Less than 2 months into 2015, it was the same old story of volatile stock markets and eventful events globally.
First of all the plunge in oil price continued from 2014 until lately that it managed to rebound with price of crude oil finally getting back above US$60/barrel. The reason for rebound in oil price was due to US oil producers cutting down on spending for oil exploration and that should prevent further supply glut. The rebound in oil price should not lead to starting to get optimistic again as the impact of the plunge in oil price for the past months have yet to materialize in particular revenue and profit margin of oil producers/explorer companies. The spending cut will also mean having lesser contracts for oil rig builders going forwards and who know might be having some cancellation of contracts. However, there is no reason to continue feeling doom and gloom when some still predicting oil price could fall to US$20 or US$30/barrel, extremely pessimistic ? Looking ahead oil price should stabilize so that the demand will match up the supply (increase in demand or reduction in supply) before it started to move up again.
Various Central Banks have taken surprised or scheduled action since the start of 2015. SNB was the first to surprised investors when it decided to remove the cap of Swiss Franc against Euro, next with most expecting ECB to launch QE, it not only did as expected but surprised investors again with bigger than expected amount of bonds purchase. RBA was the third to do a rate cut and even MAS shocked Singapore by ease the appreciation of SGD. China after last year of rate cut also did a RRR cut of 25-basis point after it reported a below forecast 2014 GDP. Swedish Central Bank was the latest to do rate cut just 2 days ago. More Central Banks from Japan, South Korea, India, Indonesia, etc are also expecting to ease monetary policy this year. While US Fed has completely withdrawn its QE last year and expected to do monetary tightening this year by rate hike, somehow rest of the world is doing the opposite. That is a totally out-of-sync in term of global economy. Should seriously ponder what actually went wrong globally that resulting in such an out-of-sync global policy.
Greece is back in the spotlight again after the leftist anti-austerity party won the recent election. Greece's debt which is suppose to expire end of this month is current trying to negotiating with EU and international creditors to strike a deal as Greek Government will be running out of money if no new agreement will be reached. A no deal will surely see Greece default on the debt and talks of possible Greece exit of euro surfaced. Greece in general has no intention to leave the euro but the new Government wanted austerity requirement (in exchange of bailout aids) to be renegotiated. Last week EU Finance Ministers and Greece met up but come to no agreement and the talk will continue next week. Note that the Greece issue now is not the same scale as that in 2011 when that first surfaced but nevertheless if a deal is struck will be best for EU and Greece.
Another event happened just yesterday and that was Russia and Ukraine has finally agreed on the ceasefire deal. Though the Russia and Ukraine issue was pretty much resolved last year, that news still bring some positive effect to global stock markets. Guess Russia has no choice as the economical sanctions they faced last year due to the problem in Ukraine and the plunge in oil price has sent its economy into recession.
For Singapore, it continued to face with slow growth due to external factor drag in export and to add to more trouble, it is also facing deflation. That possible was the reason for the surprise move by MAS. Note deflation in Singapore doesn't mean things are getting cheaper but rather there is lack of demand and spending. Daily necessities still costing the same or slightly higher (look around supermarket, food courts, medical costs and public transportation cost). The PTC recently approved fare hike for public transport and most will be wondering if the oil price has plunged more than 50% which will be a big benefit for public transport operators (bringing down their expenses leading the higher profit margin) why still justify to do a fare hike ? How Singaporean in general benefit from the plunge in oil price ? Shouldn't a fare cut or even just remain status quo be more appropriated ? This is seriously something every Singaporean must give a deep thought about !
Looking forwards, there should be one thing every Singaporean should monitor closely -- PROPERTY MARKET. Property prices have continued the decline due the the 7 rounds of tightening measures the Government implemented and with people still believing that property price could even go lower this year it is time to think of the glass of water being half-full and not half-empty. Singapore economy is stalling and facing the threat of deflation, the continuation of falling property price could eventually lead to a crash in the property market. With current state of economy, there isn't any buffer to cushion the crash if it happens and Singapore economy will just dive into recession. Now think carefully, is that what the Singapore Government want ? Answer is obvious NO !
