The election has really caught my attention. Here and there, we have speeches with references to driver and co-driver. It goes something like this. If Singapore were to be a bus and all of us are sitting on this bus, would you like to have this bus driven by just one driver? Or would you like to have a co-driver as well just in case the driver goes astray because of some reasons? To an average Singaporean like most of us, I think we are more concerned in knowing whether we can reach the destination safe and sound.
Let's talk about minimum wage today. In the demand and supply economic model, the setting of minimum wage will likely lead to oversupply of workers and lower demand of labor, resulting in higher unemployment. In layman term, if you are legally entitled to a minimum salary of $X but your boss feels that you are too expensive, they will not employ you and move their offices to other countries where people are paid lower than you. So, you will be unemployed because your boss cannot pay you any lesser than $X. This theory says that minimum wage will lead to companies employing less people or moving their operations out of the country completely.
This is a basic theoretical model. In real life, it is not so simple. It depends a lot on many factors including the nature of the industries, the general economy, etc. For example, if our IRs need to employ more people for their casinos but they are subjected to a minimum wage regulation, do you think they will abort the casinos and move out of this country? Not likely at all. They can probably build another casino elsewhere but they are not likely to find another country like Singapore. Generally, they will take into consideration other factors such as wealth factor of the population, the political environment, education level of the population, support systems, infrastructure, etc.
Minimum wage has its pros and cons. With higher wage rate, people will have more money and they will spend money. There will be higher standard of living and so on. But, for people working in industries where their competitive advantage is to remain as low cost as possible, the minimum wage will likely result in higher unemployment. Anyway, even without minimum wage now, factories are already moving out of this country.
Below is a link for reference to the minimum wage rate of the various countries.
http://en.wikipedia.org/wiki/List_of_minimum_wages_by_country
Enjoy reading.
Saturday, April 30, 2011
Saturday, April 23, 2011
Property and Property!!
Mapletree Commercial Trust has finally decided to launch its public offering at 88cents. In listing a public offering, any company will try to maximize their gain (i.e. sell the share at the best possible price) without affecting market interest (i.e. market demand). However, as there are so many REITS in the market and many of them are trading at higher yields and greater discount to their NAVs, my opinion is that there may be limited upside to the price after listing.
Let's talk about something else today. The election is finally here. And, one of the hot topics is, of course, the property prices especially for HDB flats. In a way, the new HDB flat prices depend very much on the market value of resale HDB prices. So, higher resale HDB prices will likely lead to higher new HDB prices. But, to support higher resale HDB prices, there are other important factors such as income of the population. Let's take a look at the median income of resident household and resale HDB price index for the past 10 years.
Over the period from 2000 to 2006, the median household income was relatively flat. Similarly, the HDB resale price index fluctuated within a narrow range. From 2006 onwards, the HDB resale price index started to climb higher. Income went up too. So, unless income goes up, it is unlikely that this uptrend in HDB reale price index is sustainable.
In tandem with the strong economic growth, household income should continue to rise further. And, so will HDB resale price index. How long can this last? I think it's anybody's guess.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
Let's talk about something else today. The election is finally here. And, one of the hot topics is, of course, the property prices especially for HDB flats. In a way, the new HDB flat prices depend very much on the market value of resale HDB prices. So, higher resale HDB prices will likely lead to higher new HDB prices. But, to support higher resale HDB prices, there are other important factors such as income of the population. Let's take a look at the median income of resident household and resale HDB price index for the past 10 years.
Over the period from 2000 to 2006, the median household income was relatively flat. Similarly, the HDB resale price index fluctuated within a narrow range. From 2006 onwards, the HDB resale price index started to climb higher. Income went up too. So, unless income goes up, it is unlikely that this uptrend in HDB reale price index is sustainable.
In tandem with the strong economic growth, household income should continue to rise further. And, so will HDB resale price index. How long can this last? I think it's anybody's guess.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
Friday, April 15, 2011
Hyflux Preference Share
There are quite a number of preference shares listed in Singapore stock exchange. Most of these are related to our local banks that need to shore up their capital to meet the tougher capital requirements under Basel III. The recent Hyflux preference share at 6% is a pleasant surprise. I thought that it would have been cheaper for Hyflux to raise capital through debts in this low interest environment.
