibara said. ‘The situation in Asia seems too good, and usually a ‘too good’ situation doesn’t last.’

When it does turn, the decline could happen ‘very abruptly’.

Of all the Asian markets, China is ‘the biggest bubble’, Mr Sakakibara added, with both investment and GDP growth expanding at breakneck speed.

Chinese policymakers know they have to tighten monetary policies sooner or later, and a major adjustment in China’s asset markets is inevitable, perhaps in 2008, after the Olympics. If China’s economy slows down in tandem with the US, that would exacerbate the problems for the global economy, Mr Sakakibara warned.

The economist – who was known as ‘Mr Yen’ when he was a policymaker because his statements were viewed as affecting currency markets – said that as long as the Bank of Japan is unable to raise interest rates, the Japanese yen will remain undervalued. The bank actually did want to raise rates in September, he added, but refrained from doing so on account of the US sub-prime mortgage problem.

With near-zero interest rates at home, Japanese investors are continuing to seek higher-yielding investments overseas, and while this trend persists the yen will probably continue to trade within the range of 110-115 to the US dollar, he said. But if, owing to some trigger such as a dramatic US slowdown, the outflows from Japan dry up or reverse, the yen would rebound sharply from its ‘really cheap’ current level, he said.

 

Source: Business Times 2 Nov 07

Credit crisis has lessons for Asia: SM Goh

Region can learn about risk and crisis management from recent US sub-prime turmoil

ASIA has escaped relatively unscathed from the recent global credit crisis, as it has not yet developed newfangled complex financial instruments, said Senior Minister Goh Chok Tong yesterday.

But Asia can glean some lessons about risk and crisis management from the recent credit market turmoil, he said.

He was giving the keynote address at the one-day inaugural Barclays Asia Forum at the Shangri-La Hotel yesterday, attended by almost 400 Barclays clients from institutions and corporations across the region.

‘The current sub-prime crisis shows that we cannot afford to be less than vigilant in the financial industry.

There are some lessons we can learn here,’ said Mr Goh.

Asia was relatively shielded from so-called sub-prime crisis, which involves United States housing loans with relatively high risks of default – which were rolled into complex financial instruments.

The main reason for this is that Asia has yet to move into sophisticated structured credit financing in a big way, said Mr Goh.

But rather than shy away from such instruments, Asia should ‘press on with its efforts to develop the capital markets’ and create robust and efficient systems, he said.

Asia will inevitably see more sophisticated products coming to the fore, he said.

‘So market players and regulators alike must refine their understanding of the attendant risks,’ he said.

They need to understand how shocks can be transmitted through these products and develop tools to deal with these risks.

The central bank, the financial regulator and the guardian of the public purse must also work closely together to set up frameworks that minimise damage to the system in case financial institutions run into trouble.

Mr Goh said Asia’s growth is unlikely to be derailed by ‘potential wild cards in the region’ such as North Korea’s nuclear programme, tense cross-strait relations between Taiwan and mainland China, and instability in Myanmar.

Indeed, Asia’s share of the world’s economy has been rising steadily, increasing from 19 per cent in 1980 to 36 per cent today, and is expected to reach 45 per cent by 2010.

But Asia faces key challenges to its growth, such as global financial imbalances arising from large capital inflows to Asia, noted Mr Goh. This has created inflationary pressures and asset bubbles in the stock and housing markets.

He also noted that Asean countries will get a competitive boost when Asean evolves into a single market and production base with free flow of goods, services, investment and skilled labour by 2015.

‘Challenges remain but I see none which are insurmountable,’ concluded Mr Goh.

 

Source: The Straits Times 2 Nov 07

Singapore is Asia’s most competitive economy

WEF report ranks it No 7 globally, overtaking Japan; another seven Asia-Pacific countries among top 30

(SINGAPORE) Singapore has overtaken Japan to become the most competitive economy in Asia, according to a World Economic Forum (WEF) report.

The Global Competitiveness Report (GCR) 2007-2008, which was released yesterday, ranks Singapore at No 7 in the world – an improvement from its eighth spot last year. In contrast, Japan slid from its fifth place last year and is now ranked No 8 in the list of competitive economies. Overall, the United States emerged first, followed by Switzerland and Denmark.

In all, there are another seven Asia-Pacific countries – including South Korea, Hong Kong and Malaysia – that found their way into the top 30. China and India continue to lead the way among large developing economies, WEF said. Several countries in the Middle East and North Africa region are in the upper half of the rankings, led by Israel, Kuwait, Qatar, Tunisia, Saudi Arabia and the United Arab Emirates. In sub-Saharan Africa, only South Africa and Mauritius feature in the top half of the rankings, with several countries at the bottom. In Latin America, Chile is the highest ranked country, followed by Mexico and Costa Rica.

‘The Asia region encompasses the entire gamut in our ranking, from highly competitive countries to the most challenged, drawing an extremely heterogeneous picture with respect to the levels of growth and development achieved in the region,’ said Fiona Paua, head of Strategic Insight Teams at the WEF.

For example, nine Asia-Pacific countries are among the top 30, ‘while Mongolia, Bangladesh, Cambodia, Nepal and Timor-Leste are all positioned at the very bottom of the rankings’, she added.

The rankings are calculated from both publicly available data and the Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum together with its network of partner institutes, including research institutes and business organisations in the countries covered. This year, over 11,000 business leaders were polled in a record 131 countries.

The survey is designed to capture a broad range of factors affecting an economy’s business climate.

The study also includes comprehensive listings of the main strengths and weaknesses of countries, making it possible to identify key priorities for policy reform. ‘Economic policy, especially at the microeconomic level, needs to set priorities that reflect the most important constraints to competitiveness in each country,’ said Michael Porter, professor at Harvard Business School and co-director of the report.

‘The GCR enables countries to move beyond abstract theoretical policy debates and identify the specific tasks ahead of them. In an uncertain global financial environment, it is more important than ever for countries to put into place the fundamentals underpinning economic growth and development.’

 

Source: Business Times 1 Nov 07

Banks lend big for property and share investments

Share financing grows a thumping 74.8% over the year

(SINGAPORE) Bank loans to the property sector in September grew at the fastest annual pace in nearly eight years, according to new data released yesterday.

Meanwhile, lending by banks to individuals to buy shares rebounded to its highest level since end-July, when the recent financial market turmoil started, the latest estimates from the Monetary Authority of Singapore (MAS) show.

‘All these reflect the robust growth of the domestic economy,’ said CIMB economist Song Seng Wun.

Loans to the broad property sector, which comprises consumer home loans and business loans to the building and construction industry, reached $102.4 billion at end-September – up 15.1 per cent from a year ago.

The year-on-year expansion was the largest since October 1999, when property-related lending grew by 19.5 per cent, said Mr Song.

Over the month of September, property-related loans grew 2.4 per cent from end-August, the fastest monthly pace since May last year. The property-related loans make up nearly half of all outstanding bank loans.

The MAS data also shows that share financing grew 74.8 per cent over the year to $1.26 billion at end-September – the highest since end-July, when it hit $1.42 billion.

The year-on-year growth in share financing is by far the fastest among all consumer loan segments, although it is still the smallest segment, accounting for just 1.2 per cent of total consumer loans.

Over the month, share financing grew 7.1 per cent, reversing a 17.2 per cent fall in August, when financial markets worldwide were rocked by the collapse of several hedge funds and widespread uncertainty stemming from problems in the US mortgage market.

‘After the jitters of August, the market sort of bounced back,’ said Mr Song. Since then, ‘both property lending and share financing have been growing very rapidly’.

Total customer deposits grew 22 per cent over the year to $308.7 billion at end-September, while total loans grew just 12.8 per cent to $218.7 billion.

But while deposit growth continued to outpace loans growth on a year-on-year basis, monthly growth in loans has exceeded that of deposits since June.

Overall, loans to businesses grew at a faster pace than consumer loans, both on a monthly basis and when compared to a year ago.

Loans to businesses grew 15.1 per cent over the year and 2.7 per cent over the month to $117 billion – just over half of total bank loans at end-September.

Among the business sectors, loans to the transport, storage and communications industry showed the fastest year-on-year growth at 36.6 per cent, followed by loans to the building and construction industry, which grew 21.2 per cent.

Meanwhile, consumer loans expanded 10.1 per cent over the year and 1.8 per cent over the month to $101.7 billion. Next to share financing, credit card debt grew the fastest among consumer loans over the year, rising 13 per cent to $4.3 billion.

 

Source: Business Times 1 Nov 07

COMMENTARY – Even the experts can get it so badly wrong

History is replete with heavy trading losses that were all too easily incurred

WITHIN less than a fortnight, two Singapore shipbuilders have announced massive currency trading losses. How and why these losses were incurred will surface only after investigations have been conducted.

However, history is replete with financial case studies of how heavy trading losses can be all too easily be incurred by individuals or corporations. In early 1995, we discovered that Barings trader Nick Leeson had blown a US$1.4 billion hole trading in financial futures on Simex here in Singapore. Three years later, in 1998, veteran traders and Nobel prize winners at the US-based Long Term Capital Management (LTCM) suffered losses of more than US$3 billion in the short space of nine months because of heavily leveraged trades. In 2004, China Aviation Oil blew more than half a billion US dollars on oil derivatives trading.

And just this week, we have discovered that even blue-chip investment banking giants like Merrill Lynch and UBS are continuing to report multi-billion dollar losses from complex mortgage-related debt portfolios that have become nigh impossible to unravel.

How do such trading losses – and we stress we are not talking about SembMarine and Labroy here – pile up? Here are some clues to consider.

Leverage is a two-edged sword. Making bets based on only a fraction of the underlying sums transacted is attractive because profits are correspondingly magnified – but then so are the losses. In the case of blue-chip US hedge fund LTCM, their convergence trades were basically bets that too-large price differentials between different types of bonds should become smaller over time – something which they backed with state-of-the-art trading models which studied historical price movements.

Between 1994 and 1998, LTCM reportedly leveraged US$5 billion in client capital into US$125 billion worth of borrowings, and outstanding swap positions worth more than US$1 trillion in nominal value.

Murphy’s Law. ‘Anything that can go wrong, will – at the worst possible moment.’ In the case of LTCM, the fallout from the Russian debt default of August 1998 shrank their capital from more than US$4 billion at the start of 1998 to just US$600 million by September that same year.

Nick Leeson had to throw in the towel when already bad losses on his large Nikkei futures contracts skyrocketed following a massive earthquake in Japan in January 1995 and forced the Japanese stock market into free-fall.

This time around, one fear which refuses to go away out there is that the sub-prime debt crisis could spiral further out of control – forcing another panicky flight to quality.

Double or nothing usually means you end up with nothing. Every veteran trader knows that he must squeeze the most money out of his good bets but keep loss limits tight on those that go awry.

But human nature often finds people cashing in too quickly on the good stuff but massaging losses for far too long – in the hope that they will come right someday, somehow. In the case of Barings and China Aviation, history tells us that record-sized positions – and therefore record losses – were accumulated because of a desperate effort to average down the cost of what was to become awfully wrong (and highly leveraged) bets about the direction of the Nikkei and oil prices respectively.

Here’s a simple example. Let’s say that about one year ago, your banker persuaded you to buy US$100,000 at S $1.60 because it could enhance the yield on your fixed deposit by at least 2 per cent. Then, as the US dollar fell, he encouraged you to buy more to average down your cost. Let’s say that you bought another US$100,000 at S$1.55 and again at S$1.50.

By July 2007, you own US$300,000 at an average of S$1.55. In August this year, the US dollar rebounded to S $1.54. Had you sold out then, you would have reduced your total currency loss to S$3,000 – which is more than offset by the extra US$6,000 in interest earnings from your US$300,000 deposit.

If however, you had chosen to hold on until now – hoping for an even stronger US dollar rebound – the currency losses would have swelled to S$30,000 as the US dollar has now fallen to S$1.45.

Admission is free, you pay to get out. As banks from Goldman Sachs to UBS have found out to their detriment, it is all too easy to find rocket scientists who will happily structure complicated financial products – whether based on derivatives or housing loans – which offer superior yields. And the longer the tenure, the more you stand to make.

But here’s the problem. When you discover, as they have, that nobody is willing to fund those fancy CDO (collateralised debt obligation) structures, or buy them back from you when you need to sell them, then you are also stuck with losses for a nerve-wrackingly long time. Worse, the structure can be so complicated that you are not even sure how much they are worth at a given point in time, or how to unravel them without paying a hefty penalty.

Illiquid can too quickly become insolvent. Buying an asset at tempting yields is all too easy. But any corporate treasurer worth his salt will also want to find out how easily he can dispose of the asset. LTCM could not find any buyers for their less than desirable bonds when Russia’s declared moratorium on US$13.5 billion of its Treasury issues caused a nervous flight to quality in fixed income markets.

The other important lesson from LTCM to take home here is that historical evidence must be taken with a pinch of salt. There’s always a first time for everything, even a default of ’safe’ government bonds.

It is not known whether some of these problems, so painfully experienced elsewhere, also touched SembCorp Marine and Labroy Marine. But these firms’ shareholders will want to know how they could have allowed themselves to get so deeply embroiled in foreign exchange speculation when their core business is the building of oil rigs.

Sovereign funds pose little risk to the world

UK Chancellor Alistair Darling doesn’t like them.

Italian Prime Minister Romano Prodi and European Union Trade Commissioner Peter Mandelson don’t either.

Sovereign wealth funds, the huge pools of capital built up by a small group of mainly oil-rich nations to invest their assets around the world, are becoming very unpopular. As the funds grow in power and wealth, the clamour for more regulation of their investments will only get louder.

It’s all nonsense. The funds don’t pose a threat to anyone. There is no coherent case to be made against them. And any cure is likely to be worse than the problem it is trying to fix.

That won’t stop the politicians from trying. Mr Darling said in October the UK government would protect strategic industries from takeovers by foreign state-controlled investment funds, such as those run by Kuwait, Saudi Arabia and China. ‘Sovereign wealth funds or companies owned by governments need to play by the rules,’ he said.

Juergen Stark, a board member of the European Central Bank, has called for a code of conduct for the funds. And in July, Mr Mandelson said the EU may need to take a golden share in strategic industries to prevent companies falling into the hands of the funds, according to the Italian newspaper Il Sole 24 Ore.

In fairness, you can see why there is a debate. Sovereign wealth funds, which invest currency reserves in foreign assets, control an estimated US$2.5 trillion, more than all the world’s hedge funds combined. With high commodity prices translating into surging reserves in emerging economies, their stockpiles of cash will only get bigger. Russia said this month it may get in on the act by investing some of the US$141.1 billion in its Stabilisation Fund in major foreign companies. If Putin Inc starts buying German airports or French motorways, watch the sparks fly.

