Wednesday, September 18, 2013

Fed tapering, my 2 cents worth

The world is looking forward to the US Federal Reserve’s decision to what they should do with their QE program. Well, I am not too bothered whether are cutting US$10 or 15 billion off their current program. This is the current consensus amongst economists. To me this is a non-event. Why? Any form of QE is a stimulus to the economy, whether it be US$1 or 100 billion. The US economy has been trying to recover from the global financial crisis. In fact, the bulk of that money has not been deployed to the real economy and instead sent financial assets to even greater heights.

This is because banks are afraid to lend to the main street firms except the very big names. And these guys do not even need cash in the first place. The Microsofts and Apples of the world have more cash than what they know to do with. In fact, they are borrowing to fund dividend payments at home as they do not want to attract tax should they repatriate their overseas income. This is the irony of the situation. All that hot money created by the Fed is screwing our markets.

Why am I not that concerned? The markets have long taken into account this eventuality. Our stock markets have been doing well due foreign money trying to find a home. In fact, the South East Asian markets have done well. They felt the pinch 3 months ago when these funds pulled back but have since seen fund flows coming back. Be very careful as this might be a very temporary recovery. The US economic recovery is slowly trying to gain ground, but I have not seen very solid numbers backing up a firm economic picture. If you want to know what signals to be watching out for, try non-farm payrolls stripping out all the one offs and window dressing. Events that will cause long term cost of borrowing to rise are indicators that I am watching very carefully.

I am seeing a lot of Chinese money coming in to support medium to large sized property transactions. I will share my observations as to why in the next blog. Quality commercial will be ok for the next couple of quarters but I do hope the government will monitor the residential sector very carefully. Or an unforeseen international economic event might cause mass panic given the exposure of Singaporeans.

For those investing in Singapore and Malaysia, I need to point out to you that both economies are not doing that great and companies will face challenges. Singapore’s non-oil domestic exports are not picking up and the newly elected PM of Malaysia are now contending with reining in the financial excesses pre election. The whole Iskandar region has done well with international money flowing in but deals are slowing drastically. In fact, many sellers have dropped their asking prices for land by as much as 20% in the last 3 months. Invest with your eyes open!

Tomorrow is Mid Autumn, I would like to wish you a Happy Mooncake Festival. This weekend is F1, so do enjoy the glamour and glitz. Many thanks for your many boxes of moon cakes, and I wish you health and wealth.

Till the next blog, take care and God bless!

Your Friend
Andy Ong

Tuesday, September 10, 2013

Residential hit will worsen… Beware!

At the last Asian Titan Trends earlier this year at the Marina Bay Sands, I told all of you that the residential market looks toppish and you should not be betting in an asset class that the government is trying to manage increases in prices. Many of the participants were rather surprised that all they have to do is to limit the amount of financing to 50% financing. There were looks of disbelief and again skepticism. I shared with them that before the end of the year, such measures will become a reality. Well, the government have gone a step beyond that and some are counting 50% financing a privilege under the TDSR, those who believed and managed to off load are heaving a huge sigh of relief. The hardest hit is still the higher end of the market but should the international economy prove to weaken again, mass market homes will be the hardest hit.

Why? Many have bought horribly expensive homes at sub-urban areas. Developers have sold these homes at ever increasing prices. They have to as they paid the government ever increasing land prices in the government land sales program as many HDB upgraders fall over themselves. Guess what the party will have to end eventually. The government is removing demand for HDB by imposing curbs on foreign workers, thus rental yields will fall. Add the recent measure to prevent recent PRs from owning their flats, this is very effective to remove demand thus a double whammy. We have witnessed falling COVs and this is just the beginning. If not managed properly, the whole residential property situation can prove to be a bloodbath. I sincerely hope that the improving global economy will buffer the situation as an economic slowdown now will be an absolute party pooper.

I am writing this blog from an airplane after visiting our local operations and seeing quite a few sites there. I am now actively looking at regional opportunities and am frankly amazed by the many great sites available. We maintain a strict investment regime. We mainly invest for our own real estate requirements and do not speculate. Such investment discipline has served us well, as own use assets will enable us to ride out the cycles.

I am maintaining this blog on a casual basis thus the number of thoughts is limited but I will be more active if there are more people liking what I’m doing. So do like my blog and encourage me to share my thoughts please. Till the next blog, take care and God bless!

Your Friend
Andy Ong