Anyway, 6% cummulative preference share with step up to 8% feature in 2018 is very attractive. Nevertheless, all investments come with certain risks and it is very important to read and understand the risks associated with this preference share as presented in the prospectus. In addition, when investing in a preference share, we should also consider the following factors:
1) The sustainability of the issuer's dividend policy and its ability to pay dividends in the future.
At the moment, Hyflux's dividend policy is targetted at a payout ratio of 15%. It has been paying dividends since 2004 and the payout ratio is currently more than 30%. With interest cover ratio of 7 times and S$222 million in cash, there is no reason to believe that this dividend policy will not continue in the near future. Furthermore, with its existing projects in the pipeline including the water purchase agreement with PUB, there is no reason to doubt the sustainabiliity of this dividend policy. Finally, given that preference share holders will be paid dividends before ordinary share holders, the preference share holders should be able to receive the regular dividends if there are no surprises. The cumulative nature of this issue makes the deal even more attractive. If for some reason that its business were to be affected and no dividend could be distributed for certain years, the preference shareholders will still be able to receive the dividend accumulated over the years when the company decides to pay dividend at a later year.
2) Market interest rate
Nevertheless, preference shares are sensitive to market interest rate. In times of rising interest rates, preference shares tend to lose value. As our interest rate is now at rock bottom, there is almost 100% chance that we will see higher interest rate in the coming future.
3) Market liquidity
And, if you look at the volume of most preference shares traded over the Singapore stock exchange, you will realize that they are not very liquid. When you need to sell the preference shares for cash, there is a risk that you may have to sell at an unfavorable price.
That's all, folks. Happy investing.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
Anyway, 6% cummulative preference share with step up to 8% feature in 2018 is very attractive. Nevertheless, all investments come with certain risks and it is very important to read and understand the risks associated with this preference share as presented in the prospectus. In addition, when investing in a preference share, we should also consider the following factors:
1) The sustainability of the issuer's dividend policy and its ability to pay dividends in the future.
At the moment, Hyflux's dividend policy is targetted at a payout ratio of 15%. It has been paying dividends since 2004 and the payout ratio is currently more than 30%. With interest cover ratio of 7 times and S$222 million in cash, there is no reason to believe that this dividend policy will not continue in the near future. Furthermore, with its existing projects in the pipeline including the water purchase agreement with PUB, there is no reason to doubt the sustainabiliity of this dividend policy. Finally, given that preference share holders will be paid dividends before ordinary share holders, the preference share holders should be able to receive the regular dividends if there are no surprises. The cumulative nature of this issue makes the deal even more attractive. If for some reason that its business were to be affected and no dividend could be distributed for certain years, the preference shareholders will still be able to receive the dividend accumulated over the years when the company decides to pay dividend at a later year.
2) Market interest rate
Nevertheless, preference shares are sensitive to market interest rate. In times of rising interest rates, preference shares tend to lose value. As our interest rate is now at rock bottom, there is almost 100% chance that we will see higher interest rate in the coming future.
3) Market liquidity
And, if you look at the volume of most preference shares traded over the Singapore stock exchange, you will realize that they are not very liquid. When you need to sell the preference shares for cash, there is a risk that you may have to sell at an unfavorable price.
That's all, folks. Happy investing.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
Saturday, April 9, 2011
SGD Exchange Rate
Since my last posting on Gold Silver ratio on 23 March (barely 3 weeks ago), the ratio has moved from 39 to 36 today. On 23 March, Silver was trading at USD 37. Now, it is close to USD 41 and this is around 10% gain in 3 weeks. Crazy but impressive.
Today, I would like to discuss about USD/SGD exchange rate and inflation in Singapore. As I have mentioned in my previous blogs, inflation is something that I am more worried of as compared to the other crisis. Recently, the authority has announced that CPI went up by 5% in Feb 2011. Correspondingly, USD/SGD exchange rate has dropped to 1.257 these few days. This is something that we have been expecting given that our regulator MAS is more inclined to make use of exchange rate policy as a tool to control inflation.
In the chart above, we can clearly see that the USD/SGD exchange rate tends to depreciate as inflation rate in Singapore goes up. This is evident in the 90s as well as these two years. It shows how MAS controls the inflationary pressure in Singapore with a managed exchange rate policy. Then, the next question that we should ask ourselves will be why is our inflation rate going up?