‘There has been much political angst about SWFs,’ Morgan Stanley economist Stephen Jen said in an analysis, referring to the funds. ‘It does not seem to make sense for regulatory authorities and politicians to single out SWFs.’

It is hypocritical to attack the funds. Nobody minded when emerging economies recycled all those dollars, pounds and euros by putting cash on deposit in our banks, or buying bonds issued by our governments. So why should we mind when they start buying companies? They are just diversifying their holdings, like any prudent investor would. If we don’t like them purchasing our equities, shouldn’t we tell them to stop buying our bonds and currencies as well?

In a global economy, few companies are owned domestically. Stocks are traded across frontiers. It doesn’t make much difference whether your local supermarket or service station is owned by a hedge-fund manager in Zurich, a pension fund in California or an investment firm in Dubai. What counts is whether there is enough competition to make sure it offers good service and fair prices. So long as it does, there is no problem.

Lastly, the only way to protect against the funds, as Mr Mandelson realises, would be through some kind of golden share held by the government.

Businesses would then be shielded from takeovers that their governments don’t want. But what kind of impact would that have? Management would become idle and inept as they realise they couldn’t be challenged or kicked out. The damage that would do to the performance of your economy would far outweigh any danger posed by the funds.

The funds are no more of a threat than any other investment vehicle. They aren’t making the economy more volatile. By buying whole companies, they are committing themselves to long-term investment.

They are no more secretive than many hedge or private-equity funds, or big private companies. Nor does their ownership by foreign governments override the laws applicable in the countries where they are investing. If they break UK or German laws, they will be in trouble, just like anyone else.

There may be some limits. You might not want a defence manufacturer owned by a foreign power. But there are very few of those companies. In reality, all the evidence suggests the more open your economy is, the better you do – and sovereign wealth funds are no exception to that rule.

 

Source: Bloomberg (Business Times 1 Nov 07)

Govt won’t let space crunch hinder finance hub ambitions

THE space crunch that has hit the office sector and sent rents soaring will not be allowed to derail Singapore’s aim to be a key financial centre.

The pledge came from National Development Minister Mah Bow Tan, who also pointed out that the tight supply – itself a factor of the booming economy – provides a huge opportunity for developers and investors.

‘The time is now,’ said Mr Mah yesterday. ‘There is no better time for investors to consider real estate development and investment opportunities in Singapore, given the robust outlook and comprehensive development plans we have in place.’

Mr Mah told the closed-door Macquarie Asia Forum 2007 that the supply shortage will be tackled in part by land releases that will be calibrated to allow developers to make informed decisions about their investments.

And he stressed that the Government’s aspirations for developing Singapore as a major financial centre ‘will not be constrained by space availability’.

Mr Mah’s comments – the most forthright since the property market took off two to three years ago – could be a sign that the Government believes the problem is reaching a critical point.

‘Overall, I think the Government will probably have to prioritise its investment plans, given the tight commercial and residential market and labour markets,’ said Citigroup economist Chua Hak Bin.

‘We may be reaching an inflexion point, where supply constraints and higher rents and wages are starting to bite.’

Government data shows that prime median rentals of new office leases are now at $11.89 per sq ft per month, compared with $5.05 at the end of 2004.

Rents for prime office space, which are in demand by players in the booming financial and business services sectors, have shot up on tight supply to the point where some companies are resisting the rapid increases by moving further out or to industrial locations.

But this is expected to be a short-term problem, with relief coming in 2010, when major projects such as Phase 1 of the Marina Bay Financial Centre are completed.

The Government has already taken steps to address the supply shortfall by releasing transitional office sites.

More space will be made available, but land releases will be ‘calibrated and measured’, with a view to meeting needs on a sustained basis, said Mr Mah.

There will also be a focus on developing new zones for financial and business hubs, including in Jurong and Paya Lebar, to take the heat off office space in the central business district.

Mr Chua backed the Government’s view that growing the financial centre should remain a major priority.

‘But other less important investment initiatives may need to take a back seat, to reduce the intense competition for workers, office space and construction materials,’ he added.

Mr Mah also put the rent rises in a broader perspective: ‘Despite the recent surge in demand, Singapore’s office rentals remain very competitive compared to major cities like London, Tokyo and Hong Kong.’

DTZ Debenham Tie Leung executive director Ong Choon Fah told The Straits Times that London has consistently been the most expensive city in the world in terms of office rents.

‘But it has always attracted businesses because that is where the talent and the money is,’ said Ms Ong. ‘At the end of the day, it’s not just the costs but the value proposition that Singapore can offer.’

 

Source: The Straits Times 1 Nov 07

Domestic cost factors will add to CPI

Rising wages, rents, car prices, GST hike will have an impact

(SINGAPORE) Even with rising oil and food prices, imported inflation will remain muted in 2008, according to the Monetary Authority of Singapore (MAS). But various domestic factors will impact on the consumer price index (CPI), it says.

Wage pressures, for one, will persist in a tight labour market. Nominal wage growth in 2007 and 2008 is projected at 6-7 per cent and 5-6 per cent, respectively, higher than in the last few years.

And, following five years of decline, overall unit labour costs are estimated to rise by 4.5-5.5 per cent this year and 3.5-4.5 per cent next year.

The impact of rising property rentals on the CPI will also become more apparent, says MAS in its latest Macroeconomic Review.

While the upturn in the residential property market has yet to hit accommodation costs significantly in the CPI, the pass-through from rising commercial rentals could strengthen as businesses raise prices to offset mounting costs, the central bank says.

Car prices will also be one of the key contributors to CPI in 2008, it adds, noting that certificate of entitlement (COE) quotas are expected to drop next year. With smaller quotas, COE – and overall car – prices are likely to rise.

Not least, domestic energy-related items will see price rises with higher oil prices. Apart from direct increases in, say, electricity tariffs, there are indirect pass-through effects via higher public transport fares and cooked food prices.

The latest Goods and Services Tax (GST) hike will continue to impact the CPI through the first half of 2008, and add about 0.5-0.7-point to the index in 2007 and 2008, according to MAS.

It expects CPI inflation to come in at 1.5-2 per cent in 2007 and 2-3 per cent in 2008, with possibly a 3.5 per cent average in the first half of next year.

Excluding housing and private road transport, underlying inflation will likely average 1.5-2 per cent in 2008.

 

Source: Business Times 31 Oct 07

Economy may take breather in 2008 with 4-6% growth

Oil prices and financial volatility are concerns but other drivers of growth still intact, says MAS

(SINGAPORE) After four years of robust above-trend growth, Singapore faces a rather ‘more uncertain’ outlook next year, says the Monetary Authority of Singapore (MAS), citing high oil prices and the chances of further bouts of financial volatility.

And as investors turn cautious amid lingering uncertainties over the US sub-prime crisis, Singapore’s property, wealth advisory and capital markets – the activities that saw much euphoria and froth in growth this year – will likely slow down in 2008. But other domestic sectors should still see healthy growth, and the economy, overall, revert to its medium-term trend potential of 4-6 per cent, MAS says.

This year, with the economy having grown 8.2 per cent in the first nine months after a blistering first half, Singapore’s GDP growth is on track to reach the upper end of the official 7-8 per cent forecast.

While there has been some slowdown in the growth momentum – as reflected in the third-quarter 6.4 per cent sequential GDP growth pace – financial markets have rebounded recently and underlying economic conditions remain supportive, says the central bank in its latest half-yearly Macroeconomic Review.

Barring a major fallout from the sub-prime mortgage crisis, domestic asset market-related activities, especially financial services, ’should see some tentative improvement’ in Q4, it says. In all, these asset market-related activities – key financial services and property-related transactions that saw quite some exuberance this year – accounted for 28 per cent of GDP growth in the first half.

But equity trading activity in 2008 is ‘generally not expected to match the highs registered this year’, and the domestic debt market could also see businesses adopt a wait-and-see approach amid lingering concerns over the credit market, MAS reckons. Market uncertainties could also dampen demand for wealth management services in 2008.

But the economy’s other growth drivers, notably non-electronics manufacturing, will be largely intact and set for further expansion next year.

Even prospects for the construction sector are ‘decidedly more sanguine’, as many of the projects started this year move into the higher-value stages, where the biggest payment streams kick in.

And the IT-related cluster – the only growth laggard earlier this year – should also see modest growth in the near term, according to the MAS in- house electronics manufacturers’ index.

An MAS study also finds ‘little evidence’ of any structural US-Asia decoupling, where analysts argue that East Asia’s growth cycle is now less subject to the vagaries of US growth.

According to MAS, the US and Asia ‘remain firmly coupled in the long run’, but are seeing weaker links in the short run due to several factors. These include the modest nature of the US slowdown so far, and the fact that domestic demand in Asia has buffered the region’s growth.

‘In the event of a severe recession in the US, however, it is unlikely that Asian exports and growth will be unaffected,’ the MAS report says.

But a temporary slowdown in the US, if confined to the housing sector with little impact on the American consumer, should not derail Singapore’s growth prospects.

And if the US economy fares better than expected, the second half of 2008 could surprise on the upside – in which case, Singapore’s asset market-related activities could ‘bounce back swiftly and strongly’, MAS says.

 

Source: Business Times 31 Oct 07

Rising inflation a major risk in emerging markets: economist

Currencies, property, stocks may become more attractive than debt for investors

(SINGAPORE) Rising price inflation is fast becoming a major risk in emerging markets around the world due to surging food, oil and asset prices, according to a senior economist.

For investors, the inflationary pressures building up in these countries and the likely response of central banks means that emerging market currencies, equities, property and commodities are likely to become more attractive than debt – the traditionally favoured emerging market investment, Philip Poole, HSBC’s chief emerging markets economist, said recently.

Investment in new production capacity ‘has not kept pace’ with the recent rapid growth seen in most emerging economies, he said.

As a result, countries such as India – which now has very little spare productive capacity according to some estimates – are likely to experience increasingly severe price inflation as their economies continue to expand.

Elsewhere too, spare productive capacity has been falling, adding to inflationary pressures, except in China where investment in building more capacity has been consistently high, he said.

Food prices, traditionally accorded a high weight in consumer price inflation measures, have also surged due to unstable weather patterns, stronger demand from a growing middle class and a shift in land use away from agriculture to biofuels due to soaring oil prices, he said.

The combination of rising food and fuel prices is sending inflation higher in most emerging economies, he said.

He expects governments and central banks in these countries to step up their fight against inflation in the coming months, using a mix of policy tools, including allowing their domestic currencies to strengthen against the US dollar.

Part of the inflationary pressure build-up has been due to the actions of central banks themselves, he said.

When central banks intervene in financial markets to keep their domestic currencies low in order to maintain the competitiveness of their labour market and exports relative to their peers, they often do this by printing more local currency to buy foreign currencies such as the US dollar.

The new money then gets channelled into domestic assets such as property, contributing to price increases in these assets instead of the currency itself, he said.

The main anti-inflation policy tool employed by developed economies such as the United States and the European Union – raising interest rate targets to discourage borrowing – may not work for emerging economies, he said.

‘In an environment where you have open capital accounts and excess liquidity . . . it can be counter-productive to raise rates’, as this makes the local currency even more attractive relative to the US dollar, prompting a greater inflow of funds and raising inflationary pressure on the local economy, he said.

Instead, he expects to see central banks employ a broader range of tools to combat inflation, such as raising the regulatory reserve requirements of banks as China did recently – ‘effectively a tax on the private banking system’ – and allowing their domestic currencies to strengthen against the US dollar. A stronger local currency makes imports cheaper, which helps moderate price inflation.

As a result, Mr Poole believes investors in emerging market currencies, stocks, commodities and property stand to benefit from the inflationary pressures and the likely policy response in the near future.

Just this month, the Monetary Authority of Singapore said it would allow the Singdollar to strengthen at a slightly faster pace than before to cap inflationary pressures, while maintaining its long-standing official policy of allowing a ‘modest and gradual appreciation’ of the currency.

 

Source: Business Times 31 Oct 07

WARRANT WATCH – Property contracts in the limelight

WARRANTS of property counters drew the attention of investors yesterday, following the withdrawal of the deferred payment scheme last Friday.

Homebuyers in Singapore will now have to make progressive payments in step with the construction process, instead of deferring payment till the property is completed a few years later.

The most heavily traded CapitaLand contract was a Macquarie call warrant with a strike price of $8.50, which expires on Feb 1.

That warrant closed a cent higher at 13 cents with 24.83 million units done.

CapitaLand shares ended five cents higher at $8.10.

Another active property contract was a City Developments call warrant with a strike price of $15.42, which expires on Jan 10.

The warrant finished 4.5 cents lower at 16.5 cents with 2.86 million units traded.

The share closed 50 cents down at $15.80.

A call warrant lets an investor buy into a stock or index at a preset price over a period of three to nine months.

A put warrant allows an investor to sell the stock or index at a preset price over a fixed period of time.

 

Source: The Straits Times 30 Oct 07

Norwegian firms here expect rosy 2008

However, spiralling business and manpower costs are a concern for them

MOST Norwegian firms in Singapore expect to see their businesses expand in the next 12 months, as Norway became the sixth-largest foreign investor here in 2005.

However, many are increasingly concerned about spiralling business and manpower costs in the city state.

In a survey by the Norwegian Business Association in Singapore (NBAS), it was found that some 88 per cent of 60 respondents expect more businesses here in the coming year, while 12 per cent said business prospects would remain at the same level.

There are more than 150 Norwegian business entities in Singapore comprising firms which have opened offices or relocated to Singapore, making Norwegian-owned companies one of the fastest growing classes of overseas business investors in the republic, NBAS said in a statement.

Citing figures from the Department of Statistics, NBAS said that Norway pumped in foreign direct investments (FDI) of $7.9 billion here in 2005, the latest year for which figures are available. This makes it the sixth-largest foreign investor here in 2005.

In terms of European investors, Norway now ranks the fourth-largest investor in Singapore behind only the UK ($50.2 billion), the Netherlands ($31.7 billion) and Switzerland ($21.7 billion).

The survey revealed that Norway’s business presence in Singapore remains very focused on the shipping/logistics and the marine/offshore sectors.

Some 59 per cent of responding firms consider themselves from these sectors, underscoring the already large and growing influence of Norwegian companies on Singapore’s maritime sector.

The steep rise in the cost of office rental, manpower costs and the difficulty in attracting senior executives and talent were widely remarked upon by respondents.

Some 25 per cent of respondents said office rentals were the main concern for Norwegian companies based in Singapore, while 21 per cent are worried about rising wage bills.

A further 21 per cent cited recent steep rises in living cost as their biggest concern, but only 9 per cent said their main concern for their Singapore location was the ‘increasing attractiveness of other locations’ in the region.

