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5 INVESTMENT IDEAS FOR 2011 will inflation

exceed pay rises in 2011?

2011 Budget

WHat the means to you And your business

singapore VS. HK:

A TALE OF TWO BOURSES

Singapore

& JOBS: It’s a game of two halves

the real value of THE

CAN hsbc GET MICA(P) 125/07/2008 KDM No: PPS1645/3/2008

ITS GROOVE BACK?

Agenda PEOPLE | PLACES | EVENTS | OPPORTUNITIES

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FOR MORE INFORMATION on EVENTS AND ADVERTISING

Starlite organised 7th Packaging Seminar Starlite has successfully launched the 7th Packaging Seminar at InterContinental Hotel on 27 Aug 10 with more than 130 guests attended. The theme revolved around Productivity, Innovation and sustainability. This is a yearly event organized by Starlite to share Starlite experience and expertise for their valued customer and friends.

Low How Hong, the Asst GM in system and support of Starlite shared about “sustainable packaging through innovative design.”

SINGAPORE BUSINESS REVIEW | MARCH 2011 3

4 SINGAPORE BUSINESS REVIEW | MARCH 2011

FROM THE EDITOR Publisher & EDITOR-IN-CHIEF Assistant Editor Art Director

Jason Oliver Niyasuthin

Editorial Artist

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Media Assistant Editorial Assistant ADVERTISING CONTACTS

As I talk with business leaders around Singapore, the topic of conversation has moved from the economy to staff, which is now one of the toughest problem facing employers. Whether it is the small restaurant who cannot get enough staff to man the countertops, to large corporations who cannot get the right talent to grow their businesses, staff, and pay are the biggest issue on the desks of most CEO’s today.

Tim Charlton

Anne Marie Aquino Alex Wong Laarni Salazar-Navida lanie@charltonmediamail.com Alyz Katherine Tenorio alyz@charltonmediamail.com Loren Laylay loren@charltonmediamail.com Rochelle Romero rochelle@charltonmediamail.com Allan Andrada allan@charltonmediamail.com

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Making matters tougher is the unknown spectre of inflation, which may hit 4.2 % this year, and is causing a lot of unhappiness for employees already feeling squeezed by a very tight supply of housing. And with employers only averaging 3 to 6 % pay rises this year, it’s going to remain a difficult front on the employment scene.

I would also like to flag that Singapore Business Review will be embarking on a major series of one day conferences under the moniker of “Insight Series” where we will invite key players in the major industries to talk. The first of these is Healthcare Insights on May 31 at the Hilton Hotel. More information on topics and dates can be found on the website sbr.com.sg.

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Sold on newstands in Singapore, Malaysia, Hong Kong, London and New York *If you’re reading the small print you may be missing the big picture 

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Singapore Business Review is available at the airport lounges or onboard the following airlines:

Singapore Business Review is available at the following clubs and hotels: American Club Hollandse Club Laguna National Orchid Country Club Raffles Country Club Raffles Town Club RSYC Seletar Club Sentosa Golf Club Singapore Cricket Club Singapore Island Country Club Swiss Club The Tanglin Club The China Club The Legends Fort Canning Park The Pines Club Tower Club Singapore Fullerton Hotel Grand Plaza Park Royal

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CONTENTS

28

cover story Thoughts for happy investing in 2011

COVER STORY 28 Will the rabbit run or stew in 2011 2010 was an odd year for investing, but will 2011 be any better?

OPINION 22 Singapore vs. HK: A tale of two bourses 38 Singapore & jobs: It’s a game of two halves 40 Hong Kong’s ‘Dim Sum’ market poised for take-away growth 50 How to resign gracefully

15

Will inflation exceed pay rises in 2011?