In the chart above, we compare the real GDP growth in Singapore against its inflation rate. Given our open economy, Singapore's real GDP growth tends to overshoot when we start to recover right after a major economic crisis. Take 1998 Asian Crisis for example. Our real GDP growth ran all the way up to 9.1% after that major crisis. Similarly, we are seeing the same effect now (one year or so after Subprime crisis). When our GDP starts to overshoot, unemployment rate will drop and more people will start buying cars and houses.
Let's take a look at the contributing factors to the increase in the consumer price index for Feb 2011. The major contributors are Transport and Housing. Given that COE (Certificate of Entitlement) forms a major part of the car price, I do not think that a low USD/SGD exchange rate will help very much in alleviating the inflationary pain in this area. Nevertheless, a low USD/SGD exchange rate will help to control the price of petrol in Singapore. As for housing, please take note that CPI only takes into consideration the cost of accomodation (i.e. cost of rental) and not housing price. The escalating housing prices have caused rental cost to go up correspondingly. All in all, inflationary pressures have built up in this country over these two years. To respond to this, our SGD has also appreciated over these two years as well.
Our last question will now be how low can the USD/SGD exchange rate go and how long will it last? Frankly, I do not think the depreciating USD/SGD exchange rate will last long. A lower USD has its side effects to Singapore's economy. It has become more expensive for tourists to visit Singapore and this will hurt our tourism and service industries. And, for your info, this industry includes our Integrated Resorts and Casinos as well. In addition, an appreciating SGD will hurt our manufacturing industry and this sector forms 30% of our GDP. Lastly, in US, QE II is coming to an end and this will bring an end to cheap money soon. If you look at the charts again, you will see that GDP growth will normalize after an initial period of high growth. This goes the same for inflation rate. When inflationary pressure stops rising, it will mean that it does not make compelling reason to maintain a high exchange rate for SGD anymore. And, this day may come sooner than you know. Just my 5 cents worth.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
Today, I would like to discuss about USD/SGD exchange rate and inflation in Singapore. As I have mentioned in my previous blogs, inflation is something that I am more worried of as compared to the other crisis. Recently, the authority has announced that CPI went up by 5% in Feb 2011. Correspondingly, USD/SGD exchange rate has dropped to 1.257 these few days. This is something that we have been expecting given that our regulator MAS is more inclined to make use of exchange rate policy as a tool to control inflation.
In the chart above, we can clearly see that the USD/SGD exchange rate tends to depreciate as inflation rate in Singapore goes up. This is evident in the 90s as well as these two years. It shows how MAS controls the inflationary pressure in Singapore with a managed exchange rate policy. Then, the next question that we should ask ourselves will be why is our inflation rate going up?
In the chart above, we compare the real GDP growth in Singapore against its inflation rate. Given our open economy, Singapore's real GDP growth tends to overshoot when we start to recover right after a major economic crisis. Take 1998 Asian Crisis for example. Our real GDP growth ran all the way up to 9.1% after that major crisis. Similarly, we are seeing the same effect now (one year or so after Subprime crisis). When our GDP starts to overshoot, unemployment rate will drop and more people will start buying cars and houses.
Let's take a look at the contributing factors to the increase in the consumer price index for Feb 2011. The major contributors are Transport and Housing. Given that COE (Certificate of Entitlement) forms a major part of the car price, I do not think that a low USD/SGD exchange rate will help very much in alleviating the inflationary pain in this area. Nevertheless, a low USD/SGD exchange rate will help to control the price of petrol in Singapore. As for housing, please take note that CPI only takes into consideration the cost of accomodation (i.e. cost of rental) and not housing price. The escalating housing prices have caused rental cost to go up correspondingly. All in all, inflationary pressures have built up in this country over these two years. To respond to this, our SGD has also appreciated over these two years as well.
Our last question will now be how low can the USD/SGD exchange rate go and how long will it last? Frankly, I do not think the depreciating USD/SGD exchange rate will last long. A lower USD has its side effects to Singapore's economy. It has become more expensive for tourists to visit Singapore and this will hurt our tourism and service industries. And, for your info, this industry includes our Integrated Resorts and Casinos as well. In addition, an appreciating SGD will hurt our manufacturing industry and this sector forms 30% of our GDP. Lastly, in US, QE II is coming to an end and this will bring an end to cheap money soon. If you look at the charts again, you will see that GDP growth will normalize after an initial period of high growth. This goes the same for inflation rate. When inflationary pressure stops rising, it will mean that it does not make compelling reason to maintain a high exchange rate for SGD anymore. And, this day may come sooner than you know. Just my 5 cents worth.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
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