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Money continues to flow into Singapore.

Thursday, August 25, 2011

Singapore continues to attract inflows of money. I have friends from USA and Europe who are parking their money in savings accounts in Singapore although they get only 0.1% interest. Why? The Singapore Dollar has been appreciating against their home currencies and is likely to get stronger.


Singapore also has a AAA rating when it comes to sovereign bonds. This has been attracting much attention. The latest to announce intention to invest in Singapore bonds is Schroder Investment.

Does it stop at bank deposits and bonds? Emphatically, no. Hot money is hungry for productive assets in Singapore. The rising supply of money has kept interest rates low, creating a credit boom. This is a big reason why prices of condominiums, especially those in the luxury segment, have shot through the roof in recent times.

The last I heard, some people with a lot of money have turned their attention to industrial properties in Singapore as yields on residential properties are relatively low at about 4% now. Will industrial properties see their prices pushed up next?

The rising value of the Singapore Dollar and continuing inflow of money into our country has created problems for our industries as well because our exports become less competitive. As it is, our GDP shrank 7.8% in the last quarter.

I believe that the Monetary Authority of Singapore has to limit hot money inflows or cap gains on the Singapore Dollar and soon.

16 comments:

financialray said...

Can MAS really cap the gains on the dollar when inflation is rearing its ugly head?

Since we cannot control the macroeconomics, we perhaps could see how to take control of the situation to our favor.

I think your plan for industrial REITs looks good. Residential property is too risky to venture in right now, with seller's stamp duty hanging over the next 4 years.
Commercial property investment is the wild card.

AK71 said...

Hi financialray,

Inflation per se is not a bad thing but overly strong inflationary pressures will cause economic and social problems. Hot money inflows are usually very disruptive.

Something more aggressive should be done to reign in high inflation and hot money inflows. Of course, it is for the powers that be to decide on the course of action. ;)

On my part, I can only do what I think will protect what little wealth I have, making plans for the status quo as well as the worst case scenario.

In terms of real estate, yes, the only bright spot I see in Singapore is in industrial real estate. Only time will tell if I am right. :)

Raelynn said...

hi ak,

i was reading the news feed over at CNA on iphone last night and apparently there is an increase in brokerages not recommending singapore as an investment destination due to our increase in sensitivity to global fluctuations than our neighbours, with kim eng downgradng a large chunk of STI with sell rating on local banks and Morgan Stanley slashing outlook for singaporean stock returns to negative till the end of 2011 while anticipating upsides for indonesia and thailand. Standard chartered has also picked china over singapore as our reliance on international export demand leaves it relatively more exposed to global fluctuations. (summary of the article)

What are your thoughts on this??

Drizzt said...

industrial reit is a black swan like shipping trust.

AK71 said...

Hi drizzt,

I would have to disagree. Calling industrial REITs black swans suggests that they are all bad. Even with shipping trusts, they are not all bad. Very much depends on whether one has done his due diligence as everything at the right price can be a great investment.

Anyway, black swans refer to situations in which something out of the ordinary taking place, usually negative. Unless something like this should happen, it is incorrect to label industrial REITs as black swans.

AK71 said...

Hi Raelynn,

Did you say they expect Singapore to underperform till end 2011? That is not too far away. Do they expect things to pick up again here in the new year?

I am not a trained economist and I use insights provided by people like Marc Faber as compasses. Add some personal insights and experience in my line of work with a dash of good old fashion common sense and you get what I share here in my blog.

What will it be like for the economy and the stock market here till end of the year and in the new year? If the world economy should decline, Singapore together with any country with a strong dependence on exports will not do well.

So, suggesting investing in Indonesia which sees domestic consumption making up 60% of it's GDP makes sense. I am invested in LMIR. Investing in China and India would also make sense. These three countries were the only one in Asia that did not go into a recession in the last crisis.

However, it is easy to share such broad base ideas. I can do it too. Far more difficult is to choose accurately which companies to invest in. :)

Raelynn said...

hello AK,

not sure about after 2011, that was pretty much the most of the article.. i had a shock when CMA jumped a whole 10cents today, seems like investors are rushing in to park their money in "safer" shares given the current uncertainty.

Marco said...

I am a foreign retail investor, and I am parking my fund in SGX.

AK71 said...

Hi Raelynn,

A pleasant shock, I hope? ;)

CMA is, technically, deeply oversold and the rebound is normal. To me, it actually presents an opportunity to reduce exposure.

CapitaMalls Asia: Pre-emptive strikes failed.

The downtrend is pretty much intact.

AK71 said...

Hi Marco,

Oh, I thought you were an expatriate in Singapore.

A hearty welcome! :)

Where are you from?

Soon said...

Hi AK,

Just wondering what's ur take on LMIR now? Has it changed from your last post on the company?

Is it a good time to enter now?

Thanks!

AK71 said...

Hi Soon,

I still do not like the way they hedge forex risks. It is like throwing money away and it has been happening for almost two years now.

However, it would become quite attractive to me once more if it should offer a distribution yield of, say, 10%. This would mean a unit price 44c or so.

I am vested at lower prices. So, there is no hurry for me to add to my long position here, especially if I disagree with the management on their hedging policy.

JJ said...

Wondering if the hedging issue can be brought up during agml

AK71 said...

Hi JJ,

It is interestng to note that LMIR has had many CFOs since its inception but the CEO has been the same since day one. ;)

I have never attended the AGMs. I can get all the information I need online. Anyway, I doubt that anything would change even if the issue was brought up at an AGM.

Marco said...

Hi AK, I am working in Kuala Lumpur, Malaysia.

Do you invest in Malaysia market?

AK71 said...

Hi Marco,

I have friends in Kuala Lumpur but no investments. ;)

My plate is full with just my investments in Singapore. :)

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