The Singapore Chart Seminar
Eoin Treacy's view There
is a certain atmosphere one experiences in a boom town that is not currently
present in much of Europe or the USA but is abundantly evident in Singapore
and Sydney. Both Australia and Singapore are examples of countries that have
come through the global financial crisis in relatively good shape but for different
reasons. Singapore, for its excellent standards of governance and position at
the centre of one of the world's busiest trade routes. Australia as a major
supplier of resources.
Having seen different parts of Asia over the last decade my first impression of Singapore and I mean it as a compliment, was that it is what China might look like if the Germans were running it. Visit southern Germany and the parallels are clear. Bavaria and Baden Württemberg have long been bastions of industry and innovation. The population displays a preference for conservative governance mostly in the hands of a single party for the last half century. Everything works. Trains run on time, cities are clean and well managed and crime rates are comparatively low.
More than a few Singaporeans quoted a saying that when their eyes are open they are talking about money and when they are shut they are thinking about money. Different attitudes to social security and state funded pensions are where the comparison begins to break down. The need to provide for one's retirement and the industriousness this provokes is admirable in an advanced economy like Singapore's.
On Orchard Road HSBC has a large billboard advertising Renminbi denominated current accounts. A question that has repeatedly been posed by subscribers over the years has been how to gain access to the Renminbi. It is apparently much easier than it used to be. This also helps to demonstrate how leveraged Singapore is to China as a private banking and trade destination.
Delegates at the Singapore seminar came from 8 countries and the conversation focused primarily on Asia, particularly China and commodities. Whereas a sense of trepidation is evident among US and European investors regarding China this is much less of a factor in Asia. Nevertheless, delegates unsurprisingly identified the Chinese property market as a potential source of trouble. One delegate opined that large developers are comparatively well capitalised, giving the Shanghai Property Index as an example while smaller developers are much more highly leveraged.
The Shanghai Property Index has been ranging with a mild upward bias for more than a year as it continues to hold above 3000. However a catalyst, potentially the loosening of tightening measures focused on the sector, appears to be a requirement for a more convincing return to medium-term demand dominance.
The rise of the Asian consumer, not only in China but across Asia, was a persistent source of interest among delegates. The outperformance of sectors related to urbanisation across the region is quite evident from healthcare, consumer goods, finance (ex-China) and technology.
Another concern for many was the potential repercussions of the end of quantitative easing. A number of delegates ascribed the corrective phase on Wall Street from April last year to the end of QE1 and were wary that the end of QE2 might have a similar effect. At present the S&P500 continues to hold above the 1330 area and has posted a short-term progression of higher reaction lows since mid March. A break of that sequence, with a sustained move below 1295, would be required to suggest a quicker period of mean reversion.
Potentially more important is the ongoing faceoff between higher commodity prices and the performance of stock markets that David has commented on daily in the audios. An environment of higher commodity prices remains a headwind for the global economy and stock markets deserve a higher risk premium as a result.
Singapore's harbour is filled with oil tankers. A local subscriber told me at dinner one evening that it represented the physical representation of oil arbitrage. The owners of the respective cargoes were waiting for a move in oil prices before selling and setting course for a new destination. Oil prices pulled back sharply over the last couple of weeks. Brent crude has unwound part of the decline but technical damage has been done and the bounce appears tired. The likelihood of a lengthier period of consolidation has increased.