32

What the 2011 budget means to you and your business

27 Property

ANALYSIS 32 What the 2011 Budget means to you and your business

48 Life and Style

FIRST

36 A Budget with something for everyone: PWC

14 Can HSBC get its groove back?

41 The Real Value of the Yuan and Inflation

15 Will inflation exceed pay rises in 2011?

42 The 4 scenarios you need to know about Hong Kong Property

16 The iTunes of financial quotes launches

44 Why the Chinese economy could already be larger than America’s

18 What do Chinese think about property?

46 The Financial Crisis of 2015

20 Little Investment, just more borrowing in 2011

REGULAR 26 Numbers

Published Bi-monthly on the Second week of the Month by Charlton Media Group Pte Ltd, 15 B Stanley Street, Singapore - 068734

For the latest business news from Singapore visit the website

REPORT

www.sbr.com.sg

SINGAPORE BUSINESS REVIEW | MARCH 2011 9

News from sbr.com.sg

Daily news: www.sbr.com.sg Lion City at its best

TELECOM & INTERNET

Most REad

From being a white elephant, Bharti is SingTel’s new cash cow

property

Home prices may rise 10% in 2011 Price growth would likely decrease from 2010’s preliminary estimate of 17.6% due to the presence of downward pressures.

Colliers International said that among other factors, the easing of economic growth from a preliminary estimate of 14.7% in 2010 to between 4% and 6% in 2011 should take some exuberance off the market. economy

Singapore service sector contracted 8.8% in 2010 The only service sectors that showed growth are financial services sector and tourism-related business, HSBC said.

Despite the lower annual growth, sequential growth actually came in higher at 4.7% q-o-q SAAR (vs. 0.6% in Q2). economy

Singapore GDP growth forecast at 5% in 2011 Despite the 14.9% yoy GDP growth for 2010, GDP growth should moderate to around 4-5% in 2011.

OCBC said that manufacturing growth should also normalise to a more modest single-digit growth given the high base. Market expectations have been set fairly low for the G3 economies and there could be potential up-

Prices of SG houses, remains the highest in Asia side surprises in terms of external demand.

Hotel & Tourism

5% ‘whale tax’ lures big punters to Singapore Casinos Opening of the integrated resorts in Singapore has increased tourist arrivals, Philip Securities said.

The casinos in Singapore have an advantageous footing since local gaming tax is only 5% for the VIPs and 15% for mass market gross gaming revenue.

This means they have a shorter breakeven period versus casinos in other countries.

market & investing

DBS to launch RMB-denominated products in Singapore The increasing internationalisation of the Renminbi in the global market has put the currency in the spotlight.

In a statement, DBS said, there is a growing interest for investment products linked to Asian currencies on the back of strong economic growth in Asia. With more investors warming up to RMB-linked products, DBS will launch a number of RMBdenominated products for the retail investors in Singapore.

Singapore, the hottest gambling capital of Asia?

10 SINGAPORE BUSINESS REVIEW | MARCH 2011

The Indian telecommunications company is expected to contribute about 15-19% of SingTel’s earnings in FY11F/12F. In a statement, DBS Bank predicted that Bharti will make the turnaround from being SingTel’s “key drag” last year to a key profit driver in 2011 and beyond.

The New Delhi based company, in which SingTel has a 32.04% stake, is showing improvement in its Indian & African operations, beating consensus estimate of Rs16.1bln with net profit of Rs 17.9bln (excluding exceptional losses of Rs.4.9bn (one-time brand re-launch cost and forex losses)

HOTELS & TOURISM

$220

is the average price of Singapore Hotels a night as tourism booms Singapore Tourism Board expects the target of 12.5 million tourists to be comfortably met this year.

HR & Education

How to ask for a pay rise 47% of Singapore employees are expecting a pay increase of 5-10% this year and 83% are expecting to take home a bonus, according to Randstad’s 2010 World of Book Report (May 2010). This suggest that Singapore employees expect financial rewards for the hardships of the last 12 to 18 months.

Hr & Education

7 Golden Rules to Negotiating a Pay Rise: 1. Choose your time wisely.

2. Be prepared: Prepare your thoughts before the negotiation.

3. Demonstrate your worth.

4. Do your research.

5. Keep to the facts and be positive.

6. Do not offer an ultimatum.

7. Don’t burn your bridges.

its closest rival, Hong Kong, with some 30% differential.

Hong Kong, on the other hand, has closed the gap with Tokyo’s office occupancy costs, rising 8.5% QoQ to reach US$105.05 per sq ft per annum - buoyed by sustained expansionary demand in their financial sector amid the continued supply squeeze in the CBD. Hence, as of 4Q 2010, they are just US$0.04 below Tokyo’s occupancy cost of US$105.09 per sq ft per annum.