Norwegian firms were asked about the main reasons for their firms locating in Singapore and many cited reasons such as the legal infrastructure, strategic location and expanding activities in Singapore in the light of the booming shipping markets.

Other reasons include Singapore’s status as a leading oil trading centre, good communications, the good quality of life for overseas managers and the ‘good business environment and secure systems’.

Still, there were companies that felt that Singapore workers need to be taught initiative and decision-making as they ‘are not used to the flat structure of a Norwegian working culture’, said one respondent.

Another advised Norwegian firms that are setting up operations here to ‘use service apartments and offices in the first few months in Singapore as it is difficult to take major decisions on location for the office and family before you are actually in Singapore and can see how things function’.

The respondent adds: ‘It is also often difficult to hire the right people and, therefore, much better to have temporary staff in the beginning to allow enough time to have proper interviews and discuss this with other Norwegian companies that have been in Singapore over a longer term.’

 

Source: Business Times 26 Oct 07

MAS official casts light on two market risks

Deputy MD also calls on banks to update their stress test scenarios

(SINGAPORE) THE recent credit crisis has put the spotlight on off-balance-sheet exposures and regulatory liquidity requirements, said Ong Chong Tee, the Monetary Authority of Singapore’s (MAS) deputy managing director.

Two financial innovations most often cited as the culprits which caused the credit markets to seize up – risky assets packaged into collateralised debt obligations (CDOs) and structured investment vehicles (SIVs) – are held as offbalance- sheet items by financial institutions.

This has led to no transparency on their holdings.

Mr Ong said SIVs allow banks to gain exposure to risky assets such as US sub-prime mortgages which were the initial trigger for the crisis through contingent arrangements that minimise capital charges. As off-balance-sheet items, banks did not have to set aside capital for these assets.

‘CDOs and SIVs therefore helped to spread the exposures and losses from sub-prime. But they also did something else – they made the financial system a lot more opaque and a lot harder to determine who owns what risks,’ he said.

Mr Ong was speaking at a derivatives conference yesterday.

‘In mid-August, when the Libor (London interbank offer rate) market was malfunctioning, I had asked a senior banker why banks are not lending to each other. His reply was simple – uncertainty. As we know, the flip side to that uncertainty is the fall in confidence.’

‘Banks are uncertain about their own balance sheets and they are uncertain about other banks’ balance sheets. At the crux of this uncertainty is their inability to value their own derivatives positions and to estimate the probability that their contingent liabilities may be called,’ said Mr Ong.

The recent crisis has surfaced many issues that regulators and financial institutions will need to give attention to so that financial innovation can continue on solid foundations of robust risk assessment and management, he said.

Mr Ong highlighted two issues.

‘First, it is clear that both financial institutions and regulators have to give more attention to off-balance-sheet exposures, whether they arise from contingent liquidity lines, implicit or explicit credit enhancement and support, or exposures that could come back on balance sheet for reputation considerations,’ he said.

Second, the recent events highlighted the importance of liquidity risk management and regulation, said Mr Ong.

‘In the past months, we have seen a stark demonstration and perhaps timely reminder, that market liquidity risk and funding liquidity risk can be interlinked. Liquidity evaporated across a range of credit markets and wholesale money markets, and where it was still available, spreads had shot up considerably,’ said Mr Ong.

‘These events reinforced the fundamental importance of regulatory liquidity requirements, alongside regulatory capital or solvency requirements.’

Mr Ong called on banks to update their stress test scenarios with elements of the recent events and simulate the impact not just on capital but also on their liquidity positions.

 

Source: Business Times 24 Oct 07

September inflation rate eases to 2.7%

Consumer prices decline 0.3% from August, latest statistics show

THOSE who think prices in Singapore just keep going up had a pleasant surprise yesterday when the latest inflation figures were released.

Consumer prices rose at a slower rate of 2.7 per cent last month from a year earlier and eased from August’s 2.9 per cent.

Not only did last month’s consumer price index (CPI) inflation come in lower than all market forecasts, overall prices also retreated by 0.3 per cent from the previous month.

Department of Statistics (DOS) figures announced yesterday showed that cheaper housing and lower transport and communication costs led the month-on-month decline in consumer prices.

‘Housing costs went down by 1.2 per cent due mainly to lower housing maintenance charges and cheaper household durables’, while car prices and road taxes also declined, said the DOS.

After the goods and services tax (GST) increase contributed to a 2.1 per cent price hike from June to July, the change in the CPI in the two subsequent months was similar to those in the months before.

‘This shows that there is no evidence so far of an uptick in inflation for August and September after the oneoff increase in the GST rate in July,’ said a DOS statement.

Year-on-year inflation cooled last month partly because the percentage increases in housing and transport costs were lower than those recorded in August.

While the cost of food last month climbed 3.7 per cent from a year earlier, housing expenses were up by a mild 0.4 per cent, while transport and communication prices increased by 2.2 per cent.

Food accounts for the biggest chunk of household spending, followed by transport and communication, then housing.

The moderation in inflation caught 13 economists polled by Bloomberg by surprise. They expected inflation to pick up to between 3 per cent and 3.2 per cent last month. The median consensus forecast was 3.1 per cent.

HSBC economist Prakriti Sofat noted: ‘It surprisingly came in below consensus in September.’

Standard Chartered economist Alvin Liew said: ‘It is surprising that housing costs rose less than clothing and footwear, given the run-up in residential rents lately.’

However, with energy and food prices rising, economists expect year-on-year inflation to trend upwards in the months ahead.

‘We think that the slight slowing in the headline CPI rate is a blip in the otherwise upward trend. Our view is that CPI readings will continue to grind higher till the middle of 2008,’ said Ms Sofat.

United Overseas Bank economist Ho Woei Chen said higher oil and asset prices and wage costs mean inflation risks remain on the upside.

DBS economist Irvin Seah said the bulk of the jump in monthly inflation since July was due to the one-off GST effect, which will last until June next year.

Mr Liew argued: ‘Although GST plays a big part, there are other components in play.

‘Given what we are seeing in oil, commodity and food prices, as well as transport fares, even if the rise in housing costs remains low, we still think inflation will likely be trending upwards for the next few months.’

In the first nine months of the year, inflation has averaged 1.4 per cent.

Singapore’s central bank predicted that inflation for the whole of this year will be between 1.5 per cent and 2 per cent.

It projects that inflation will rise to about 3.5 per cent year-on-year in the first half of next year, partly due to July’s GST hike, and come in at 2 per cent to 3 per cent for the whole of next year.

 

Source: The Straits Times 24 Oct 07

Emerging Asia: positive outlook despite pitfalls

Beware uncertain global economy and riskier financial environment

EMERGING Asia’s economies have been among the most dynamic in the world in the last decade. Today, the region accounts for almost half of global economic growth. Much of this success stems from broad reforms by these countries in the last 10 years.

These reforms have led to healthier financial and corporate sectors and more robust macroeconomic policy across the region. But the recent financial turbulence, still playing out across the globe, highlights the question of just how vulnerable the region remains to developments in the United States and other industrialised countries.

What, therefore, are the key strengths and vulnerabilities for the region today? And what challenges are Asia’s policymakers likely to face in the period ahead?

The International Monetary Fund’s (IMF) Asia and Pacific Department addresses these issues in detail in its Fall 2007 Regional Economic Outlook (www.imf.org).

The year 2007 has been another good one for the region so far. Economic growth has exceeded expectations. China and India have led the way, with growth rates in the first half of the year of 11.5 and 9.25 per cent respectively.

The trend has been positive for others as well. Exports remain buoyant and growth is becoming somewhat better balanced in many countries, with private consumption and investment making an increasing contribution.

For the year as a whole, we project that emerging Asia will achieve economic growth of nearly 9.5 per cent.

Moreover, inflation continues to remain in check. While a recent modest pick-up in headline inflation in the region requires close monitoring, this rise mainly reflects higher food prices, especially in China, and is not expected to generate large second-round effects.

The region weathered well the recent global financial turbulence, when concerns over rising defaults in the US subprime market led to increased volatility in equity and credit markets worldwide.

Emerging Asia’s equity markets did initially decline along with other emerging markets, Asian currencies did experience downward pressure, and financial conditions did tighten. However, what is striking is the speed with which emerging Asia recovered from this initial shock.

Capital inflows to the region have returned, and its equity markets are now about 10 per cent higher than before the summer’s turbulence. Reflecting this resilience, the IMF foresees only a modest slowdown in 2008, to about 8.5 per cent, resulting from lower external demand for Asia’s exports, and an assumed effective policy tightening in China.

The sub-prime crisis has, however, increased uncertainty about the outlook for the global economy – and for emerging Asia. First, it remains uncertain whether we have seen the worst of the global financial turbulence or if there are additional shocks ahead. The region’s apparently small exposure to sub-prime mortgages and structured products more generally has helped moderate the impact of the sub-prime crisis on Asia. This in itself reflects the relatively unsophisticated nature of the financial sector in much of the region.

But another bout of global financial volatility could have significant spillovers for the region. It could reverse recent inflows and make financing more difficult for a number of sovereign and corporate borrowers.

But perhaps the main risk to the region is that of a sharp slowdown in the US and the euro area, resulting from the persistent US housing doldrums and associated global financial problems.

Despite the view being expressed that Asia has ‘delinked’ from the US and other industrialised countries, the truth is that the region remains significantly dependent on exports to the rest of the world. While an increasing share of exports are within the region, much of this still reflects the integrated production processes within Asia, with much of the final demand still in the industrialised world.

So, how big an impact would a US or global slowdown have on Asia? It would likely not be as big as during the dotcom bust of 2001-02. Then, the decline centred on information technology products, which are of particular importance for emerging Asia.

Nevertheless, IMF staff estimates that a one percentage point decline in US economic growth could reduce growth in emerging Asia, through lower exports, by up to 0.4 percentage point. While sizeable, this would, however, not have a dramatic impact on emerging Asia’s economies.

Overall, then, the outlook for emerging Asia remains positive, but the economic environment will, as always, present a number of policy challenges.

First, policymakers need to be ready to respond to a slowdown in the global economy including – in countries where inflation expectations are low and well-anchored – through more accommodative monetary policy.

Second, the volatile global environment has raised uncertainty regarding capital flows to the region. Countries will need to continue to be pragmatic and allow for greater exchange rate flexibility to create two-way risk in foreign currency markets and promote a rebalancing of growth where necessary. This is especially pertinent in China, where the current account surplus has continued to grow and the currency remains considerably undervalued relative to medium-term fundamentals.

Finally, the sub-prime crisis, while so far largely skirting the region, will provide a number of lessons for Asia, as its financial systems become more sophisticated. This is likely to include the need for enhanced financial supervision.

At the same time, countries will also likely need to strengthen reporting and disclosure requirements, and pricing and provisioning rules to deal effectively with complex financial products, and the cascading system of risks they imply.

 

Source: Business Times 23 Oct 07

Sub-prime rescue bid will do more harm than good

By PAUL KRUGMAN

IT pains me to say this, but this time former Federal Reserve chairman Alan Greenspan is right about US housing. Mr Greenspan was wrong in 2004, when he sang the praises of adjustable-rate mortgages. He was wrong in 2005, when he dismissed the idea that there was a national housing bubble, suggesting that at most there was some ‘froth’ in the market. He was wrong last autumn, when he suggested that the worst of the housing slump was behind us. (Housing starts have fallen 30 per cent since then.) But his latest pronouncement – that the market rescue plan being pushed by US Treasury Secretary Henry Paulson is likely to make things worse rather than better – looks all too accurate.

To understand why, we need to talk about the nature of the mess. First of all, there was indeed a huge national housing bubble. What even those of us who realised that there was a bubble didn’t appreciate, however, was how much of a threat the bursting of that bubble would pose to financial markets. Today, when a bank makes a home loan, it doesn’t hold on to it. Instead, it quickly sells the mortgage off to financial engineers, who chop up, repackage and resell home loans pretty much the way supermarkets chop up, repackage and resell meat. It’s a business model that depends on trust. You don’t know anything about the cows that contributed body parts to your package of ground beef, so you have to trust the supermarket when it assures you that the beef is USDA prime.

You don’t know anything about the sub-prime mortgage loans that were sliced, diced and pureed to produce that mortgage-backed security, so you have to trust the seller – and the rating agency – when they assure you that it’s an AAA investment. But in the case of housing-related investments, investors’ trust was betrayed. Supposedly safe investments suddenly turned into junk bonds when the housing bubble burst. High profits reported by hedge funds – profits that were reflected in huge payments to the fund managers – turn out to have been based on wishful thinking.

Thus, when two hedge funds run by Ralph Cioffi of Bear Stearns imploded last summer, it came as a huge shock to many investors, and helped trigger a market panic. But a recent BusinessWeek report shows that the funds were a disaster waiting to happen. The funds borrowed huge amounts, and invested the proceeds in questionable mortgage-backed securities. Even worse, ‘more than 60 per cent of their net worth was tied up in exotic securities whose reported value was estimated by Cioffi’s own team’. We’re profitable because we say we are – just trust us.

That hasn’t ever caused problems, has it? Stories like this have led to a crisis of confidence. The current yield on one-month US government bills is only 3.41 per cent, an amazingly low number, and a sign that people are parking their money in government debt because they don’t trust private borrowers. And the result is a shortage of liquidity that is greatly damaging the economy.

Which brings us to the rescue plan proposed by a group of large banks, with Mr Paulson’s backing. Right now, the bleeding edge of the crisis in confidence involves worries that there may be large losses hidden inside so-called ’structured investment vehicles’ – basically hedge funds that borrow from the public and invest the proceeds in mortgage-backed securities.

The new plan would create a ’super-fund’, the Master Liquidity Enhancement Conduit, which would seek to restore confidence by, um, borrowing from the public and investing the proceeds in mortgage-backed securities. The plan, in other words, looks like an attempt to solve the problem with smoke and mirrors.

That might work if there was no good reason for investors to be worried. But in this case, investors have very good reasons to worry: the bursting of the housing bubble means that someone, somewhere, has to accept several trillion dollars in losses. A significant part of these losses will fall on mortgage-backed securities. And given this reality, the ‘conduit’ looks like a really bad idea.

I’d put it like this: Investors aren’t putting their money to work because they don’t know where the bad debts are. And when investors need clarity, the last thing you want to be doing is pumping out more smoke. Mr Greenspan’s take, expressed in an interview with the magazine Emerging Markets, seems broadly similar. ‘If you believe some form of artificial non-market force is propping up the market,’ he said, ‘you don’t believe the market price has exhausted itself.’ Translated: This rescue scheme could be seen as an attempt to hide the bad debts everyone knows are out there, and as a result could delay any return of trust to the markets.

Alan Greenspan is making sense.

