Singapore’s Canary Wharf-Topping Condos Damp Dollar: Currencies

Singapore’s Canary Wharf-Topping Condos Damp Dollar: Currencies

Currency strategists are abandoning their forecasts for a record-setting rally in the Singapore dollar as government measures to rein in property prices reduce pressure on the central bank to cool inflation.

The local dollar will likely rise 2.3 percent to S$1.21 versus its U.S. counterpart by Dec. 31, based on the median estimate of 26 analysts surveyed by Bloomberg. The forecast eased from an all-time high of S$1.19 at the end of last year, in the biggest outlook downgrade among Southeast Asian currencies. Singapore’s dollar won’t strengthen beyond the record of S$1.1992 until 2014, based on the polls.

Prime Minister Lee Hsien Loong is trying to curb property- market speculation with inflation almost double the 20-year average. A 1,636-square-foot (152-square-meter) condominium in the Marina Bay financial district sold for S$4.4 million ($3.6 million) in November, government figures show. A unit about the same size in London’s Canary Wharf was priced at 2.3 million pounds ($3.5 million), real-estate broker Foxtons Ltd said.

“The latest measures should help contain property prices,” Charlie Lay, a Singapore-based foreign-exchange strategist at Commerzbank AG, said in a Feb. 25 interview. “As inflation pressures stabilize, the central bank may favor boosting the lackluster growth outlook, providing scope for the Singapore dollar to weaken.”

Asia Outlook

Commerzbank sees the currency at S$1.25 versus the U.S. dollar at year-end, from S$1.2365 yesterday in New York. The 1.7 percent downgrade in the median estimate for the Singapore dollar is larger than those for Indonesia’s rupiah and Malaysia’s ringgit. The outlook for the Philippine peso was unchanged, while the Thai baht’s was raised 1 percent.

For all of Asia, the pullback in estimates is second only to the drop in the Indian rupee forecast, according to data compiled by Bloomberg.

Singapore’s central bank sets monetary policy via the nation’s dollar, guiding the exchange rate against a basket of currencies within an undisclosed band. The Monetary Authority of Singapore adjusts the pace of appreciation or depreciation by changing the slope, width or center of the band.

‘Modest’ Appreciation

The central bank said Oct. 12 it will maintain “a modest and gradual appreciation” of the local dollar. The city-state’s monetary policy stance remains unchanged as announced in its bi- annual review in October, Edward Robinson, assistant managing director of the economic policy department at the MAS, said last week. Officials are due to make their next decision in April.

Singapore’s dollar has depreciated 1.2 percent this year, after reaching its all-time high on July 27, 2011, and climbing 6.1 percent in 2012.

“Given the subdued conditions in the global economy, imported inflation will be broadly benign,” the central bank and Trade Ministry said Feb. 25. “However, the persistent tightness in the domestic labor market will support wage increases in 2013, some of which will continue to pass through to consumer prices.”

Consumer prices climbed 3.6 percent in January from a year earlier, after a 4.3 percent advance in the previous period, government data showed Feb. 25. That’s still almost twice the 20-year average of 1.9 percent.

Banker ‘Dilemma’

Figures released Feb. 22 showed gross domestic product rose 1.5 percent in the three months ended Dec. 31 from a year earlier. That compares with no growth in the third quarter and a 3.6 percent advance in the fourth quarter of 2011.

The country faces “this dilemma that central banks always hate, which is lower growth and higher inflation,” Rajeev De Mello, who manages more than $8 billion as the Singapore-based head of Asian fixed-income assets at Schroder Investment Management Ltd., said in a Feb. 25 interview. “I still think they will keep the currency’s appreciation.”

Thousands gathered for a protest on Feb. 16 after the government unveiled a white paper outlining proposals to boost the population by allowing more immigration. Residents on the island that’s smaller than New York City jumped by more than 1.1 million since mid-2004 to 5.3 million, increasing demands on the nation’s infrastructure and contributing to higher housing and transport costs.

The median price per square meter for condominiums jumped to S$11,056 in the fourth quarter, the highest in Urban Redevelopment Authority data dating back to 1998.

Luxury Taxes

The 2013 budget released Feb. 25 outlined requirements for companies to pay higher levies for lower-skilled foreign employees over the next two years and cut the proportion of overseas workers in some industries. The government also unveiled plans to raise property taxes for luxury homeowners and increase duties on investment properties that are vacant or being rented out.

Those steps came after officials introduced a seventh round of real-estate cooling measures last month, which included limits on how much buyers seeking a second mortgage can borrow relative to the value of their properties. People applying for a second or subsequent home loan will also have to pay a 25 percent cash down payment, from 10 percent previously.

Gains in housing costs moderated to 4.4 percent last month after rising 6.7 percent in December, according to a Feb. 25 report by the statistics department.

Sentiment Turn

“The property-curbing measures that have been put in place mean that we’re not going to see foreign capital inflows coming into Singapore to the same extent as previously,” Khoon Goh, a Singapore-based foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. (ANZ), said in a Feb. 25 interview. “Sentiment has definitely turned against the Singapore dollar.”

Singapore is one of fewer than 10 nations in the world to have both a AAA score and a “stable” outlook from all three major ratings companies. Investors seeking the country’s assets last year helped drive the benchmark 10-year bond yield to a record-low 1.29 percent on Dec. 11, prices compiled by the MAS show. The yield rose to 1.52 percent as of Feb. 26.

There may not be much demand as the world economy improves, according to Hideo Shimomura, who helps oversee the equivalent of $64.3 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., a unit of Japan’s largest bank.

Rising Volatility

“I don’t have an appetite for taking a risk on this currency,” Shimomura said in a Feb. 26 interview. “There might be more fluctuation in other Asian currencies.”

The implied three-month volatility in Singapore’s currency, a measure of expected price swings over the time period, surged to a four-month high of 5.4 percent on Feb. 4.

Volatility in the South Korean won, whose projected 4.3 percent gain this year is set to be the biggest among Asian currencies, dropped to 7.7 percent from a five-month high reached on Jan. 28. Increased volatility in an asset heightens the potential for investor gains and losses.

Within Southeast Asia, the Singapore dollar’s estimated 2.2 percent advance in 2013 is forecast to be beaten by a 3.4 percent rise in the Malaysian ringgit and a 3.1 percent increase in the Philippine peso. Benchmark borrowing costs in both countries are expected to climb this year.

“The pace of Singapore dollar’s appreciation this year is going to be muted,” Dominic Bunning, a Hong Kong-based associate foreign exchange strategist at HSBC Holdings Plc said in a Feb. 25 interview. “Compared to other Asian currencies, it will probably underperform.”

To contact the reporters on this story: Kristine Aquino in Singapore at; Wes Goodman in Singapore at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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