For those who just solely focus on property market will believe in some more of price decline is needed but if looking at the bigger picture this should not be the case. Will not be surprise that Singapore Government will start to do some easing of the property cooling measures to stimulate economy activities to boost the stalling economy and deflation. If so, property price will hit bottom within the next 1 or 2 quarters and rebound. Why property sector ? Answer is obvious and logical. Property sector is the only sector that is being tightened to curb inflation in the past and the result of that is drop in property price, drop in economy activity in the sector. No other sectors have undergo tightening and if those sectors can't rescue the stalling economy the only way is to loosen the already tightened one to stimulate economy. Easing of the property cooling measures could be come in the form of removing or reducing the Additional Buyer's Stamp Duty (ABDS) or removing/extending the period of developer's Qualifying Certificate (QC) which currently stands at 2 years. Presently, Singapore sibor rate has gone up and expected to increase further should US Fed hike rate and that will affect property buyers on their mortgage loan as they will have to pay higher interest and that could lead to buyers being forced to default on the loan if becomes too difficult to service. Ease of property cooling measures should be able to help those who wanting to sell off before interest rate hike able to find buyers easily. Whenever there is a demand and supply, an economy activity will form and that is the way to stimulate stalling economy.
Ironically, the chunk of listed property stocks in STI have been moving higher lately with volume and that could mean something positive will be happening to the property sectors in months ahead. 无风不起浪呀！If that is not due to easing of property cooling measures what other positive news can that be ? The privatization of Keppel Land by Keppel Corporation and the wanting to buy OCBC & Great Eastern's stake in United Engineers by Thai tycoon (which according to latest has ended up as no deal) is definitely not something out of the blue or they have too much cash but no where to spend. To acquire now (at low price due to weakness in market) and when the property market begins to upturn their acquisition will pay off handsomely. Isn't that what businessman do ? See opportunity, seize it and get rewarded !
Just a little portion on the no-deal of OCBC & Great Eastern's United Engineers stake. United Engineers have been aggressively divesting off its non-property investment and that intention should be focusing solely on becoming a property developer. While the no-deal will see United Engineers share price going to take a "dive" on Monday given that share price has moved up for the past 6 months in anticipating that a deal will be agreed on, that doesn't mean it will be bad. There isn't lack of suitors for United Engineers and OUE is being named as another potential eying for it. The no-deal between OCBC & Great Eastern and Thai tycoon was due to unable to agree on a price (presumably OCBC & Great Eastern wanting at least S$3.50/share but Thai tycoon is probably looking at not more than S$3.30/share) and if another suitor is able to meet the asking price of OCBC & Great Eastern, a deal will go through. Alternatively, as a shrewd businessman, if can't reach a compromise on the price the best way is to walk away and when the stock price falls the shrewd businessman can take the advantage to acquire stake on the cheap. Imagine if the deal is to pay S$3.50/share for that more than 30% stake to trigger a takeover, the offer price for rest of the shares will have to be at least S$3.50/share. However, when the price falls due to no-deal, buying on open market to make up that 30% at a cost lower than S$3.50/share, triggering a takeover price can be lower than S$3.50/share. Even if the takeover price is still at S$3.50/share, the shrewd businessman in this case only need to pay 70% of the stocks at S$3.50/share and not in the previous case of 100%. Mathematically, which case is better for the shrewd businessman ?
The plunge in United Engineers share price in reaction to the no-deal only present bargain hunting and any investors should seize that chance to grab it. Reasons being, should Singapore Government ease of property cooling measures, share price of property stock will go up. Both OCBC and Great Eastern already have intention to sell (at the same they want) and it is just a matter of time when the next suitor comes along and willing to pay that price.