The writer is a professor of economics at Princeton University

 

Source: Business Times 23 Oct 07

Credit crunch puts global growth at risk: IMF chief

Champions of super fund to rescue mortgage market seen losing case

(WASHINGTON/ZURICH) World credit markets ‘have lived through an earthquake’ and the question is now whether the global economy has reached a turning point after five years of strong growth, the head of the International Monetary Fund said yesterday.

Addressing the IMF’s 185 member countries, IMF managing director Rodrigo Rato warned of aftershocks in markets, saying the full effects of the credit crunch, which began in the US sub-prime mortgage market, were still not fully understood.

‘We already know that we should not try to regulate crises out of existence: that would be like trying to ban earthquakes,’ he said. ‘But the weaknesses in our infrastructure that have been exposed need to be addressed.’ Mr Rato added: ‘The question is now whether the global economy is at an inflection point.’

The outgoing IMF chief noted that in developed countries, corporate balance sheets were strong and labour markets generally healthy.

‘For these reasons, we expect a slowdown in growth but not a recession in the United States, and a smaller slowdown in other advanced countries,’ Mr Rato said, adding that emerging economies had become a source of stability in the global economy.

Mr Rato said risks to global growth were higher than just six months ago and the market turmoil was a warning that good times may not last forever.

Further disruption in financial markets and falls in housing prices could lead to a steeper global downturn, he warned.

So far, movements in exchange rates have been orderly and in line with fundamentals, Mr Rato said, further warning that if the dollar should abruptly fall, it could provoke a loss of confidence in dollar assets.

There was also a risk that the rise of other currencies, such as the euro, could hurt those regions’ growth prospects, he added.

Furthermore, there was a risk that emerging economies that have relied on external financing to fund large current account deficits could be tipped into crisis by a combination of reduced demand for their exports and tighter financial market conditions.

Meanwhile, whether a US$75 billion fund to rescue the battered mortgage-backed securities market takes off or not, its sponsor US Treasury Secretary Henry Paulson seems to be losing the argument over its merits, strategists and economists said.

The fund, announced recently by Citigroup, Bank of America and JP Morgan with Mr Paulson’s support, aims to prevent structured investment vehicles (SIVs) from making panic sales of bonds linked to US sub-prime mortgages.

Many of the SIVs – off-balance sheet vehicles holding some US$370 billion in assets that rely on short-term financing to make a return – are struggling to stay afloat as investors shy away from buying their commercial paper.

The plan has faced a rising tide of criticism, not least from former Federal Reserve chairman Alan Greenspan, who said last Friday the super fund may do more harm than good.

Financial strategists contacted by Reuters said time is running out for the plan’s champions to regain the initiative and the fund risks being still-born.

‘I think they are losing the intellectual argument,’ Ian Harnett, a director at financial consultancy Absolute Strategy in London said yesterday.

The fund was nevertheless more likely than not to go ahead because of the potential embarrassment for the three US banks and for Mr Paulson himself if the idea is scrapped, said Mr Harnett.

‘I would still put it at 70 to 30 that it does happen because of the reputational risk,’ he said.

A global credit crunch, originating from huge losses in US sub-prime mortgage lending, has put acute pressure on SIVs, as demand dried up among investors for the short-term paper SIVs issue to fund investments in high-yielding asset-backed securities with longer maturities.

A fire-sale of assets by the SIVs, set up mainly by banks, would force banks into a fresh round of writedowns of securities held on their balance sheets and result in them granting fewer of the loans that are the life-blood of the global economy.

 

Source: Reuters (Business Times 23 Oct 07)

Developing markets little hit by turmoil: World Bank

Central bankers see need for multilateral talks to strengthen risk management

(WASHINGTON) The impact of recent turbulence in financial markets on developing countries has been limited, and global economic growth remains strong, the World Bank said on Sunday.

Finance ministers and central bankers agreed at weekend meetings that while the global economy was on the mend after recent turbulence, they will need to pay close attention to prevent future crises from erupting.

They also said the turmoil demonstrated how interconnected economies across the world are and the need for multilateral discussions to strengthen risk management.

‘The consensus was that markets are better than in August,’ US Treasury Secretary Henry Paulson told reporters. ‘It has been slowly improving, but it is going to take awhile.’

The World Bank called on donor governments to meet their commitments to boost aid for development and said countries with fast-growing economies and mounting currency reserves could bring new resources to the effort.

In a statement, the bank’s policy-setting Development Committee said its members agreed that more support for the inclusion and empowerment of the poorest countries, especially in sub-Saharan Africa, and more engagement in conflict-afflicted countries are key.

The bank also should help developing countries deal with the causes and impacts of climate change, it said.

The committee session followed a meeting of the bank’s sister institution, the International Monetary Fund. In a lecture sponsored by the IMF, former US Federal Reserve chairman Alan Greenspan warned that rising protectionism could undermine the ability of the US to deal with large deficits.

‘If the pernicious drift toward fiscal instability in the United States and elsewhere is not arrested and is compounded by a protectionist reversal of globalisation, the current account deficit adjustment process could be quite painful for the United States and our trading partners,’ he said.

Committee members welcomed the commitment by the bank’s new president, Robert Zoellick, to develop a new strategy for the bank. Mr Zoellick, who took over on July 1, has called on the developed countries to ‘translate their words from summit declarations into serious numbers’ and contribute to the bank branch that makes low-interest loans to poor countries. He hopes to raise US$33 billion by early 2008.

He said South Africa had already set a good standard by pledging a 30 per cent boost in its contribution to the loan facility.

At a news conference, Mr Zoellick and the head of the IMF, Rodrigo de Rato, said they were exploring ways the fund could work on reducing debt for Liberia. ‘This is a country that is helping itself and deserves to be helped by the international community,’ Mr de Rato said.

In February, the US forgave US$358 million that West African country emerging from civil war owed it and pushed for further action at the IMF-World Bank meetings.

Liberia’s inherited debt to international institutions totals US$1.6 billion, including US$740 million to the IMF. Its total international debt is US$3.7 billion.

Mr Zoellick’s strategy faces a stiff challenge because in recent years, wealthier countries have preferred to channel their aid to poor countries directly through their development agencies or through foundations that specialise on issues such as malaria.

South African Finance Minister Trevor Manuel welcomed Mr Zoellick’s emphasis on helping to overcome poverty and promote sustainable growth in poor countries, particularly those in sub-Saharan Africa.

The strategy would have the bank fight poverty, especially in Africa, help countries emerging from wars and promote regional cooperation to combat disease and climate change.

Based in Washington, the 185-nation World Bank lends US$24 billion a year for projects in the developing world such as building roads, schools and health clinics. But its role as a lender has been declining as middle-income countries have access to financing from other sources.

 

Source: AP (Business Times 23 Oct 07)

Widen moves to calm markets: global finance chiefs

Steps include tighter IMF scrutiny of state investment funds

(WASHINGTON) Global finance chiefs on Saturday called for a more broad-based effort to calm financial markets, including tighter scrutiny by the International Monetary Fund and other institutions of increasingly powerful state-owned investment funds.

This year’s fall meetings of the International Monetary Fund and World Bank come amid a slowing pace of global growth and heightened risk from recent turbulence in world credit markets and soaring oil prices.

That has particularly affected Group of Seven rich nations whose finance ministers and central bankers met on Friday and concluded that their growth will suffer because of ongoing turmoil in markets.

By contrast, developing countries that are well represented among IMF members have been emboldened at these meetings by the fact that their growth rates are thriving and have used the opportunity to flex their economic muscle.

‘The irony of this situation: countries that were references of good governance, of standards and codes for the financial system, these are the very countries that are facing serious problems of financial fragility putting at risk the prosperity of the world economy,’ said Brazilian Finance Minister Guido Mantega.

After years of hearing from developed countries about the importance of prudent economic policies, developing nations felt they clearly had the upper hand, with China and India leading world growth and rich countries’ economies slowing.

Meanwhile, developed countries called on the IMF to increase its monitoring of growing state-backed wealth funds that hold surplus reserves mainly from oil exporters and China.

Those funds are investing amounts which cause some nervousness among rich members of the Group of Seven industrial nations, which want to ensure the investments are for profit-making reasons only and are not politically motivated.

US Treasury Secretary Henry Paulson said he considered the IMF ‘uniquely positioned’ to identify model behaviour for these Sovereign Wealth Funds.

His point man for international matters, Under Secretary David McCormick, told Reuters there was general agreement that some code of principles was needed to ensure the funds did not rouse such resentment that countries put up barriers to stop the funds from investing.

Belgian Finance Minister Didier Reynders said it was too early to know how the financial sector difficulties would affect economies in the end, saying central banks should stand ready to lower interest rates, or to postpone rate increases, without damaging inflation.

Developing countries also took the opportunity to push for a greater say in the voting power of institutions like the IMF.

Brazil warned bluntly that under-represented countries were likely to ‘go their own way’ unless they get a greater stake. ‘Developing countries, or many among them, would go their own way, were the perception to arise that reform will not happen or that we will be left with a purely cosmetic form,’ Brazil’s Mr Mantega said.

Some countries saw signs of progress in negotiations among IMF members on how to increase the voting powers of the developing world but others were far from optimistic.

German Finance Minister Peer Steinbrueck said no progress had been made by countries trying to agree on a formula that would rebalance the voting system to reflect the rise of countries like China or India.

Intense political sensitivities are involved in trying to divvy up voting power more frequently. Some old powers like Britain and France potentially could see China move past them in voting status if an intensely negotiated formula truly acknowledges China’s fast-growing economic might.

Also, developing countries insist any overhaul in votes must be large enough to transfer significant additional power to them and to make clear they are not simply being given a pat on the head.

 

Source: Reuters (Business Times 22 Oct 07)

WALL STREET INSIGHT – Analysts dismiss spectre of crash, but selling’s not over

Last week’s 4% slide due more to recent sharp run-up than to fear of another crisis

IN NEW YORK

AS STOCKS plummeted on earnings outlooks and renewed credit worries last Friday on the 20th anniversary of Black Monday, Wall Street forecasters couldn’t help but draw parallels to that record-setting dire day of October 19, 1987, when the Dow Jones Industrial Average crashed by more than 500 points, and more impressively, a whopping 23 per cent, in a single day.

But in truth, last Friday’s sell-off, which caused the bluechip index to give up on a percentage basis only a tenth as much as investors lost in the infamous Black Monday crash 20 years ago, was more reminiscent of much more recent history, namely the early weeks of last August, when the unknowns of the ramifications of the burgeoning global credit crisis were turning investors’ euphoria over new record highs in the US equity markets into fear, uncertainty and the risk aversion that goes with it.

‘It’s easy to invoke Black Monday on its 20th anniversary as we’re experiencing a sell-off, but there really is no parallel with today,’ observed Hugh Johnson, the chief investment officer at Johnson Illington Advisors.

‘Back then, the markets had been churning their way down for a while, and you could sense the vulnerability as fear on the trading floor built higher and higher over the course of a few weeks. But in the case now, you have to remember that, just last week, investors – and Wall Street economists – were talking about having a Goldilocks economy, a soft landing,’ he said.

Federal Reserve chairman Ben Bernanke started to burst that bubble last Monday when he said that the drag from housing was worsening, and would hit growth in the fourth quarter and in 2008, and his warning was soon echoed by corporate profit outlooks.

Leading companies such as Caterpillar, 3M and Schlumberger beat third quarter estimates, but offered cautious earnings forecasts for the fourth quarter, leading to renewed concerns over the spread of the credit crisis beyond the financial sector.

But while the previous weeks’ euphoria seems to have clearly been out of touch with the realities of what remains a stock market still vulnerable to the unknowns surrounding the impact of last summer’s credit crisis, to say nothing of skyrocketing oil prices that have risen to potentially crippling levels and have oil analysts speculating on when the price of a barrel of light sweet crude might hit triple digits, many other of the market’s fundamentals appear far too solid to invoke the spectre of anything resembling a Black Monday-like panic.

‘Last week’s downturn was more a function of the sharp run-up in share prices over the past several weeks and over stretched positive expectations than fear that we’re about to get into crisis mode again,’ said Tobias Levkovich, Citibank Smith Barney’s chief investment strategist.

‘Various measures of credit market distress have eased lately, including increased functionality in commercial paper and even high-yield debt markets,’ he noted. And unlike the last period of severe turmoil in credit markets in the fall of 1998, commodity prices are rising and economic activity abroad is strong, Smith Barney chief economist Steven Weiting wrote last week.

So, while Wall Street traders were quick to dismiss the potential for a crash of epic proportion, investors’ newfound caution and sober outlook is likely to result in more selling and bearish risk aversion, with the potential for a 10 per cent sell-off such as the market experienced in the month between July 16 and Aug 16.

‘I think everyone was just a little too eager to say that we’d put the liquidity crisis behind us and the worst was over,’ said Richard Maclemore, a money manager at Goodman Securities. ‘Then, when we get a few of our major companies saying that it’s not just going to hit the third quarter earnings, but that the fourth quarter isn’t going to look too good either, you get a quick ‘uh-oh’ reaction, which is what we saw on Friday,’ he said. Uh-oh indeed.

The Dow Jones Industrial Average sank 366.94 points, or 2.64 per cent, to 13,522.02 on Friday. The S&P 500 was off 39.45 points, or 2.56 per cent , at 1,500.63, and the Nasdaq Composite plunged 74.15 points, or 2.65 per cent, to 2,725.16. Friday’s firesale brought an abrupt end to the major averages’ five-week winning streak.

For the week, the Dow and the S&P 500 each lost 4 per cent, and the Nasdaq gave back 2.9 per cent. It was the worst downturn for the indices in two months. The only things that rose last week were negative indicators. The CBOE Volatility Index, often called the fear index, added 24 per cent on Friday to a reading of 23, its highest in a month. Oil surged briefly to a record US$90 a barrel and gained 6 per cent for the week, while two-month Treasury bills rallied the most since Sept 11, 2001.

This shows that investors have re-embarked on a flight-to- quality trade. The week’s wave of earnings reports could offer some relief, as several major names from outside the disastrous financial sector announce their third-quarter results and offer outlooks for coming quarters.

‘It would set a lot of minds at ease if some of these companies say that next quarter isn’t looking too bad,’ said Mr Johnson. As many as 163 more S&P 500 companies are scheduled to report this week, including six Dow components.

Thus far, with 121 S&P 500 companies having reported over the past week, growth expectations for the thirdquarter earnings season have sunk to negative 0.1 per cent, compared with expectations for earnings to grow 3.6 per cent on Oct 1, according to Thomson Financial.

