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But the hike in fuel prices in Malaysia will cause discomfort here

SINGAPORE is not heading for a recession, said Finance Minister Tharman Shanmugaratnam, although fuel price increases in Malaysia would lead to discomfort.

‘From all indications we have at this point, I don’t think we’re heading for a recession.

‘But there will be discomfort on the ground,’ he said, speaking to Channel NewsAsia at the Entrepreneur-in-You Carnival at Republic Polytechnic.

At the event, about 7,000 people turned up to pick up tips on starting their own business.

‘Unfortunately, the fuel price increase in Malaysia does mean that vegetable, poultry and some other prices will go up. We can’t avoid that,’ he said.

Malaysia’s decision to trim subsidies for petrol and diesel and raise pump prices has meant that overnight, there has been a 41 per cent increase in petrol prices, from 80 Singapore cents to $1.13 per litre, while diesel prices rose 63 per cent, from 66 cents to $1.08 per litre.

Prices of a range of goods are set to go up as the cost of trucking them in rises, and fresh food tops the list.

But practically everything imported from Malaysia, including building materials, will also cost more soon.

He added that it was fortunate that rice prices globally were going down.

‘But overall, we’re in a situation which isn’t temporary - this will be with us for a while.

‘Commodity prices are much higher than what they used to be,’ he said.

This was being tackled through government measures such as Growth Dividends, goods and services tax (GST) credits, as well community initiatives on the ground, he said.

Source : Straits Times - 9 Jun 2008

Finance Minister Tharman Shanmugaratnam on Sunday gave the assurance that Singapore is not heading for a recession.

Speaking at a community event, Mr Tharman said, “From all indications we have at this point, I don’t think we’re heading for a recession. But there will be discomfort on the ground. Unfortunately, the fuel price increase in Malaysia does mean that vegetable, poultry and some other prices will go up. We can’t avoid that. Fortunately, rice prices globally are coming down.

“But overall, we’re in a situation which isn’t temporary - this will be with us for a while. Commodity prices are much higher than what they used to be. But we’re tackling it, and we’re confident of tackling it - both through the government’s measures, the Growth Dividends, the GST Credits, as well as the way in which you see a lot of community initiatives on the ground.”

Mr Tharman was speaking to reporters at the Entrepreneur-in-You Carnival at Republic Polytechnic, where some 7,000 people turned up to pick up tips on starting their own business.

The carnival included forums, workshops and an exhibition to nurture business acumen.

There were also winning business presentations by tertiary institutions, and a presentation of the 2008 Youth Enterprise Awards.

The People’s Association organised the event to encourage Singaporeans to be entrepreneurial. - CNA/ms

Source : Channel NewsAsia - 8 Jun 2008

LONG-TERM interest rates have started to rise. This hardly matters for many retail savers who put their money in short-term fixed deposits of mainly three to 12 months. But some who are switching out of their low interest rate fixed deposits (FD) into OCBC Bank’s 5.1 per cent preference shares currently on sale should keep tabs on this event.

The problem here, though, is that debt or fixed-income markets in Singapore are underdeveloped and little understood, especially among retail investors. Accelerating global inflation and expectations of US interest rate rises have pushed Singapore’s long-term government bond yields to near two-year highs, ahead of an expected debt sell-off in the third quarter, said Reuters yesterday. When yields or interest rates rise, the price of the bonds usually fall. Preference shares, which are like a bond, typically exhibit similar behaviour.

Analysts said that the US Federal Reserve was expected to raise interest rates by 50 basis points in the fourth quarter to rein in inflation, which would prompt a sell-off in government bonds. The yield on the Singapore government 10-year bond soared about 120 basis points in the last two weeks to 3.6 per cent, a level last seen in July 2006.

‘It has pulled back to 3.3 per cent, but will probably rebound to 3.9 per cent by the year-end,’ said Jens Lauschke, a fixed-income analyst at DBS.

Selena Ling, an OCBC economist, said: ‘Looking forward, I do think that the low interest rate cycle may have bottomed and the market is adjusting to a higher inflation environment. We are forecasting 6 per cent inflation for 2008, and a moderation to 4 per cent in 2009. The current 10-year SGS bond yield may target 3.65 per cent resistance last seen in April 2006 in the coming months, and may head towards 4 per cent by year-end.’

Chua Hak Bin, chief Asian strategist of Deutsche Bank Private Wealth Management, expected US treasury yields to continue climbing to about 4.2 per cent, and possibly as high as 4.4 per cent, in 12 months’ time. ‘SGS bond yields will likely track its US counterpart and head slightly higher from hereon following the recent spike,’ he said. Dr Chua added that ‘that should not put undue downward pressure on DBS and OCBC preference shares’. DBS last month also sold preference shares but they were targeted at sophisticated or institutional investors. One analyst, however, said that he expected a much bigger gain for the 10-year SGS bond yields. He thought that it could rise to 5 per cent by year end. If that happens, a shareholder would get $5.10 dividend but might see his preference shares fall below the par value of $100.

Already, OCBC’s rarely traded 3.93 per cent preference share has fallen below its par value of $100 to $99.70.

