Monday, November 17

S'pore dollar at 14-mth low

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Nov 17, 2008
S'pore dollar at 14-mth low

TAIPEI - THE Singapore dollar fell to a 14-month low against the US dollar on Monday as data showing a sharp fall in the island's exports underscored the toll the global economic downturn is exerting on emerging Asia.
The Indonesian rupiah fell 2 per cent and other Asian currencies also fell after a meeting of leaders of the Group of 20 nations failed to yield any substantial measures and data showed the euro zone and Japan toppled into recessions.

The Singapore dollar fell to as low as 1.5253 to the US dollar, its weakest level since September 2007, with the market expecting the Monetary Authority of Singapore to adopt a looser monetary policy to keep the manufacturing sector competitive.

One of the region's most trade-dependent economies, Singapore released data showing a sharper-than-expected decline in October exports.

'Following the more aggressive policy moves elsewhere and the weaker-than-expected economic outturns globally since the October meeting, it now seems more unobjectionable for the MAS to ease their monetary policy (via weaker currency),' UBS said in a report.

Singapore runs monetary policy by guiding the trade-weighted exchange rate. In October, it already eased policy by switching to a zero appreciation path for the trade-weighted currency band.

The monetary authority schedules policy reviews twice a year - April and October - but traders expect it to loosen policy before its next scheduled meeting.

Central banks from India to Taiwan have slashed their main policy interest rates over the past month as the global financial crisis hit exports and broader growth. Economic woes and capital outflows have been pushing currencies from emerging Asia lower over the past few months.

On Monday, the Indonesia rupiah led the fall in the region's currencies by weakening by about 2 per cent to trade at 11,750 to the US dollar, while the South Korean won lost 0.6 per cent to 1,407.4.

Group of 20 leaders meeting over the weekend also failed to convince markets that key economies were doing enough to ward off a global recession.

'There were no measures, so there was nothing for the markets to grip on to,' said Vishnu Varathan, an economist from Forecast, adding that the market took its cues from the fall in US stocks. -- AP
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Sunday, November 16

DJIA Technical Analysis 16th Nov

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Technically, an interim bottom may have been reached for the DJIA. This is due to the testing of the low coupled with a strong closing on the 13th of November. On that day, it tested a low of 7965.42. Previously, DJIA had tested the level of 7882.51 successfully on the 10th of October. I have highlighted both days with purple rectangles. Do note that the volume for both days were heavy and that adds to the significance of the testing of the lows. With the successful testing of the region of around 7900, DJIA should be poised for a retracement back to the upside soon
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Saturday, November 15

DBS overhauls sales tactics

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Nov 12, 2008
DBS overhauls sales tactics
Customers will be asked tough questions before investing, says chairman
By Ignatius Low, Money Editor

DBS Bank plans to ask more detailed questions about a customer's background and how he got the money he is investing.
SINGAPORE'S largest bank is making big changes to the way it sells investments to customers, as it continues to battle criticism over losses suffered by those who put money into its High Notes 5 product.

DBS Bank plans to ask more detailed questions about a customer's background and how he got the money he is investing. And it will turn away those who are not suitable for a product, even if they insist on buying it.

The bank has drawn flak for arranging and selling structured products that have been rendered worthless by the collapse of American investment bank Lehman Brothers.

Some customers claim that the risks were not explained to them.

The bank has pledged to look into every complaint filed and resolve them all by the end of the year.

'It's a very encouraging move by a financial institution, certainly for retail investors like retirees,' said Mr David Gerald, chief executive officer of the Securities Investors Association of Singapore (Sias).

Sias has spoken out against the mis-selling of investment products and issued a guide for investors last week.

'It puts some of the responsibility back with investors, but then there is also a cooling-off period too, should they make a wrong decision and change their mind,' added Mr Gerald.

ignatius@sph.com.sg


This article seems to be very heartening indeed since investors will be asked tough questions before investing. However, this system is still flawed in my opinion.

Firstly, one must understand that the objectives of banks, just like any companies is to make profits. It seems to me that they can earn profits through several channels. This can include the initial sales charge when one buys the product and subsequently, a cut of any profits in the event that the product turns out to be profitable. In the event that the product is in the red, the investor will likely have to bear all of the losses. So in both events, the banks will still stand to make a profit. So in order to increase their profits, they will try to sell more products to the investors. Thus this overhaul of sales tactics only mean that the bank will try to sell the 'right' product to the investor if such a product exists but it does not change the fact that banks are for profits. Let us not forget too that such products being sold by the bank is likely to have a poor yield due to sales charge and the cut of the profits that the banks take if the product is profitable.

Secondly, investors must be able to understand what type of products that they are buying. Given that the objective of banks is to churn out profits, it is unlikely that they will put the interest of the investors as their priority. Thus even if the bank recommends the 'right' product, investors must be able to discern about the risks of the product and not leave everything else to the bank.

In short, it is not advisable to entrust your investments to the bank without knowing what is going on since the objective of the bank is to churn out profits. Caveat emptor !