 

Source: Business Times 22 Oct 07

5.5m population more achievable for Singapore

THE 6.5 million population used as a guide for planning purposes in Singapore is not within reach in the next 50 years, an academic said yesterday. Saw Swee Hock of the Institute of Southeast Asian Studies said 5.5 million is a more achievable target.

Prof Saw – the second Singaporean after former deputy prime minister Goh Keng Swee to be elected an honorary fellow of the London School of Economics – was speaking at the soft launch of the second edition of his book The Population of Singapore.

His comments are consistent with those of Minister Mentor Lee Kuan Yew, who indicated in August that Singapore’s population is unlikely to touch 6.5 million.

Prof Saw said yesterday that for the population to hit 6.5 million by 2050, Singapore needs an influx of 1.85 million newcomers after 2015, assuming the non-resident population rises from 0.8 million in 2005 to 1.01 million in 2015.

The proportion of newcomers arriving after 2015 would constitute 40.5 per cent of the total population in 2050 – the highest ever.

But for the population to hit 5.5 million in 2050, the number of newcomers entering Singapore after 2015 would be 1.63 million and they would make up a smaller 29.6 per cent of the population.

‘The 5.5 million target is not only more achievable viewed in terms of the type of newcomers we want, but also more conducive to the maintenance of a harmonious multiracial society,’ Prof Saw says in his book.

The figures were generated assuming the total fertility rate stays constant at 1.31, which will result in the resident population growing from 3.55 million in 2005 to a peak of 3.64 million in 2015, before shrinking steadily.

The challenge, said Prof Saw, is to get newcomers to stay to make up for the declining resident population.

Alongside a contracting resident population, the resident labour force is estimated to decline from 1.74 million in 2005 to 1.15 million in 2050.

Workers aged 60 and over are projected to make up 13.6 per cent of the workforce in 2050, up from 4.4 per cent in 2005. And workers aged 30-39 are expected to account only for 19.3 per cent of the work force in 2050, down from 28.7 per cent in 2005.

 

Source: Business Times 20 Oct 07

A confused message from the G-7?

WHAT are we to make of it when spokesmen for the world’s most powerful economies and financial institutions begin to contradict each other in public – or make remarks which appear less than consistent with reality?

Today, the finance ministers and central bankers of the G-7 – namely the countries of the US, Britain, Canada, France, Germany, Italy and Japan – hold their semi-annual get-together in Washington, in the runup to this weekend’s International Monetary Fund and World Bank meetings.

Very public attempts to influence today’s agenda were already taking place early last week, with the leaders of France and Italy appearing to have become particularly vociferous this time. Grumbling that a too-strong euro hurts Europe’s growth and exports, they have tried to lead joint European demands for the US to reiterate its ’strong’ US dollar policy.

In short, the Europeans are getting annoyed that the euro has once again scaled fresh post-launch highs versus the US dollar over the past week, but the yen and yuan have not been contributing their fair share of upside adjustment in response to the fast-falling greenback.

They do have a point. Since the end of last year, the euro has risen some 17 per cent versus the US dollar, while the yuan has only strengthened 7 per cent, and the yen has actually weakened by 5 per cent. Yet, even within Europe, not all appear as flustered on this currency issue. North Europeans like the Germans and the Dutch, for example, have been far less vocal or upset, at least in public, on the subject.

To be sure, it does get a little surreal when the US is asked to reiterate a strong US dollar policy at a time when the US dollar is sliding across a broad front in the real world – and when economic logic suggests that more US dollar downside is needed to correct its record current account deficit with the rest of the world. Over the past fortnight, we have in fact seen the US currency slide to lows not seen in 10, 23 and 31 years versus currencies like the Singapore, Australian and Canadian dollars – on top of recording fresh post-launch lows versus the euro.

To calm jittery financial markets, US Treasury Secretary Henry Paulson has deemed it necessary to come out and help out the Europeans by reiterating – both last week and this – that a strong US dollar is indeed in his country’s interest.

Yet, even as he tried to carry that message across, the International Monetary Fund’s managing director Rodrigo Rato decided to warn this week that the US dollar is in fact still overvalued – despite trading at near record lows. And that it needs to fall even further.

The key message here is that all involved stand to lose out if the US dollar should suddenly collapse; there is a need to manage its fall. When you stop to think about it, isn’t that exactly what Asian countries like China have been trying to do in terms of the US dollar’s slide against their own currencies over the course of 2007?

 

Source: Business Times 19 Oct 07

Property booms, busts make economy vulnerable

SINGAPORE ECONOMIC POLICY CONFERENCE

Bubble cuts private spending, raises reliance on volatile foreign demand

PROPERTY price booms and busts make Singapore’s economic growth more vulnerable to volatile factors and should be prevented, an economist at a think-tank said here yesterday.

While the impact of a spike in property prices on overall GDP growth is ‘quite subdued’, a property price bubble causes private consumption expenditure to shrink, making the economy more dependent on foreign demand and business spending which are much more volatile, said Tilak Abeysinghe.

The deputy director of the Singapore Centre for Applied and Policy Economics (Scape) at the National University of Singapore, was speaking at the inaugural Singapore Economic Policy Conference organised by Scape at Four Seasons Hotel.

His team’s research found that while higher property prices spur construction investment, an accompanying dip in private consumption means overall economic growth does not change much as a direct result of property price inflation.

But the overall effect is still undesirable as it makes the economy far more dependent on business spending and foreign demand for its exports, both of which are more volatile than domestic consumption, he said.

The consumption expenditure share of Singapore’s GDP has fallen from more than two-thirds in 1997 to about 40 per cent today. ‘If consumption expenditure in Singapore falls further, GDP growth will be very vulnerable to external demand and investment demand,’ he said.

Research found that in contrast with economies such as the US, higher housing prices here do not seem to encourage more personal spending.

In Singapore, ‘housing wealth is relatively illiquid,’ he said. ‘You just can’t sell your house and move to a suburban house.’ This means the ‘wealth effect’ of housing price inflation seen in countries such as the US – when people spend more as the value of their homes rise – is much less noticeable in Singapore.

Also, ‘when housing prices go up, mortgage payments also increase, so people have less to spend on consumption,’ he said.

He believes policymakers here should ‘do their best’ to prevent a property price bubble because of its effect on private consumption spending and its tendency to widen the income gap between the rich and poor.

‘It should be possible’ to prevent another bubble from building by identifying the main cause of the recent run-up in property prices – likely to be people buying properties for investment rather than owner-occupiers – and introducing measures to dampen demand from this source, he said.

But he also cautioned against flooding the market with a vast supply of new homes, which could trigger a price crash and set the conditions for a new bubble.

 

Source: Business Times 19 Oct 07

Tuas Power is first Temasek genco to go on sale

Offer open to all including overseas bidders; no cap on foreign ownership

(SINGAPORE) Singapore yesterday kicked off its ‘beauty parade’ of power companies when investment agency Temasek Holdings put Tuas Power up for sale.

Tuas is the smallest and youngest of the three generating companies to be sold by Temasek, each of which is expected to fetch more than $2 billion.

Tuas was chosen to lead the sale because it ‘has drawn the strongest investor interest’, Temasek’s managing director of investment Wong Kim Yin told a news conference. But there has been more than enough interest in the companies to ensure that ‘all three will go’, he said. ‘We’ve done our homework in assessing investor interest and liquidity to support the transactions.’

The sale will be open to all, including foreign utility players like Marubeni, Tokyo Electric, Australia’s Babcock & Brown, UK’s International Power and Hong Kong’s CLP Holdings and even foreign funds. No foreign ownership cap has been imposed. Local Temaseklinked players Semb Corp, KepCorp and City Spring Infrastructure are also likely to bid.

Tuas has 2,670 megawatts (MW) of generating capacity versus Senoko Power’s 3,300 MW and PowerSeraya’s 3,100 MW. But it also has the newest plant, with the last of its stage two gas-fired generators commissioned just two years ago.

Mr Wong, whose team has worked hard for the past 18 months to prepare the sale, said Temasek has not decided yet which company will go on sale after Tuas. It will see how the Tuas sale goes to see how best to sell Senoko and PowerSeraya. ‘For example, when we sell the first company we want to make sure the sale has the highest degree of completion, including financial,’ he said. ‘Otherwise it will affect the subsequent sales.’

Each company is expected to be sold to different buyers to prevent too few players having too much market power.

Mr Wong would not comment on the market’s $2 billion-plus estimate for each company, saying Temasek has not set reserve prices. Tuas has assets with a book value of more than $1 billion, but ‘cashflow generating capability is more important than size’, he said.

Tuas produced 26 per cent of Singapore’s electricity last year, enjoyed revenue of $2.28 billion and made a net profit of $177 million for the year ended March 2007.

The bigger PowerSeraya, with revenue of $2.62 billion, made a net profit of $168 million in the same period, underscoring Mr Wong’s remark that profits from power generation may vary from year to year.

Temasek yesterday said it will divest Tuas through a two-stage ‘trade sale’ that will take three to five months. The process starts with the immediate dissemination of an information pack to potential investors, who are expected to come back with indicative proposals so Temasek can draw up a shortlist by December.

The second stage will cover full due diligence, site visits, access to the Tuas data room and management presentations. Investors will then make binding offers, and Temasek will select the winner by the first quarter of 2008.

Mr Wong said Temasek will chose the winner based on integrity, transparency and price.

The launch of Tuas for sale comes eight years after an earlier aborted sale of 60 per cent of the company. The government decided then that it needed to allow the just-liberalised electricity market at the time to develop further.

‘Today’s sale launch is a key step in liberalisation of the electricity and gas markets here,’ Mr Wong said.

Coincidentally, the Energy Market Authority yesterday launched trials for an Electricity Vending System that will eventually allow the power companies here to compete to supply electricity to an up-to-now uncontested market segment – Singapore’s 1.2 million households.

Mr Wong said conditions – including a favourable M&A environment and strong economy – are favourable to selling generating companies right now. But the market can turn volatile, and if need be, Temasek may vary the timing of the sale of the two remaining companies. ‘Barring no macro-shocks’, it expects to complete the sale of all three generating companies by the first half of 2009, he said.

 

Source: Business Times 19 Oct 07

Greenspan: No $ plunge if China offloads Treasuries

Markets are clever enough not to over- react, he says

(SEOUL) Alan Greenspan doesn’t expect a rapid decline in the dollar should China sell more of its holdings of US Treasuries, according to people attending a forum here yesterday.

‘When asked whether there will be a plunge in the dollar in case China offloads its US Treasury holdings, Mr Greenspan said it’s already-known information that won’t trigger any rapid drop in the US dollar,’ according to Kong Dong Rak, an analyst with Hana Daetoo Securities. ‘His view is that markets are clever enough not to overreact.’

The former Federal Reserve chairman was speaking via satellite from Washington and media were excluded from his presentation. The conference was hosted by Maeil Business Newspaper.

Japan, China and Taiwan sold US Treasuries at the fastest pace in at least five years in August as losses linked to US sub-prime mortgages sparked a slump in the dollar.

Japan cut its holdings by 4 per cent in August to US$586 billion, Treasury Department figures showed. China’s holdings fell by 2.2 per cent to US$400 billion and Taiwan’s slid 8.9 per cent to US$52 billion.

Kim Gyung Rok of Mirae Asset Investment Management, confirmed Mr Greenspan’s remarks on the dollar.

‘Foreign exchange markets have already priced in bit by bit’ the possibility of an unloading of US Treasuries, he said.

Mr Greenspan is ‘of the opinion that holdings of foreign exchange reserves tend not to be moved easily’, Mr Kim said.

The dollar has fallen 7.5 per cent against the euro this year after the Fed cut interest rates last month to support the housing market, reducing the yield advantage of US fixed-income assets.

The US currency slumped to a record low against the euro on speculation that the growth outlook in the US will push the Fed to make another reduction at the end of the month.

The dollar declined 0.6 per cent to US$1.4294 per euro, after earlier reaching an all-time low of US$1.4305 in early New York trading. It fell one per cent to 115.46 yen. It earlier reached 115.29, the lowest since Oct 2.

The New York Board of Trade’s dollar index touched 77.5, the weakest since the index began in 1973.

Eisuke Sakakibara, Japan’s former top currency official, said that the US currency may ‘plunge’ in 2008 should US economic growth ‘fall below one per cent’. He spoke in an interview yesterday in Tokyo.

On Wednesday, the International Monetary Fund cut its forecast for US growth next year to 1.9 per cent. IMF officials said the dollar is overvalued compared with its medium-term fundamentals. According to the Financial Times, Simon Johnson, chief economist of the Fund, said the weakening dollar was part of a normal process of economic rebalancing and was positive for the global economy provided that other currencies also adjust.

However, Mr Greenspan said the slowdown is unlikely to lead to a US recession, though it will still have a negative effect on Asia’s economies, according to Maeng Young Jae of Samsung Securities. ‘Greenspan seems more optimistic about the US economy than pessimistic.’

Mr Greenspan said China’s policy on the yuan ‘could cause long-term instability in the Chinese economy’, according to Ben Arber, head of global payments and cash management at HSBC Holdings in Seoul.

 

Source: Bloomberg (Business Times 19 Oct 07)

Sept exports disappoint with 2.2% growth

Showing falls short of forecast 8.1% and pales against August’s 10.9% pace

(SINGAPORE) After expanding stronger than expected in August, Singapore’s non-oil domestic exports sprang another surprise last month – this time it was a dismal showing with meagre 2.2 per cent growth from a year ago, falling far short of the 8.1 per cent gain analysts have forecast.

The disappointment on the export front is all the more stark, coming soon after the government announced last week that the economy on the whole grew a blistering 9.4 per cent in the third quarter (Q3), trumping analysts’ projections.

The weak performance in September’s non-oil domestic exports (NODX), following the surprisingly robust 10.9 per cent expansion in the previous month, dampened Q3’s export growth to 6.2 per cent.

So the NODX’s growth has continued to trail overall economic growth, breaking from past patterns, and seems out of step with an export-led economy.

For the full year, International Enterprise Singapore, the government’s trade promotion arm, has trimmed NODX’s growth forecast from 7-9 per cent to 4-6 per cent.

The Ministry of Trade and Industry has, on the other hand, upped its growth projection for the economy from 4.5- 6.5 per cent to 7-8 per cent.

Yet the NODX has put up a stronger showing in 3Q, following a measly expansion of 1.5 per cent in Q2.

 ’In trend terms, looking at the 3-period moving average, NODX has been improving since February 2007 – in line with our Asean-4 export lead indicator,’ says Prakriti Sofat, an economist at HSBC Bank.

And the improvement is in tandem with the overall advance in the economy, which expanded 6.5 per cent in Q1, 8.7 per cent in Q2 and 9.4 per cent in Q3.

Weak electronics domestic exports dragged down NODX growth in September. Electronics shipments fell sharply by 10.6 per cent, the eighth straight monthly contraction.