There’s capital risk on these preference shares which is not appreciated by retail investors, he said.

A local brokerage said in a note yesterday that it believes that the comparisons to fixed deposits and 10-year Singapore government bonds are not appropriate.

OCBC had said that it believes that the preference shares provide an opportunity to invest in an instrument with a relatively attractive and sustainable return. It then compared the 5.1 per cent dividend to current yields for 10-year SGS bonds as well as local fixed deposit rates.

Preference shares are perpetual securities and therefore not comparable to fixed deposits. Government bonds will be redeemed like clockwork at the end of their 10-year life, whereas OCBC’s preference shares (like those of DBS which were targeted at ’sophisticated’ institutional funds), are redeemable strictly at the discretion of the banks. In addition, it should also be noted that preference shares are no alternative to the mother shares, it said.

For sophisticated investors and institutions like insurance companies, preference shares fit well into a large, well diversified portfolio. For enthusiastic retail investors of preference shares, they may want to do more research into long-term interest rate movements and how they may impact the price of their securities.

Source : Business Times - 04 Jun 2008

As region is net oil importer, impact on companies and consumers is rising

As crude prices are breaching all-time highs and the global economy is still tender from the United States sub-prime debacle, alarm bells are starting to sound over the relentless rise of oil.

Analysts say oil prices may be nearing the point where Asian economies, including Singapore, will feel the pain from soaring energy costs.

‘High oil prices have had minimal impact in the past three years but we are less sanguine this time around,’ said Citigroup economist Kit Wei Zheng.

Slowing economic growth, led by a sputtering US economy, will make it harder for consumers and companies to shrug off the pain of bigger transport fees and electricity bills.

Unlike in the boom times of the past few years, wages and profits will be under downward pressure instead.

While no one is pressing the panic button yet, caution is building up. The International Monetary Fund warned last week that surging energy costs could send the world into a recession.

The ongoing run-up in the cost of crude, up 40 per cent so far this year and nine times 2000 prices, is reviving memories of the 1970s oil shocks. Oil prices rose fivefold between 1973 and 1980, ushering in a period of ’stagflation’ - a dreaded combination of recession and high inflation.

‘Such a jump has almost always led to a significant downshift in economic growth,’ wrote Morgan Stanley economist Richard Berner in a report last Wednesday, urging investors to consider ‘insurance against growth shortfalls and higher inflation’.

Oil prices eased last week after exceeding US$135 a barrel the previous week. But experts say this is probably a mere breather before they resume their upward trajectory.

So far, Asian economies have remained relatively robust but economists warned that the region is a large net importer of oil and that inflation hits gross domestic product with a lag.

Deutsche Bank economist Chua Hak Bin wrote in a recent report that a 10 per cent increase in oil prices may reduce growth in each of the Singapore, Philippine and Thai economies by at least 0.5 percentage point.

Economists said consumers may have to tighten their belts as larger transport and electricity bills erode their spending power.

Companies may also scale back on investments as energy costs squeeze profits. Transport companies and energy-heavy manufacturers will be hurt the most, analysts said.

‘The increase in oil prices has been especially steep in the last five months. With such a sudden shock, there’s not much time for companies to make adjustments,’ said Citigroup’s Mr Kit.

Fortis Bank’s senior strategist, Mr Joseph Tan, added that the current situation is especially challenging for policymakers and any tardiness or misstep, perceived or real, could quickly compound the problem.

But the overall picture is not without bright spots.

Economies are far more energy-efficient than in the 1970s, said a Goldman Sachs report. Also, oil producers benefiting from high crude rates may import more Asian- made goods and make more investments in the region.

Companies involved in the oil production industry, such as Singapore’s rig builders, will also provide some cushion against any oil-induced fall-off in economic growth.

DBS Bank economist Irvin Seah added that the Singapore economy still has a considerable amount of growth momentum, especially in the building sector. That should provide some resilience for domestic demand.

But in these uncertain times for the global economy, economists are calling for caution on the growth outlook.

Said Standard Chartered Bank economist Alvin Liew: ‘Things are going well so far. But it’s hard to say what will happen if oil goes beyond US$150 towards US$200.’

Source : Straits Times - 2 Jun 2008

SINGAPORE shares are expected to start on a soft note this week, asinvestors continue to worry about rising inflation spurred by high energy prices and the state of the United States economy, said an analyst.

Soaring inflation, combined with the economic slowdown in the US, will have a significant impact on regional economies, said Mr Song Seng Wun, regional economist at CIMB-GK Research.

“Many investors are taking it one day at a time,” he said.

Mr Song said investors will take their cue from key US economic data due this week.

The movement of oil prices will also be closely watched, he said.

Said Mr Song: “Investors are now trying to sort out whether things are steady, or whether there are risks moving forward.”

For the week ended May 30, the Straits Times Index closed at 3,192.62, up 70.47 points or 2.26 per cent from the previous week.

Average daily volume was some 1.34 billion shares valued at$1.74 billion, compared with 1.89 billion shares worth $1.91 billion dollars the week before. - AFP

Source : Today - 2 Jun 2008