MEDIA & mARKETING

80% of marketers worried their brands may be in danger leisure & Entertainment

Singapore Casinos remain a full house Visitor arrivals to the Integrated Resorts hit more than a million during Chinese New Year, said OCBC. eCONOMY

Singapore inflation forecast at 3.3% in 2011 The December CPI may not change the April outlook as far as the monetary policy is concerned, OCBC said.

December CPI grew 4.6% y-o-y. CPI grew 2.8% y-o-y for the year of 2010, up sharply from 0.6% in 2009. The surge of inflation was mainly driven by rising energy and housing prices.

Meanwhile, food prices also contributed about 10% to headline CPI in 2010.

OCBC is not looking at a double dip scenario: therefore, the dynamics are still tilted towards

inflation this year with a forecast of 3.3%. property

Property measures not meant to kill the market It is unnatural to expect property prices to remain strong, said MND Minister Mah. According to OCBC, MND Minister Mah said, the government will take further steps if necessary to promote a stable and sustainable property market.

He said, given strong

economic growth, low interest rates and a lot of liquidity, it is not unnatural to expect property prices to remain strong. media & marketing

Singapore is one of the world’s most evolved social media markets Brands that are not engaging consumers in social media are at risk from being sidelined.

A global study conducted in 15 countries

Singapore is embracing social media for enterprises

has found that Singapore is amongst the world’s most evolved social media markets, where consumers’ online and offline lives comfortably converge.

This is the key finding of the “The Language of Love in Social Media” – the world’s first global qualitative study into how people from different countries behave when using social media..

Throwing dollars at social media is only doing half the job.

According to Alterian’s Annual Survey, while Singaporean marketers are allocating more of their budgets to digital campaign, throwing dollars at social media is only doing half the job and companies are still placing their brands at risk by not analysing the conversations and engaging with customers. hr & Education

property

HK beats Singapore again as 2nd most expensive location in Asia Pacific Tokyo remains the most expensive location having occupancy cost of US$105.09 per sq ft per annum.

According to Colliers International, though Singapore’s office occupancy costs grew the fastest in the region in 4Q 2010, it maintains its competitiveness against

Singapore Budget is a step to be a global Asia hub, says KPMG Up to $400,000 of business spending on each qualifying activity qualifies for a maximum tax deduction of $1,600,000 or $272,000 of tax savings per activity.

This strategy positions Singapore as a gateway to Asia while enhancing its attractiveness as a regional hub for MNCs, says KPMG.

SINGAPORE BUSINESS REVIEW | MARCH 2011 11

Accor Services is now Edenred.

Market Leader in the World of Prepaid Services.

Edenred is the new and official corporate name for Accor Services as a result of our recent successful demerger from the Accor Group and we are now a listed company on the NYSE Euronext CAC Next 20 with a market capitalization of above €3.3 billion.

Koray Ozbay

Regional Managing Director Asia Pacific

An Easier Life with Edenred As the global market leader in prepaid services for Fortune 500 companies and public sectors worldwide, we have been consistent in delivering cutting-edge rewards and incentive solutions for employee and public benefits programs towards the enhancement of individual well-being as well as the performance of organizations.

“Backed by our 50 years of expertise in prepaid services, this new identity will enable us to assert our position as a committed, pioneering, global leader,” said Jacques Stern, Edenred’s Chief Executive Officer. “Edenred is focusing on innovation to drive growth and delivering solutions worldwide that create bonds among people.”

At Home in Asia Pacific With a well-established presence in 40 countries worldwide and 1.2 million international service providers on our affiliate network, 33 million people around the world are now using our solutions each day with approximately 500,000 private and public sector customers benefiting from our constant product innovation. In 2009, Edenred generated a total issue volume of €12.4 billion, of which more than 50% were in emerging markets.

Singapore is Edenred’s strategic Asia-Pacific headquarter and our regional offices can be found in fast growing markets such as Australia, China, Hong Kong, India, Korea and Taiwan. This region currently represents 14% of our globally integrated workforce and is set to grow bigger given the immense opportunities and rising demands for our products and services in Asia.

“Our aim is to attain pre-crisis double digit growth rates. For that, we will exceed our clients’ needs by providing superior products, increase our market share by penetrating deeper into our markets, tap into new markets via geographical expansion and may consider M&A projects,” said Koray Ozbay, Edenred’s Regional Managing Director.