‘The decline of electronics domestic exports was due to the lower domestic exports of parts of PCs (personal computers), ICs (integrated circuits), telecommunications equipment and disk drives,’ said IE Singapore when it released the latest trade figures yesterday.

Last month’s growth in the NODX was largely propped up by nonelectronic exports, which rose 14 per cent. Even then, non-electronic shipments were not as strong as August’s 22 per cent growth.

Compared with the previous month, the NODX in September dipped 1.5 per cent to $14.7 billion.

Year-on-year, total trade in September inched up 0.7 per cent to $71.4 billion, after growing by the same amount in August.

Domestic exports to the United States, Taiwan, China, Indonesia and Malaysia fell last month. Shipments to the US, Singapore’s second largest market, declined 8.3 per cent after rising 2.9 per cent in August.

The European Union, Singapore’s largest market, was among the biggest contributors to the NODX’s growth in September. But shipments to the EU, which jumped 41.7 per cent in August, rose just 13.2 per cent last month.

Hong Kong and South Korea were the other big contributors to September’s NODX growth, according to IE Singapore.

 

Source: Business Times 18 Oct 07

Economy’s solid growth to spill into 2008: NTU

It cites uptick in world electronics demand, sizzling construction activity

THANKS to the sustained health of the global economy, an uptick in world electronics demand and sizzling construction activity here, the rosy picture for Singapore’s economy will persist into next year, Nanyang Technological University economists said yesterday.

Singapore’s gross domestic product is expected to grow 8.3 per cent this year and 7.5 per cent in 2008, the Econometric Modelling Unit (EMU) of the Economic Growth Centre at NTU said in its bi-annual forecast for the economy.

‘The expected growth in 2008 is due to external demand conditions, mainly the world economy is expected to remain healthy, China and India are expected to drive growth in Asia and the aggressive policies of the Federal Reserve with regard to the sub-prime mortgage market in the US would likely contain the credit squeeze in the US,’ said NTU Associate Professor Joseph Alba.

Based on leading indicators for the electronics cluster, the upturn in global electronics demand will likely gather pace in 2008, while construction activity amid buoyant property prices and spillover effects from the building of the two integrated resorts here will provide further stimulus, he added.

The forecasts were made barring additional risks in the Middle East that could cause oil prices to spike further, but assumed high oil prices of US$80 a barrel.

Assoc Prof Choy Keen Meng, who has been spearheading the macro-economic forecasts since 2001, said the impact of oil price spikes on economic growth is not discernable as there are offsetting factors.

‘Historically, the impact of oil price increases on the Singapore economy has been ambiguous,’ said Assoc Prof Choy.

For the fourth quarter of this year, EMU expects Singapore’s economy to grow 8.6 per cent after the government’s advance estimates showed the economy growing 9.4 per cent in Q3.

Giving a sectoral breakdown, Assoc Prof Alba said growth in manufacturing, hotels and restaurants, transport and storage and information and communications is expected to accelerate in 2008 from 2007. But sectors like construction and financial services could see slightly slower growth in 2008 given the high base of comparison in 2007.

EMU also projects that one-off impact of the two percentage-point hike in the Goods and Services Tax will likely blow over by 2008, with the Consumer Price Index (CPI) to be 2.6 per cent in Q4, 1.6 per cent for the whole year and 2.4 per cent in 2008.

This falls within the official CPI forecast by the Monetary Authority of Singapore of 1.5-2 per cent for 2007 and 2- 3 per cent for 2008.

The buoyant economic outlook is expected to put more pressure on inflation as labour costs increase, EMU said, but added that these wage pressures may moderate in 2008 as productivity growth accelerates or employment is allowed to grow through Singapore’s flexible foreign labour policy.

It estimates that job creation will reach a record of 200,000 this year, after an all-time high of 176,000 last year.

EMU’s projected job creation would take the unemployment rate to 2.3 per cent for 2007 and 2 per cent for 2008 – the lowest level in a decade.

 

Source: Business Times 18 Oct 07

Possible 2008 recession in US will hit Asia: Stephen Roach

Asia needs to take events in US more seriously, he says

IN SEOUL

THE United States could face a consumer-induced recession next year, which will also hit Asian economies, said Morgan Stanley’s chairman for Asia, Stephen Roach.

Speaking at the World Knowledge Forum in Seoul, Mr Roach – well known for his bearish views – presented what he called a ‘decidedly sub-prime outlook’ for the US economy.

The so-called sub-prime mortgage crisis is ‘the tip of a much bigger iceberg’, he said. It has started to hit the American consumer.

Mr Roach, who has long predicted a US economic slowdown, pointed out that the US consumer is facing the toughest times in 30 years, and the impact on the economy could be acute.

He noted that in the first half of this year, US consumption accounted for a record 72 per cent of GDP, or about US $9.5 trillion.

‘The US consumer is about to take a long rest,’ he said, ‘and if the US consumer goes, there’s nobody on the demand side who can fill the void.’ Even China’s total consumption is only about one-ninth that of the US, he noted.

Mr Roach suggested that the US consumer is at risk because the consumption binge of the last seven years has been underpinned, not so much by rising incomes but by a wealth effect which has, in turn, been driven by ‘an extraordinary property market’.

In short, ‘the US consumer has turned his home into an ATM machine’, he added.

But now, with the US property bubble deflating, the wealth effect, based on rising home values, ‘is over, is done, is finished’.

In fact, next year, home prices for the whole of the US could decline for the first time in history, he predicted, which would severely diminish US consumers’ ability to extract equity from their homes.

In the face of this, Mr Roach said that the risk of recession ‘is quite high’.

Although sub-prime mortgage assets account for only 14 per cent of all securitised assets, the sub-prime crisis has already spread.

Moreover, ‘the big story gets written in the real economy, not in the financial markets’, he said.

And worth noting here, he added, is that US consumption is about five times the size of US capital spending, which triggered the US recession of 2001.

Mr Roach, who is based in Hong Kong, said that Asia needs to take developments in the US more seriously.

‘What’s worrying is a complacency in Asian markets, based on a belief that Asia has ‘decoupled’ from the US,’ he pointed out.

But the decoupling thesis is fanciful, he said, noting that the US absorbs 21 per cent of China’s exports, 22.5 per cent of Japan’s and about 14 per cent of Asean’s. ‘If the US consumer goes down, Asia will feel it,’ he said.

 

Source: Business Times 18 Oct 07

Foreigners sell record US financial assets in Aug

(WASHINGTON) International investors sold a record amount of US financial assets in August as tightening access to credit threatened economic growth and spurred an exodus from American equities.

Total holdings of equities, notes and bonds fell a net US$69.3 billion after an increase of US$19.2 billion in July, the Treasury Department said on Tuesday in Washington. Including short-term securities such as Treasury bills and non-market trades such as stock swaps, foreigners sold a net US$163 billion, compared with a gain of US$94.3 billion a month earlier.

Demand for US stocks overseas declined as the deepening housing recession and credit market turmoil threatened investment and hiring, slowing the economy.

‘There is acute uncertainty in the market,’ said Gabriel De Kock, chief currency economist at Citigroup Global Markets Inc in New York, before the report. ‘There are lots of people who are reducing their risk and taking money off the table.’

Economists predicted that international investors would buy a net US$60 billion of long-term securities in August, based on the median estimate in a Bloomberg News survey.

The Treasury’s reporting on long-term securities captures international purchases of US government notes and bonds, stocks, corporate debt and securities issued by US agencies such as Fannie Mae and Freddie Mac, which buy mortgages.

International holdings of US stocks fell a net US$40.6 billion, compared with net purchases of US$21.2 billion in July. The Standard & Poor’s 500 Index rose 1.3 per cent in August, while the Dow Jones Industrial Average gained 1.1 per cent.

International demand for Treasuries decreased by US$2.6 billion, compared with a loss of US$9.4 billion the previous month. The yield on the benchmark 10-year note in August averaged 4.73 per cent, compared with 5.04 per cent in July.

Holdings of agency debt increased a net US$9.6 billion after a US$8.7 billion net gain the month before.

US investors bought a net US$34.5 billion of overseas assets in August, after buying US$5.5 billion in July.

Private investors sold a net US$10.6 billion, compared with a net US$20.6 billion in purchases a month earlier. Official purchases, including those by central banks, fell by US$24.2 billion after an increase of US$4.4 billion in July.

Foreigners sold a net US$1.2 billion of corporate bonds, compared with a US$4.5 billion increase in July.

Some economists said that the difference between the US trade gap and securities purchased by foreigners is an indicator of how easily the nation can finance its external obligations. The trade deficit in August shrank 2.4 per cent to US$57.6 billion, the smallest since January, as exports climbed to a record, the Commerce Department said on Oct 11.

The US current account deficit, a broader measure of trade that includes investment income and transfers, narrowed to US$190.8 billion in the second quarter.

 

Source: Bloomberg (Business Times 18 Oct 07)

Wealthy group growing fastest in S’pore

IN SEOUL

SINGAPORE is home to the fastest-growing population of high net worth individuals (HNWIs) in the Asia-Pacific, according to a report by Merrill Lynch and Capgemini.

The 2007 Asia Pacific Wealth Report – released yesterday at the World Knowledge Forum, organised by the Maeil business newspaper, in Seoul – shows the number of HNWIs in Singapore rose 21.2 per cent last year to about 67,000.

India and Indonesia were the second and third-fastest growing markets for HNWIs, at 20.5 and 16 per cent respectively.

Overall, the number of HNWIs in the Asia-Pacific region grew 8.5 per cent this year to about 2.6 million.

Of the world’s 10 fastest-growing HNWI markets last year, five were in the Asia-Pacific – Singapore, India, Indonesia, South Korea and Hong Kong.

HNWIs are defined as people with more than US$1 million in financial holdings excluding their primary residence. The report estimates overall HNWI wealth was about US$8.42 trillion at the end of last year.

In terms of the distribution of this wealth by market, Japan was the clear leader, accounting for 44 per cent or US$3.7 trillion, followed by China with 21 per cent or US$1.7 trillion. Singapore was the sixth-largest market, with HNWI wealth totalling US$320 billion last year.

Looking ahead, the report projects that Asia-Pacific HNWI wealth will grow about 8 per cent a year for the next three years to a staggering US$12.7 trillion by 2011.

In terms of investment behaviour, Asia-Pacific HNWI investors show certain characteristics, according to the report. In particular, they tend to prefer tangible assets – real estate and cash – to other investment classes.

They also invest most of their assets in the region. For instance, Singapore HNWIs allocated 52 per cent to the Asia-Pacific. However, in the future, Merrill Lynch and Capgemini reckon Asian HNWI investors will seek greater diversification, both by geography and investment classes.

Specifically, they foresee HNWIs seeking to invest in markets outside Asia and North America, and allocating a greater proportion of their wealth to fixed income and alternative investments such as structured products, private equity and hedge funds, as well as ‘passion investments’ such as wine and art.

 

Source: Business Times 17 Oct 07

Investors’ short memory is worrying

Granted, the sub-prime crisis has passed. But the US economy has other major problems. So it’s advisable to be prudent

By WONG SUI JAU

WHAT a difference two months makes. In mid-August, the sub-prime loans scare had just rocked markets around the world, causing them to fall for two weeks. The air was heavy with gloom. But now, it seems as if the sub-prime problem never happened. Many markets are back to their pre-crash levels and, indeed, some – including the US market as represented by the S&P 500 index – have recently hit record highs. As the accompanying table shows, many Asian markets have done very well from the start of the year up to end-September. There is reason for much cheer among investors.

While I was one of those urging calm at the time the sub-prime issue blew up, I find the short memory of many investors worrying. Before the sub-prime issue flared in the US, there was hardly anything to worry about; Asian economies were growing strongly and the rest of the world was doing decently too.

But in the aftermath of the sub-prime crash, some things are now different. Investors need to pay close attention to these developments – not just focus on the happy reality of rising markets. The most significant thing is that the US economy has turned. As recently as the second quarter, US GDP was still accelerating in terms of growth, growing at an annualised rate of 3.8 per cent in Q2, compared with an annualised 0.6 per cent in Q1.

However, the sub-prime issue has exposed weaknesses in the US economy that are not going to go away, rising markets notwithstanding. First, the US property cycle is on a clear downward trend – and this is accelerating rather than slowing. The supply of homes has almost doubled since end-December 2005. A large number of unsold homes will put further downward pressure on prices. The sub-prime fright has also made investors much more cautious about entering an already falling market. After all, if home prices are dropping, there is no hurry to buy, because it is better to wait for prices to fall further. Thus, we may see an even steeper decline in US home prices going forward (see chart).

Second, the woes in the US property market will affect many American consumers. Americans have been consuming ever more each year, and accordingly, their debt levels have risen. The ratio of household debt to disposable income was at a high of 2.29 in March 2007, compared with 0.82 in December 1990. This means that for every dollar of income earned, the average US household has $2.30 of debt.

Previously, the rising housing market enabled Americans to take out reverse mortgages and get money from the houses they stayed in. But with prices now falling, this will dry up. Some households may even run into problems paying off their home loans. Certainly, this will affect household spending going forward. Any weakness in consumer spending – which underpins so much of what drives the US economy – will put a question mark over growth next year.

Continued volatility

Third, the US continues to do things like reduce interest rates and deflate the dollar. This may work in the short term. But over the long term, it does not solve the fundamental problem that the US economy faces – which is that it spends far more than what it generates in income, resulting in its huge twin deficits. For now, since it is the sole superpower and with the US dollar still the most important and most used currency in the world, cutting interest rates and allowing the dollar to weaken may work in the short term. But eventually the US will have to face up to its problems – and when it does, its economy is likely to be affected. A recession is quite possible.

So while the recent recovery in markets has brought much cheer and relief to investors. I would urge people not to get too greedy and overexpose themselves to risk. While we believe that, ultimately, Asian economies with their many drivers will continue to grow even amid a US recession, their growth will ultimately be affected to some extent. And certainly, markets will continue to be volatile.

As data is released in the coming months, we expect that some of it relating to the US economy will not be rosy.

Companies at the epicentre of the sub-prime loans issue have had to close down entire divisions, and many banks are expected to report large provisions for loans made, which will certainly affect their earnings. For example, just recently, Bank of America, JP Morgan Chase & Co and Wachovia Corp posted profit declines as they wrote down more than US$3.4 billion. They will not be the last to report earnings hits.

In the midst of record-breaking markets, investors may have forgotten just how bleak the situation seemed just a couple of months ago. But they must be conscious of the risks they are taking in their portfolios. Try to stay diversified and not overly exposed to any particular sector or area, no matter how attractive it seems. With many investors already sitting on profits this year, it would be advisable to be prudent at this stage. Don’t let short memories and greed lead to overly aggressive risk-taking.