Sibor falls to 4-year low

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Nov 12, 2008
Sibor falls to 4-year LOW
Bad news for savers, good news for mortgage owners
By Gabriel Chen

This benchmark rate, known as the three-month Singapore Interbank Offered Rate (Sibor), has been highly volatile of late. -- PHOTO: AGENCE FRANCE-PRESSE
THE all-important interest rate at which banks lend funds to one another has nosedived to 0.89 per cent - its lowest level since mid-2004.
This is likely to be good news for many home owners, who are set to enjoy lower mortgage rates soon. Rates on other consumer loans may also fall.

But the outlook is not so good for investors holding fixed deposits - as their interest rates are likely to fall as well. And businesses big and small will not necessarily get a flow-on benefit of lower borrowing costs. This benchmark rate, known as the three-month Singapore Interbank Offered Rate Sibor), has been highly volatile of late.

In September, it spiked to 2 per cent as the global credit crunch hit home here in a big way as banks were afraid to lend to one another for fear of not getting repaid.

Today, the three-month Sibor, to which many home loans are pegged, is at its lowest point since July 2004.

Economists say the aggressive interest rate cuts by central banks around the world as well as massive doses of liquidity injections to thaw frozen credit markets are working.

'Fears of the credit crunch and counterparty failure risk have also in part subsided slightly recently, partly due to the extension of deposit guarantees and government bailouts for troubled financial institutions in countries like the United States,' said OCBC economist Selena Ling.

All these explain why the three-month Sibor - which closely tracks the benchmark US federal funds target rate - is easing.

And it will continue to stay low in the near term, economists say.

Standard Chartered Bank economist Alvin Liew expects it to decline to 0.8 per cent early next year. 'We expect the three-month Sibor to decline in early 2009 to well below 1 per cent and remain around that depressed level for most of next year.'

Fixed deposit rates, even those on a promotional basis, could trend lower if Sibor remains low. Foreign banks appear to have less need to pull in deposits by dishing out attractive promotional fixed deposit rates, as they had done in recent months when credit was very tight, one banker said.

This is because the recent deposit guarantee announced by the Monetary Authority of Singapore has helped to dispel the perception that foreign banks are not as safe as local banks.

'The lower cost of funds is more icing on the cake for foreign banks, as they can tap the interbank market for funding,' he said.

For home owners, any loan pegged to Sibor will mean a lower rate.

'If customers feel that rates will go lower, then the three-month Sibor is a good way to capitalise, given that it automatically adjusts as the rates go lower,' said Mr Dennis Khoo, Stanchart's general manager of lending.

While Sibor is unlikely to bounce back as quickly and sharply as it has fallen in the last two months, bankers say those looking for fixed cash flow and protection against interest rate movements should opt for fixed-rate home loan packages.

For the banks themselves, interest rates are but one consideration in determining the prices of housing loans.

In contrast to the booming property markets in 2006 and early last year, banks now have to contend with increased capital costs and 'potentially higher delinquencies' amid the current financial turmoil, said OCBC's head of consumer secured lending, Mr Gregory Chan.

However, businesses may not necessarily benefit from the lower Sibor.

In the past, both small and large businesses could have expected lower borrowing costs from a falling Sibor, but current conditions may negate this, bankers say.

While there are exceptions to the rule for certain customers, banks will price in higher spreads between borrowing and lending costs in the months ahead to reflect greater credit risk in these recessionary conditions.

'In deciding pricing for corporate lending, banks would also incorporate their liquidity premium in the pricing,' said Fortis Bank head of corporate banking for Asia-Pacific Patrick Tan.

Given today's tight liquidity, banks generally are pricing their own cost of borrowing into what they lend out to their customers, he said.

Citigroup economist Kit Wei Zheng warned that a smooth ride out of the crisis is far from assured.

'The economic weakness that we now see could still feed back into the financial sector, which may then spark another round of risk aversion and possible future spikes in interest rates.'

gabrielc@sph.com.sg




Sibor is likely to remain low in the near future. Another fiscal policy that one should be aware of is the weakening of SGD against USD. This is usually done to boost exports out of Singapore in order to stimulate the economy.
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Sunday, November 9

STI Technical Analysis 9th Nov

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There has been two instances where STI opened on a huge gap down and covered back the gap at the end of the day with heavy volume and that to me, is significant technically. I have highlighted those two days and their corresponding volume with purple rectangular boxes. Why are they significant ? This is because this shows that there are buyers in the market who are willing to buy in at lower prices. Usually, the huge gap down is caused by a dismal closing for the DJIA.

On the 28th of Oct, STI opened at 1496.12 and touched a low of 1473.77 before closing at 1666.49. Percentage-wise, STI managed to chalk up a huge gain of 11.6%. On the 7th of Nov, STI opened at it's low of 1717.66 and closed at 1863.49 and we are talking about a percentage gain of around 7.8%. The movement of these two days suggest that the downside risk is getting limited.
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