Archive for the ‘Economy’ Category
Market Updates Feb 20, 2010
New property rules
Government steps up moves to cool the sizzling property market yesterday.
First, anyone who sells a property within a year of buying it will have to pay stamp duty of around 3 per cent. This is on top of the stamp duty you had to pay on the purchase.
Second, lending institutions will now be allowed to lend only up to 80 per cent of the purchase price, not 90 per cent. Buyers will have to come up with at least 20 per cent themselves. Housing Board loans are not affected by this change in what is called the loan-to-value (LTV) limit.
The sellers’ stamp duty will hit short-term speculators, observers said, while the change in the bank loan limit is likely to weed out marginalised buyers. The measures will affect only a limited number of buyers but experts feel they could have a psychological effect on the market. There is also concern that tougher steps are in the pipeline.
Recent Market Correction
The MSCI World Index of stocks fell for a sixth day, its longest losing streak in almost a year. The global index of equities in 23 developed nations retreated 0.4 percent as at 27th Jan morning New York, bringing its six-day slide to 5.4 percent.
Greek bond yields surged to a 10-year high amid concern growing sovereign debt will derail the economic recovery. The yen and dollar gained as commodities dropped.
Good news at start of 2010
China Trade Rebound Aids Global Economic Recovery
China’s exports surged in December 2009 to make it the 2nd largest exporter in the world. Imports rose to a record in a stronger-than-forecast trade rebound that may lessen the case for governments to sustain stimulus programs this year.
Exports climbed 17.7 percent from a year earlier, the first increase in 14 months, and imports jumped 55.9 percent. Year-on-year comparisons are affected by the tumble that began in late 2008, when the global credit crisis deepened. Shipments to the U.S. and the European Union grew 15.9 percent and 10.2 percent respectively from a year earlier. Imports from Australia and Malaysia more than doubled.
Soaring imports are more evidence that China’s economy may face an increasing danger of overheating. Chinese government, while warning that recovery is not yet solid, pledged to “guide” speculative flows, bank loans and property lending. China is expected to raise interest rates and let its currency appreciate in the coming months as policy-makers resort to more aggressive measures.
Countries like Taiwan also experienced surge in exports while Australia and New Zealand markets and currencies gained on bets their economies will benefit from the increase in shipments to China. Among other points, the International Monetary Fund has said it will probably raise its estimate for 2010 world growth from 3.1 percent.
Trade Rebound Aids Global Economic Recovery
Analysts bullish over earnings season
In Singapore, as earnings report for Q4 and the full year 2009 goes into full swing next week, analysts are expecting good results for all sectors given the cost cutting measures and rebound in economy in 2009. Except for the volatile biomedical sector, which is not represented in the local stock market, all sectors grew in Q4 last year.
End Of The Year Update
2009 end of the year update
2009 has been a year of recovery, first in share markets & then in global economic activity. Patient investors have seen some recovery in their wealth after the losses of 2008.
The perception of risk is still out of balance. While government bonds are expensive and there is still a lot of money in cash, equities and corporate bonds are no longer cheap.
Outlook for 2010
2010 is likely to see the economic recovery continue and become self-sustaining. Interest rates likely to be kept low by the US and the Europe.
A ‘U’-shaped recovery is most likely, which in some ways is the best outcome for investors. A ‘U’-shaped recovery presents investors a chance to enter the market when asset prices remain low. Global GDP growth in 2010 is at 3.6%-3.8% according to consensus.
Share markets are likely to rise further thanks to the combination of improving economic and profit growth, low inflation and still low interest rates at time when there is still plenty of cash on the sideline.
However, with uncertainties about the strength of the recovery and key central banks moving towards rising interest rates in the year ahead, share markets will be more volatile and gains more constrained than has been the case since March. A well-diversified portfolio should help to smooth performance.
October Update
Update for Oct 2009
Stock markets in the developed economies were mostly down in October, while Asian and emerging economies held up better. Commodities such as gold and crude oil made new highs in October.
The global financial markets have made a V-shaped recovery while the global economy has done a slow pickup. In the coming month, the financial markets will be take a breather while the economy catches up.
Developed countries
Australia has raised interest rates by 0.25%, for a second month. US and Europe kept their interest rates steady when their central banks met in October for review.
MAS has kept its policy unchanged on the Nominal Effective Exchange Rate, maintaining the policy band width and the level at which the Singapore dollar is centered. Singapore cut negative GDP for 2009; the government expects 3% growth in 2010.
