Singapore Sling

A Singapore Sling is a delightful cocktail, allegedly first concocted at the world famous long bar at the Raffles Hotel, Singapore.

2015 marks the 50th anniversary of the City State’s independence plus the centenary of the Singapore Sling’s founding, hence celebrations have been planned around the city and at Raffles, including the long bar, the only place in Singapore where “littering” is permitted by throwing monkey-nut shells on the floor.

Any chance to celebrate for investors’ in Singapore would be a welcome break from the escalating bad news of late, albeit that much of it can be pinned down to the over-enthusiastic market meddling by policy-makers ( central bank, regulators and politicians) who just cannot seem to help themselves in their belief in that they know best.

Singapore’s economy contracted by 4.6% annualised during Q215, underscoring the slowing global growth, which is particularly hurting Asia as global trade continues to weaken. At the heart of this has been the mindless growth of global credit, which has jumped by 40% since the onset of the 2007 financial crisis, creating massive over-capacity just as the global consumer is battening down the hatches, with the exception of punting stocks and real-estate, on full margin of course, deluded in the belief that interest rates are controlled by central-bankers and that policy-makers will not let financial assets fall in price.

Aside of the obvious which is now unravelling in China, there were clues in Singapore also, which we can observe from the following chart:

17 July 2015 Blog 1

Contrary to text-book “financial education,” which suggests that earnings and economic growth drive stocks, economic growth, aka GDP, is actually a lagging indicator to stocks, as can be seen above. Furthermore, although not shown on this chart, its credit growth that drives financial assets, such as stocks and property, followed by earnings.

Talking of property, notice also the close correlation between Singapore residential housing to the stock-market, where the latter tends to lag stocks.

As with many other countries, Singapore’s policy-makers were happy to encourage investors, both domestic and foreign, into their property market following the 2007 rout, only then to introduce punitive restrictions after they had presided over a bubble.

Whereas stocks peaked back in 2007, residential property enjoyed a second-wind through to 2013, no doubt buoyed by the perception that “property doesn’t fall in value, a view bolstered by that illusion that central bankers wont let interest rates rise.”

Well, home prices have fallen for seven straight quarters now, the longest losing streak since 2002, as home sales slumped by 42 percent in June to the lowest number this year.

With stock and property headed lower perhaps it is time to head for the long bar, or time to sling your hook elsewhere.

 

 

 

 

 

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