12 SINGAPORE BUSINESS REVIEW | MARCH 2011

Our Values Sustainable Growth Creation To grow worldwide market leadership further and deeper, Edenred will leverage fully on its proven capacity for innovation by actively pursuing organic growth drivers in order to meet our 6% to 14% annual normalized organic growth target, in issue volume. In addition to these organic growth drivers, Edenred may consider M&A opportunities in target markets (Latin America, Europe and Asia).

Furthermore, plans are in place to create new business footprints in six to eight new countries by 2016 with another ten to fifteen more beyond that.

Our Products For Employee and Public Benefits t Ticket Restaurant, Ticket Alimentation (Food Benefits Category) t Ticket CESU, Employee Assistance Programs, Childcare Vouchers (Quality of Life Benefits Category) t Ticket Service (Public Distribution System for Governments)

For Organizational Performance Improvements t Ticket Car (Expenses Management) t Accentiv’, Ticket Compliments, Kadeos (Rewards and Motivation) t Other electronic prepaid products

Some of our Regional Clients: Air France, Cisco, Eu Yan Sang, Hewlett-Packard, LG Mobile, Michelin Tires, Microsoft, Motorola, Procter & Gamble and Sephora.

Edenred Pte. Ltd. Tel: +65 6229 8686 | Fax: +65 6229 8696 e-mail: info-sg@edenred.com 401 Commonwealth Drive #04-04, Haw Par Technocentre, Singapore 149598 www.edenred.com.sg Disclaimers: This publication is not intended as an offer, solicitation of an offer or public advertisement to buy Edenred stocks. This publication and the information provided therein are without engagement, contractual or otherwise.

SINGAPORE BUSINESS REVIEW | MARCH 2011 13

FIRST

Who was the sales director of a financial company who promised his team that if they each hit target they would get a three month membership to one of Singapore’s better known gyms? Not surprisingly, the staff were not overly motivated but that turned to downright scorn when they realized the director’s wife was head of membership acquisition at said gym and the ploy was really a means to help his wife hit her sales quota!

Who knew dating sites could be picky too? Who was the poor mid thirties dateless and desperate lass who recently moved to Singapore and met with one of the city’s leading “lunch date” matchmakers only to be told that they will keep her name on file and if they have a suitable match they will call her.

It’s been three months and they still haven’t called. Ouch!

Why stop at one goodie bag when you can take several for the family? But at a leading woman’s magazine publication’s awards night, to be seen running out the back door with goodie bags weighing down both arms is quite unbecoming!

Bonuses may be smaller and time delayed and paid in shares these days, so they certainly aren’t what they used to be, but that is still no excuse for the Big Bank trader who was spotted by his boss at a company function recently with a canapé in both hands and a drink to boot.

His boss shouted out to him: ”Don’t we pay you enough already that you have to double fist the Hors d’oeuvres?”

Embarassing.

Know any good rumours ? send them to us at tipoff@sbr.com.sg.

14 SINGAPORE BUSINESS REVIEW | MARCH 2011

Can HSBC get its groove back ?

The world’s local bank may have survived the financial crisis better than many of its global competitors, but investors are beginning to wonder what strategy the bank will take to get it back on the path of growing revenues and profits.

So far in the cycle profit growth for HSBC have come largely from falling provisions for non performing loans. Now the hard task ahead is to grow the bottom line of the business as well as the bottom. To that end HSBC has moved many of its senior bankers including Paul Thurston from Canary Wharf to 1 Queens Road Central in a bid to reignite the consumer and wealth management business.

The proof may well be in the pudding, but in the meantime analysts such as Goldman Sachs says HSBC has too much of the “why bother, too complex, too little growth” factor, and asks what it will take to get the bank growing at double digit rates again. On their forecast is for the bank to show absolutely no revenue growth this year, or maybe 3% in a good case scenario.

In some ways HSBC’s profit problems are the result of being

HSBC has too much of the “why bother, too complex, too little growth” factor

almost too safe and successful in Asia which has contributed to it having a very liquid balance sheet with a loan to deposit ratio of 78%, whilst it still has the more troublesome US$61 billion of Household loans on its books. So whilst its Asian customers use the bank mainly to park cash, 63% of its overall loans are over in Europe and the United States.