 

Source: Business Times 17 Oct 07

Making that next crash insignificant

Shield your money to ensure that you won’t be devastated by what markets do in any particular time period

WHAT were you doing and feeling during the 1987 stockmarket crash, which will be 20 years ago this week?

Having married just two weeks before the crash, I was about a year into a great new job. When I saw the biggest one-day percentage loss in the Dow Jones Industrial Average on Oct 19 and near-meltdown that followed, I froze. I didn’t call my mutual-fund companies or broker. I stayed in stocks, where almost all of my meagre wealth  was invested.

It turns out my passivity was the best course. I didn’t need that money for a while and knew the economy was basically solid. Yet I’m not confusing mettle with foresight. I had no idea what was going to happen after the Dow took a 508-point free-fall and about US$1 trillion evaporated in a single day.

Various malefactors have been blamed from a ballooning trade deficit to program trading. To understand the lessons of 1987, you need to dispense with the mountains of studies that have been done over the past two decades.

What’s most important is how focusing on building personal prosperity will keep you in the eye of any market storm. To get an idea of how to survive a panic, you need to know what didn’t happen.

While the end of October 1987 was a stunning glimpse into the abyss of fear, the Standard & Poor’s 500 Index was up 2 per cent for the year.

Did a long-term bear market ensue? The following year, the S&P rose more than 16 per cent, if you include reinvested dividends. From the end of 1987 through 1993, the index more than doubled in value.

The blip of Black Monday did little to slow down the US economy. Banks didn’t close. No depression followed.

Businesses invested in new technologies that would increase productivity and create jobs. The cyber-tech age was in full bloom.

That was then

The difference between 1987 and today is that many institutional safeguards are in place that will curb market freefalls and ensure liquidity. Yet it’s never enough with little-monitored hedge funds playing a large part in trading.

There also still needs to be a single agency policing securities, futures and options markets.

No regulator will be able to prevent crashes or prolonged declines. Yet there’s much you can do to shield your money.

When noting the role of the individual investor in market sell-offs, William Brodsky, the chief executive officer of the Chicago Board Options Exchange, said individuals may think: ‘I’m in for five to 10 years and I’m not going to sell my index mutual funds or IRAs.’

Mr Brodsky described my mindset 20 years ago – and today. As president of the Chicago Mercantile Exchange at the time of the 1987 meltdown, he said the week following Black Monday was ‘analogous to a tornado. We saw it coming.’ Mr Brodsky was speaking at a symposium on Oct 9 in Chicago.

There will be more crashes and bear markets. That’s the nature of capitalism. The question is: How do you keep your cool? When do you stay in and when do you bail?

Whatever happens, the chances are good that you will time any exit or entrance poorly. What if you stayed out of the market in 1988 or the half-decade following the crash? Look at the returns you would have missed.

Personal time-horizon planning is critical. If you can afford to take a 20 per cent loss, how much time would you have to make up the shortfall?

Fear of loss is a powerful motivator in investing, although investors often focus too much on returns and don’t pay enough attention to managing risk.

Let’s say you learned well from the crash of 1987 and decided to invest across three different asset classes that typically don’t move in lockstep with each other.

When the dot-com bubble burst, for example, you would have fared better if you followed this strategy. From March 24, 2000, to Oct 9, 2002, your big-stock stake would have been down about 47 per cent in the Vanguard 500 Index Fund, which tracks the S&P index.

Had you diversified, your stock losses would have been offset by a 26 per cent return from US bonds, using the Vanguard Total Bond Market Index Fund as a proxy.

Adding icing to the cake would be a 32 per cent gain in real estate investment trusts (Reits), as represented by the Vanguard Reit Index Fund. I use these funds because they are low-cost, diversified ways of investing in these asset classes. I own the Reit and bond funds in my retirement accounts.

Even if you put all of your money on large companies – and stayed invested from the beginning of the Internet crash in March 2000 through Oct 5 this year – your holdings would have grown 12 per cent over that period in the Vanguard 500 fund.

You can torture yourself trying to explain why markets rise and fall every day. Don’t trouble yourself. It’s mostly noise.

Instead concentrate on your life plan. Are you saving for a home downpayment? Do you need money for college?

Will a parent need your financial support? Are you planning to leave the workforce part-time or permanently soon?

What if you are disabled and can’t work?

You need to weigh your own life needs to ensure that you won’t be devastated by what markets do in any particular time period. That means protecting against inflation, loss of future income and the ravages of bear markets.

Where are you now and how do you get to where you want to be? It may not matter where you were or what you did 20 years ago. The past is always prologue, yet you need to create your own portfolio insurance to make that next crash insignificant.

 

Source: Bloomberg (Business Times 17 Oct 07)

Expected volatility may hit investors: Principal Global CEO

They should diversify portfolios in this period of increased volatility, he says

JIM McCaughan, chief executive of US asset manager Principal Global, has turned cautious on the market, warning that expected volatility could cause worried investors to exit at a loss.

His broad market outlook, however, is for a number of interest rate cuts which could boost equity markets.

Still, poor economic data, pressure on US consumer spending and continued uncertainty over credit markets will dog investors.

‘The housing market in the US is in a bit of a mess,’ he says. ‘There is excess inventory quite apart from the fact that the mortgage market has seen a much tighter supply of mortgages . . . The situation is bad enough to put continued pressure on consumer spending for the next year or two.’

A weak US dollar, however, has begun to spur exports.

‘We’re in a period of increased volatility. There will be some pretty bad days that will frighten people, but I don’t expect a big setback in the US market,’ Mr McCaughan says.

He urges investors to diversify their portfolios. ‘Volatility is not necessarily a bad thing. It allows you to get in at good prices from time to time. The main strategy should be to diversify and take a long-term view.

‘Those are the ways to protect the investor against the short-term vagaries of the market. The investor who panics and sells low is the one whose return is hurt.’

Principal Global itself manages a diversified range of assets – equities, fixed income and real estate. It currently manages some US$220 billion in assets, compared to US$80 billion in 1999.

According to an article on its website, the group is gunning for US$500 billion in assets under management, and headcount is expected to rise by 25 per cent over the next few years. Singapore is its base for the Asia ex-Japan region.

The group has a partnership with China Construction Bank to market mutual funds in China. Over a period of about two years, assets have grown to between US$5 billion and US$6 billion. It also has a partnership in Malaysia.

Mr McCaughan says concern over inflation is overdone. ‘In the US, companies’ pricing power is limited; real inflation is limited. We’re not fearful of inflation . . . We think there are more rate cuts to come. That will create a fairly good backdrop for markets.

‘We think there may be 50 to 75 basis points in cuts over the next six to nine months. We think that’s probably about right. Fed funds rate at 4 per cent may well be the case in six to 12 months.’

The group sees opportunities in global real estate. It manages some US$40 billion in real estate assets, making it the fourth-largest institutional real estate manager in the United States as at 2006.

‘There are opportunities particularly in US Reits that have been held back by changes in the credit market . . . The fundamentals of commercial real estate are encouraging.’

 

Souce: Business Times 17 Oct 07

TAKING STOCK – Record oil prices beat down markets

Trading curbs on Uni-Asia spark fears of similar moves on other soaring stocks

THE bull run in China-related stocks was stopped in its tracks yesterday as bourses from Hong Kong to Sydney turned jittery over soaring crude oil prices.

Market sentiment in Singapore was also spooked as some brokerages imposed trading curbs after the recently listed Uni-Asia Finance had a spectacular run-up.

Traders fear that similar curbs might be placed on other counters that have risen sharply during the dramatic rebound from August’s sub-prime lows.

‘The mood change was so drastic. We were still brimming with enthusiasm as we came into the office. The screen started to flash red and everyone wanted to get out,’ said a dealer yesterday.

Most Asian markets had initially taken Wall Street’s overnight weakness in their stride. Singapore’s Straits Times Index (STI) was down just 20 points, while Hong Kong’s Hang Seng Index rose 380 points, or 1.2 per cent, early on. But sentiment deteriorated as the crude rose from US$86 a barrel to nearly US$88, spooked by concerns that Turkey will invade Iraq and disrupt supplies.

In the rush for the exits, China stocks were among the worst hit as they have been the biggest beneficiaries during the recent run-up.

While the STI ended 51.3 points, or 1.33 per cent, lower at 3,810.72, the PrimePartners China Index, which tracks 25 China counters, fell 2.5 per cent to 297.71. The Hang Seng closed down 586.23 points.

The big blue-chip losers included Singapore Airlines, down 50 cents at $19.60, and Singapore Exchange, 40 cents lower at $15.40. China favourites such as Yangzijiang Shipbuilding lost 11 cents to $2.53.

With nerves already fraying, traders then had to deal with the plunge in the shares of Uni-Asia, which listed only two months ago.

With soaring oil prices turning the big picture murky, traders fear smallish China stocks could be hit by the kind of sharp sell-off that belted penny stocks in July.

Uni-Asia, which arranges the financing of transport-related assets, was set up by former Japanese bankers and is run out of Hong Kong. In just two days, its shares have plunged by 96 cents, or 38.4 per cent, to $1.54, wiping $238 million off its market value.

Traders said the selldown started after Kim Eng Securities ‘imposed trading restrictions’ on the stock on Monday. This came after the shares had quadrupled over the past three weeks to close at a record $2.50 last Friday.

Kim Eng told its dealers to get upfront payments from clients before they bought Uni-Asia shares.

The news sent Uni-Asia shares down 55 cents on a hefty volume of 62.9 million shares on Monday.

Other brokerages, including UOB Kay Hian and CIMB-GK, followed suit yesterday, triggering another selldown.

The shares dived 41 cents to close at $1.54 with 53.5 million units changing hands.

‘The market is rife with rumours on the stock but nobody knew exactly what was going on. It is not surprising that brokerages are imposing cash upfront payments because its rise was simply incredible,’ said a remisier.

A Singapore Exchange query on Monday also produced a blank.

Uni-Asia said there has been no substantial changes in its list of major shareholders, despite the heavy trades in its stock.

Rising S$ will hurt many tech firms: Citibank

LOCAL tech stocks, which have long lagged the surging broader market, may be dealt another blow by the recent appreciation of the Singapore dollar, which is expected to squeeze margins further, Citibank says in a report.

Although many tech firms have a natural hedge between revenue and raw material purchases, most have revenue that is largely US dollar-denominated and operating costs that are based on Asian currencies – typically the ringgit, yuan or Sing dollars – and report earnings in Sing dollars.

‘Hi-P, Jurong Tech and Venture would be the most affected in our coverage universe given their large operating capacity in China and Malaysia,’ Citi analysts Low Horng Han and Tan Han Meng say in the report.

Chartered Semiconductor and Creative Technology would be less affected since most of their revenue is in US dollars and they report their earnings in US dollars, the analysts say. But their risks lie in operating costs, given their Asian base.

As for CSE Global, the analysts say the impact is minimised by its diversified geography.

If there is going to be one winner in the tech universe, it is likely to be Datacraft Asia, the Citi analysts reckon.

‘Datacraft would be the key beneficiary since it reports in US dollars and both sales and expenses are in US dollars and Asian currencies,’ they say.

The Sing dollar has risen to a 10-year high of 1.4630 against the US dollar since the Monetary Authority of Singapore said last week that it is increasing slightly the slope of the S$ Nominal Effective Exchange Rate (S$NEER) policy band in the face of rising cost pressures, while maintaining the gradual and modest appreciation of the Sing dollar. S$NEER has been edging up at the higher end of the policy band following renewed weakness in the US dollar.

This slight increase could add 0.2-0.5 per cent to the current annual appreciation bias of about 1.9 per cent, Citi analysts say.

But they caution that this slightly steeper appreciation bias may not be sufficient to contain inflationary pressures, particularly given the currently lower Sing-dollar interest rates. This may result in a need for further tightening next year via more fine-timing of the appreciation bias or non-exchange rate measures.

‘We would not be surprised if the government follows through with tightening via other policy instruments via fiscal, labour or property measures to tackle inflation and overheating pressures,’ the analysts say.

Citi economists expect the Sing dollar to reach 1.39 – up from an earlier estimate of 1.41 – against the US dollar by end-2008 and average inflation to be 2 per cent for 2007 and 3 per cent for 2008, up from earlier projections of 1.5 per cent and 2.5 per cent respectively.

With its monetary statement last week, MAS raised its CPI inflation forecasts to 1.5-2 per cent for 2007, from 0.5-1.5 per cent in the preceding policy review, and 2-3 per cent for 2008.

 

Source: Business Times 16 Oct 07

Finance sector: future demand trends

The office space needs of financial institutions are changing globally. CHRIS ARCHIBOLD discusses how Singapore is rising to the challenge

THE financial services sector has seen unprecedented growth in Singapore over the last two or three years, both as a result of domestic growth and the influx of regional and global jobs into the market.

The accelerated growth, supply pressure and innovation in terms of workplace strategies are having a fundamental impact on the type, location and nature of property required by these financial institutions.

Jones Lang LaSalle’s Banking and Finance Industry Group has done much work studying the drivers behind the occupational strategies of this sector, some of which will be covered here. Additionally, we have looked at the pivotal role that the city’s office stock will play in maintaining the inflow of investment in this sector.

In the last 20 years, the defining trends in financial markets have been globalisation in the wake of deregulation and liberalisation; growth of markets resulting from demand due to greater securitisation, privatisation policies and developments in emerging markets; and the impact of technology. These trends, in turn, have led to innovation in products and services and to intense competition between financial centres – and firms within those centres – to capture cross-border trade.

Deregulation: The sector has experienced unprecedented levels of change in the last decade. Historically, it could be characterised as a series of highly regulated government monopolies. While this is changing, deregulation is happening faster in the West than the East. In addition to deregulation, which has resulted in increased competition (foreign and domestic), changing consumer demands and improvements in technology have been the key drivers of change.

Globalisation: The sector is going through a spate of mergers and acquisitions (M&A) as banks build global platforms critical to the success of organisations wanting to compete in the global marketplace.

Technology: The technology revolution has enabled the e-banking age, resulting in significant changes in retail banking. This impacts the need for physical branch space (auto lobbies, etc) and associated staff. Technology has also changed bank processing, enabling many tasks to be executed electronically and, often, remotely in a different part of the world where costs are lower.

Within office accommodation and portfolios, economies are being sought through:

• The consolidation of functions to decentralised locations

• Selection of cost-efficient locations

• Appropriate adjacencies

• Improved technical reliability/performance.

  Corporate banking has high margins and is a client- driven business. It therefore prefers proximity to its client base and is likely to retain its core CBD presence. Exceptions to this may occur where high-specification buildings are available at a rental discount to the traditional city core.