Interest Rates
On Tuesday after its monthly meeting, Australia’s central bank, Reserve Bank of Australia, raised its key interest rate for the second month in a row, by 0.25 percent to 3.5 percent. RBA declaring the effects of global downturn over and warning that inflation was set to rise.
A month earlier, Australia became the first major economy to raise interest rates since the outbreak of the financial crisis when the bank hiked its key rate by a 0.25 percent from a 50-year low.
Australia has been a rarity among developed economies by avoiding recession during the worst global economic slump since World War II. It survived the downturn better than most thanks to A$42 billion (S$53 billion) of government stimulus spending and strong demand from China and other Asian nations for its iron ore and other mineral resources.
The decision was widely expected by analysts and underlines Australia’s quick recovery compared with other developed countries. Australia’s GDP will rise 1.75 percent this year and 3.25 percent in 2010, RBA said. Three months ago, it forecast gains of 0.5 percent and 2.25 percent respectively. While European Union’s economy is forecasted to expand 0.7 percent next year
The European Central Bank took its first step toward unwinding its extraordinary support measures for the euro zone economy on Thursday by signaling one-year loans to banks will not be repeated next year. The ECB kept its main interest rate on hold at 1 percent for the sixth month in a row.
The Federal Reserve signaled on Wednesday it was not close to raising interest rates, saying that the economy remained weak even though the recession appeared to be over.
In a move that could spell the continued success of investment banks’ fixed-income units, the Fed said it would keep its benchmark interest rate at virtually zero, and it made no change to its longstanding mantra that economic conditions were likely to warrant “exceptionally low” rates for “an extended period.”
For practical purposes, analysts said, policy makers are still at least six months away from tightening monetary policy.
Asian countries lead the world out of recession.
Oct 27 (Reuters) – South Korea’s economy grew at its fastest rate in 7-½ years in the third quarter, joining China and Singapore that have also reported faster growth in Asia in the September quarter.
In the Asia-Pacific region, Japan, Singapore, Hong Kong, Thailand, Taiwan and New Zealand all pulled out of recession in the second quarter, although the recovery is expected to be gradual.
In Europe, Germany, France and Sweden have also announced a return to growth, however Britain’s economy, by contrast, contracted in the third quarter.
Times of Crisis by Reuters
An amazing piece of media work on the financial crisis by Reuters.
First of the G20 banks to rise interest rates – Reserve Bank of Australia
The RBA surprised markets with a move overnight, becoming the first of the G-20 banks to hike interest rates. And even though Australia was increasingly leaning toward a hike, there was more than enough surprise to pull AUD significantly higher vs the broader market. This and renewed risk appetite brought AUDUSD within touch of 0.8900, a new high since late last summer. The 2-year interest rate differentials for the US and Australia are still a tad below the highest level from September, however, then AUDUSD was trading a bit lower, so the direction for AUDUSD after the immediate kneejerk here will still depend on a further widening of the differential and continued robust risk appetite. In other words, it’s all priced in at the moment.
The RBA explained its decision as a result of an economy performing more strongly than expected and an inflation outlook in which “inflation will not fall as far as earlier thought.” The RBA also mentioned that Chinese growth has been very strong. On the strength in the Aussie currency, the RBA simply noted that the currency was strong and that its strength was “considered”. Lack of concern on the currency was also a green light for the Aussie bulls. Barring any exogenous shocks, the RBA is likely to hike at its next two meetings as well.
Wake me up when September ends
Nearer to everyone’s mind is the collapse of 158-year-old Lehman Brothers last September, triggering the fallout of financial markets. S&P 500-stock index dropped 9% last September and further 17% in October.
Many Septembers have nasty reputations. Great Depression started with a stock market crash in September 1929. During September 1930, the Dow Jones fell 15%. The worst fall in Great Depression and in history, was September 1931 where the index plunged 30.7%.
Then there was S&P 500 plunges of 12% in 1974; the 1997 Asian Financial Crisis which worsened in September; Black Monday of 1987 which came after stocks started going downhill in late August; September 11, 2001 terrorist attacks, where DJIA fell 14.3% in a week and 11% drop in S&P 500 in 2002. Locally, some cite the Hungry Ghost effect.
According to the Stock Trader’s Almanac, the S&P 500 index drops an average of 1.1% in September, making it the worst month of the year. Mentality can weigh surprisingly heavy on the markets. The return of finance professionals after summer holidays as a reason for volatility has been greeted with skepticism. “No modern funds and traders of any decent size goes for the whole summer off”