The problem in having so much excess cash is that with interest rates so low now, HSBC earns little interest on the extra cash. This of course is not its fault, and if US$, and hence HK$ interest rates rise, then HSBC will earn more. But it may be quite a while until global rates start recovering. No wonder then that the bank is keen to increase loans in Asia and earn more from its wealth management business, and has made some key appointments in that area.

In October the bank appointed Desmond Liu Head of Private Banking for North Asia and Nancie Dupier Head of Private Banking for South East Asia, but there is still no replacement for the well respected Monica Wong who retired as chief executive of Private Banking in Asia.

And even if loans and fee income in Asia grow by 20% this year, a good case scenario according to Goldman Sachs, that would still only flow through to a revenue growth of just 3%, which is well below that rate of growth of the Asian economies themselves.

One scenario which would see revenues grow by 10% would be if Asian based loans and fee incomes grew by 37% this year, versus forecasts of just 17% and 14% respectively.

Even the hard working bankers at 1 Queens Road Central would be hard pressed to grow their business by that much in the year of the Rabbit.

FIRST Only 20% of employees can expect a pay rise of more than 6%.

Will inflation exceed pay rises in 2011 ?

W

hen property prices skyrocketed last year, few felt the pinch.

But now that food inflation is rising fast, Singapore and indeed the rest of Asia is bracing for a more bumpy ride this year. In late February, the Singapore government officially said that inflation could dampen growth this year, and for employers it will mean they are going to have to pay staff more to keep them. The causes of rising inflation, which DBS forecasts may hit 4.2 % this year, are easy enough to see. Both hard and soft commodity prices have soared over the past 12 months, with staples like corn and wheat up over 80 % , Soybean up 50 %, and luckily for Asia rice up by just 15 %. Sanjay Mathur, an economist with RBS, notes that the weighting of food and energy in non- Japan Asia inflation baskets is higher than in the broader emerging market universe and therefore, the recent spike in food prices has aggressively pushed up headline numbers. “Higher oil prices have been another factor but

its impact has yet to be fully felt as several governments (China, India, Indonesia, Malaysia and Thailand) have delayed the full transmission of international prices. Instead they have opted to subsidise domestic prices, diesel in particular. This delayed response is typical of NJA policy makers and it will only be later that the full impact is felt.”

Wage rises threatened So will higher food prices flow down into higher general inflation?

The relationship between headline and core inflation in the region has historically been a tight one. This is because higher food/energy prices tend to result in public sector wage adjustment and also feed through broader inflationary expectations and the effect is particularly pronounced when the underlying growth momentum is strong. And that is precisely the situation now, notes Mathur. “Economic activity, as gauged from the PMI data, is re-accelerating and risks to growth in 2011 are to the upside. Continuation

of expansionary fiscal policies, absence of negative wealth effects and tight labour markets cumulatively suggest strong growth momentum.

A good example is India where higher steel prices have resulted in an average increase of 10% in the price of consumer durables. “ Another factor to consider is the mandated increase in wages in several countries. In mid-2010, Chinese policymakers mandated an increase in the minimum wage rate by 5% to 27%. This has been followed through with another 20% increase in Beijing, a move RBS thinks will be replicated in other provinces. In India, public sector wages have been re-indexed to a revised cost of living and in Thailand, an average increase of 7% has been effected from this year. Singapore has no minimum wage, but a salary survey from recruitment firm Hays indicated that almost two thirds of all employers expect to increase salaries between three and six per cent in their next review, and only 20 % of employees can expect a pay rise of more than 6 %. That means for the majority of Singaporean workers, their salaries may struggle to overcome the inflationary headwinds.

NJA: Co-movements in core and Headline inflation

SOURCE: CEIC, RBS

Trends in real interest rates

SOURCE: CEIC, RBS

SINGAPORE BUSINESS REVIEW | MARCH 2011 15

FIRST

The iTunes of financial quotes launches If you trade or invest for a living you probably have a $2000 a month Bloomberg or Reuters terminal at your swish office in Marina Bay Financial Centre. But for the rest of us, a hodgepodge of free, often time delayed sites like Yahoo Finance has been the best we can do to get financial news. Until now.

CarryQuote, which just launched a service with CBNC in Singapore. brings all the world’s financial data and makes it available on just about any mobile device.

The trick is that instead of a continuous feed of data, which a professional would pay for, users can request an instant ‘snapshot’ of a live data price for about 5 cents.