Front office presence

As cost becomes a stronger driver, particularly in the current economic environment, banks are challenging how much corporate and investment banking needs a front office presence.

In recent years, there has been an increasing trend globally to decrease the percentage of ‘front office’ accommodation situated in expensive downtown locations. Many traditional non-client-facing functions have been relocated to the city fringe or decentralised locations for a number of reasons:

• Lower cost

• Control of dedicated facilities and consolidation into one ‘campus’-style location (hence promoting synergies between business units)

• Convenience and amenities for staff.

  The relative split between front and back office accommodation varies significantly depending on the bank involved although current ‘best practice’ is considered to be 60 per cent back and 40 per cent front office. This split often varies more towards the front office in the case of a global or regional headquarters.

  Our benchmarking analysis undertaken on some 40 banks and financial services companies globally indicated the following trends in respect of front and back office splits:

• North American and European-based companies traditionally have a higher decentralised component.

• The impetus to move was primarily due to availability of better-quality buildings with cost savings being ranked second.

• Staff amenities and facilities were a major issue.

  Providing a higher percentage of decentralised facilities is becoming a major priority for Asian-based banks as infrastructure and technology improve.

  Recent technology and globalisation trends have impacted the real estate requirements of large banks (and other corporations). In general terms, the requirements are grouped into a range of location, design, occupancy and tenure considerations. A number of core objectives of large banks include:

• Flexibility and ability to accommodate rapid growth

• Building design that promotes workplace flexibility, efficiency and interaction between employees

• Cost-effectiveness and cost certainty

• Security.

  Flexibility has become a key issue for large financial institutions, particularly in the last five years, as market cycles, economic conditions and M&A activity demand industry participants to be quick in reacting to change.

Flexibility

One of the greatest challenges is the rate of change, the unpredictability of space requirements and the ongoing need to manage costs. As a result, the emphasis in planning administrative office portfolios has shifted to a need to plan for flexibility. This is manifested in a number of ways:

• Standardising modules of space, providing structured IT and services infrastructure that allow the relocation of ‘people, not desks’.

• Providing exit strategies for buildings, whether owned or leased as well as considering both local market leasing practices and financial considerations, and also depending on the nature and criticality of the functions housed therein.

• Providing strategy for rapid growth, especially in supporting unpredictable but rapid growth of new delivery channels.

  The style and design of accommodation has over the last 5-10 years has become increasingly important, as occupants realise the impact it has on staff retention, a cooperative working environment and flexibility.

  Workplace planning and strategy is a huge topic and issue in its own right. Recent trends and design consideration will likely be investigated during an exploration of occupier objectives.

  Singapore has some of the most reliable infrastructure within Asia and is fully able to support centralised facilities.

  This benefit of putting this infrastructure in place has been demonstrated by the massive influx of investment by financial institutions over the last two years.

  The latest Grade A office development, One Raffles Quay, serves as a excellent barometer of this expansion activity. Analysis of the occupancy of this development shows that over 80 per cent of the space is leased to financial institutions and over 60 per cent of this take-up is expansion space.

  To date, much of the activity has been centred in the core CBD area and while we expect to see more of this over the next 12-18 months we are also predicting that many of the major financial institutions will turn their attention to splitting their operations and growing their back office operations. The reasoning behind this prediction is as follows:

• We now have significant real estate cost differentials between the CBD and decentralised locations. In some locations, rents are only 25 per cent of Grade A CBD core rents.

• Rental fluctuations in many back office locations are very low (in dollar terms) compared to CBD locations and therefore afford the occupiers more cost certainty, which aids business planning.

• Many of the banks have reached critical mass (in terms of area occupied) making a front office/back office split a viable option.

• Some locations afford the occupier the opportunity to enter into a build-to-suit, giving total control over the type of environment created.

• Current island-wide supply is limited. Build-to-suit back office premises can be constructed within tight timelines, some as short as 18 months.

  There are a number of companies currently looking at their back office portfolio and while they are considering a number of potential locations, many are focusing their attention on Changi Business Park and the HarbourFront/Alexandra area.

  Banks appear to be moving to more ‘campus’-style buildings for their back offices with larger floor plates that encourage business unit interaction. The real drivers in location selection are expected to be the quality of specification, design of available floor plates/buildings, and the ability to attract and retain quality staff at competitive salaries.

   

  Source: Business Times 16 Oct 07

Businesses roll with stronger S$ but some brace for a crunch

Singapore companies keep firm eye on competitiveness as US dollar slides

(SINGAPORE) Some are thinking of shifting their operations to cheaper locations like China and Vietnam. But for most businesses here, the strengthening Singapore currency and weakening American dollar have not made more than a dent on their cost competitiveness – at least not yet.

Even as the Sing dollar shot up to a 10-year high against the greenback at $1.463 last week, industry sources say it’s still early days to assess the impact on the economy here.

‘For now, businesses have not felt the pinch. The economy is doing well,’ says one industry leader.

Just last week, the Ministry of Trade and Industry (MTI) released estimates showing the economy expanded by a blistering 9.4 per cent in the third quarter, trumping analysts’ forecast.

The government seems not particularly concerned about the falling US dollar, the common currency for global trade and business. More concerned about inflation, the Monetary Authority of Singapore is moving to raise slightly the pace of appreciation for the trade-weighted Singapore dollar.

That is good news for local businesses that are importing a lot. ‘The drop in value of the US dollar is beneficial in the sense that it becomes cheaper for us to buy fuel which is quoted in US dollars,’ says Tammy Tan, spokeswoman for transport group Comfort Delgro.

MTI has declined to comment, but BT understands government planners are keeping a close watch on the local currency’s movements – especially against the US dollar.

The Singapore Tourism Board, keen to draw more visitors, says it is too soon to say if tourism would be affected by the stronger Sing dollar.

The Singapore Chinese Chamber of Commerce and Industry (SCCCI) expects local retailers and service providers in the tourist trade to be affected by a dip in tourist spendings.

Small exporters who ship their goods direct to the US will also be among the hardest affected, it says.

‘A strong Singapore dollar will definitely affect the price competitiveness of our exports done in Singapore dollars,’ says Chew Ker Yee, vice-president for business at Wangi Industrial, a provider of surface finishing and optical thin-film coating solutions. His company is moving its operations to lower cost countries like China and Vietnam, where ‘the local currency appreciation against the US dollar is not as steep’.

Erman Tan, chief executive of Asia Polyurethane, a chemical exporter, finds his costs rising in tandem with the falling US dollar.

Even companies not dealing with the US are feeling the effect, because they have to convert revenues mostly in the US dollar to the Singapore currency.

Miline International, which ships its plywood to Australia, Malaysia, Thailand and the United Kingdom, has sustained ‘book losses’ of 16 per cent in the past four years, when the Singapore dollar climbed from $1.69 to $1.45 against the greenback. ‘A stronger Sing dollar will not benefit us as we trade 100 per cent in US dollars,’ says Mikell Koh, Miline’s managing director. Homegrown technology company Aztech Systems is in similar straits, but says the losses which the company sustains ‘will not be significant to the group’s operations’. Still, Aztech is considering hedging to ease the effect of the falling US dollar, says Herman So, its vice-president for finance.

Some businesses, like logistics provider Lorenzo International, worry that if the greenback keeps tumbling and hence boosting the Sing dollar, profit margins will be squeezed.

Says Raju Chellam, vice-president of market research firm Access Markets International in the Asia-Pacific region: ‘If the US dollar continues its slide, we may need to re-negotiate with our local partners to accept payment in US dollars, instead of in local currency.’

On the other hand, Victor Loh, CEO of the VicPlas Group, a producer of building plastics and medical devices, is fretting that clients may seek to pay in US dollars if the greenback keeps falling.

But there are also gains to be made in cheaper imports and lower inflation. This is seldom mentioned among businesses, lest they have to pass the gains to customers.

Nizam Idris, an economist and currency strategist at UBS bank in Singapore, says the falling US dollar is very much what’s needed to correct the troubling global imbalances fed by excessive consumption in the US and Europe.

In any case, he says that in real trade weighted terms, the Sing dollar has not strengthened much against its trading partners.

Similarly, Fortis Bank strategist Joseph Tan also does not expect the weakness of the US dollar to affect Singapore’s trade ’so starkly’.

He says Singapore’s chief competitors in Asia have also seen their currencies appreciate – some even more – against the greenback, leaving Singapore’s competitiveness relatively unscathed.

But Mr Tan is concerned that the falling US dollar, along with the recent cut in the Fed rate, is exporting US inflation to the rest of the world.

While a strong Sing dollar could hit exports, the SCCCI does not see any long-term harm to Singapore’s competitive edge.

‘For most large corporations, the rising Sing dollar is unlikely to have a major impact as these companies leverage on niche manufacturing capabilities and efficient supply-chain and logistics management to compete globally,’ it says.

The more immediate concern for many businesses is the recent sharp hike in residential and commercial rentals, according to SCCCI.

Says an expatriate businessman: ‘This almost bubble aspect of commercial and private rents is making Singapore a much less attractive place to do business than in the past.’

 

Source: Business Times 15 Oct 07

Why Singapore is what it is

Minister Mentor Lee Kuan Yew was the keynote speaker at the opening of the International Bar Association’s annual conference last night. This is his address.

TO UNDERSTAND Singapore, you have to know how we were suddenly thrown out of the Federation of Malaysia in 1965 and became an independent state. Peninsular Malaya had been Singapore’s hinterland ever since the British founded Singapore in 1819.

We faced a bleak future. We had no natural resources. A small island-nation in the middle of newly independent and nationalistic countries of Indonesia and Malaysia, each determined to cut Singapore off as the middleman. To survive, we had to create a Singapore different from our neighbours – clean, more efficient, more secure, with quality infrastructure and good living conditions.

We sought to provide an environment that our neighbours did not provide – First World standards of reliability and predictability. Important for investors and economic growth is the rule of law, implemented through an independent judiciary, an honest and efficient police force and effective law enforcement agencies. Had we not differentiated Singapore in this way, it would have languished and perished as a shrinking trading centre instead of becoming the thriving business hub it is today.

I studied law in the Cambridge Law School and am a barrister of Middle Temple, an English Inn of Court. I practised law for a decade before I first took office in 1959 as prime minister of self-governing Singapore.

Therefore I knew the rule of law would give Singapore an advantage in the centre of South-east Asia where the law was often what was decided by the leader, whether a president or prime minister, often an ex-military man.

Singapore inherited a sound legal system from the British. Clear laws, easy access to justice and an efficient legal system provide the basis for citizens to compete equally in the market and to grow the economy.

A stable and predictable legal environment facilitates the enforcement of contractual rights and protection of property rights. The common law heritage and its developed contract law are known to and have helped attract investors. Our laws relating to financial services are similar to those of leading financial centres in other common law jurisdictions such as London and New York. As these are the two leading financial centres in the world, their laws govern most financial transactions worldwide. They are used freely in Singapore.

Since 1959 we have adopted English as our working language.

While we have kept key English legal principles; after the United Kingdom joined the European Union, it adopted EU laws and doctrines. We have not followed them. Instead we have amended our laws to fit our needs and circumstances.

The independence of our courts is protected by the Constitution that prevents removal of judges from office by the executive. We established our final Court of Appeal in place of the Privy Council as our courts would be more familiar with our own legislation and local conditions and culture.

We still look to English precedents and examples, but increasingly we look also to those of United States, Australia, New Zealand and other Commonwealth countries. Even civil law countries have given us useful concepts and ideas, especially those adopted and incorporated as part of UNCITRAL trade laws.

Needs-based legislation

WE have special legislation to meet our needs: A multi-racial and multi-religious society is prone to conflicts.

Race, language and religion in Singapore have to be handled sensitively, especially during elections. We have enacted the Religious Harmony Act and set up the Presidential Council for Minority Rights. We created Group Representation Constituencies to ensure minority representation in Parliament.

For good industrial relations, we enacted the Employment Act and Industrial Relations Act to provide the framework for our tripartite system of industrial ties, a system for collective bargaining, and an Industrial Arbitration Court to resolve industrial disputes.

For law and order, we have strong deterrent sentences for offences such as drug trafficking, kidnapping, unlawful possession of firearms.

The Immigration Act provides for caning sentences to deter illegal immigrants and overstayers.

For national security, the Internal Security Act allows for preventive detention, an effective response to terrorists.

By the 1980s, the system of courts we inherited from the British could not cope with the increasing volume of work. It needed to be modernised and to make use of IT. This also needed a chief justice who is not only legally qualified, but also has managerial and administrative experience to reform the system.

It was Chief Justice Yong Pung How (1990-2006) who had practised law for over two decades before he became a merchant banker and finally chairman of Singapore’s largest bank. He restructured the system, instituted new procedures, used IT in the courts, increased the number of judges and courts and selected the most able and balanced of those at the Bar to become judges.

The World Bank, in a report this year entitled Judiciary-led Reforms In Singapore – Framework Strategies And Lessons, stated: ‘Over the past 15 years, Singapore’s judicial system has been transformed from one that many viewed as characterised by inefficiencies, delays, and inadequate administrative capacity to one widely seen as among the most efficient and effective in the world.’

Attorney-General Chan Sek Keong, who has since become Chief Justice, will maintain these standards.

Good governance, a sound legal framework and judiciary have resulted in stability and economic growth.

Transparency and integrity

OUR emphasis is on meritocracy, the building blocks of sound governance and integrity in our judiciary and legal system. The integrity of our financial systems withstood the turbulence of the 1997 Asian financial crisis that caused several of our neighbours’ banking systems to collapse. Singapore’s firm regulatory framework has facilitated economic progress.

Corruption, endemic in parts of the world, was seeping into Singapore in the 1950s when elections had introduced elected ministers in the transition to internal self- government. In 1959 when we took office in the first fully elected government, we moved swiftly to rid ourselves of corruption before it could become endemic.

Transparency International, a civil society organisation against corruption based in Berlin, has repeatedly listed Singapore among the top five of 163 countries. And the only one from Asia in the first five.

Our system does not tolerate corruption and we have avoided the problems of widespread corruption that have plagued Asia. Our Corrupt Practices Investigation Bureau (CPIB) annually tabulates the cases brought against officers and executives from the public and private sectors. In two cases, it led to the conviction and prison sentence of a junior minister. Another, a Cabinet minister, committed suicide after being investigated for corruption.

Three factors enabled Singapore to escape the poverty that plagued the region: First, clean and efficient government; second, the character and capabilities of the leadership in charge; third, an industrious people, eager and quick to learn to be productive and gainfully employed.

Defamation

POLITICAL leaders in Singapore take action against opponents who make statements against them that impute dishonesty and lack of integrity. Situated in a region where ‘money politics’ is part of the politi