CarryQuote CEO and co-founder Michael Stennicke told Singapore Business Review it was analogous to the iTunes of financial information.

“Instead of having to buy the whole CD you can just buy the track, and with CarryQuote instead of having to subscribe to the whole live data feed, you just pay each time you want a live quote.”

Hong Kong just the start CarryQuote has around 400 users in Singapore and recently launched a co-branded service through CNBC which gives users 500 real time snapshot quotes and streaming TV for $24.99 a month. The company is also finalizing deals with some private

Instead of having to subscribe to the whole live data feed, you just pay each time you want a live quote

Don’t blame the foreigners It has been a bit of conventional wisdom to blame foreigners for swapping their newly minted US dollars into Asian currencies and parking the money in local investments. Unlike the G3 economies, where high debt and unemployment have severely curbed money supply and credit growth, Asia has enjoyed accelerating monetary expansion, fuelled by the aggressive stimulus prompted by the crisis, notes Standard Chartered economist Nicholas Kwan.

Broad money supply is growing at double-digit levels in Vietnam, China, India, Indonesia and even Thailand and 16 SINGAPORE BUSINESS REVIEW | MARCH 2011

banks in Singapore to offer the service to their clients. “There are only about 1 million people who are professional traders with the expensive real time data feeds, but the market for the rest is tens if not hundreds of millions of investors,” says Stennicke, who had to convince hundreds of exchanges around the world that it was worthwhile making live data available to non-professional investors at a reasonable pay as you use price.

Here is how CarryQuote works.

Say you want to look at the price of gold, you can look at the time delayed feed for free but when you want the

bank loans are growing at 10-25% y/y in almost all developing Asian economies.

It is not just prices of basic food items that are rising – prices of luxury and durable consumer goods are also climbing.

This indicates that the current round of inflation is spurred by rising incomes and liquidity. Hence, micro measures like subsidies and price controls will not be sufficient unless they are accompanied by broad monetary tightening. Worse, the focus on foreign inflows can divert attention from restraining domestic liquidity. Foreign capital usually grabs more prominent headlines, but it usually accounts for only a fraction of the overall liquidity in an economy.

Singapore has had record dollar

live quote you click on that and you get a “snapshot” of the current price.

More importantly, says Stennicke, the whole service has a very iPhone feel, with users able to easily flick through charts like album covers in iTunes.

CarryQuote has also included many free analysis tools the professionals use which overlay the data to show if a stock is oversold, for example.

“We run data through different analytics models - the kinds done by brokerage houses and we provide different views by risk adjusted yield, volatility and many popular models,” says Stennicke.

Singapore has had record dollar inflows, but that may not be the only reason for inflation. inflows, but that may not be the only reason for inflation. Take Hong Kong, which probably has one of the most dominant presences of foreign capital of any Asian economy, with foreign-currency bank deposits almost matching HKD deposits. There have been no net capital inflows into the city since May 2010, which contrasts with the common belief that foreign money has been flooding the market and driving up asset prices. So then, the problems are self inflicted.

coRporate profile

Hosted Security Solution for Business Agility

Bjorn Engelhardt, Vice President – Asia Pacific, Symantec.cloud changing threat characteristics are identified, and new signatures are implemented automatically in real-time.

Symantec heading to the Clouds

T

raditional security measures such as on-premise software and onpremise appliances are outdated today as they require heavy investments and resource allocation to be most effective. Hosted services on the other hand, are simple to set up and administer and generally work with any mail client or server configuration, regardless of geographic location.

Administration is typically handled through a web-based portal that provides management information, configuration tools, service statistics , updates and reports in real time, requiring no additional resources from the client.

Globally, companies of all sizes are making the move to the hosted services model because they benefit from: • Gaining access to security and management expertise • The predictable cost of a subscription service, and often have lower startup costs • The ability to virtually eliminate the need for service-related hardware and software investment Moreover, with new spam and virus techniques emerging almost daily, enterprises

Diagram: Symantec’s cloud solution have realized that they neither have the core competency nor the financial wherewithal to keep investing personnel, time and money into deploying new countermeasures at a rapid rate. However, dedicated hosted services vendors can devote frontline personnel and massive processing power to fighting emerging threats and can seamlessly implement them to protect enterprise clients in real-time.

As email, web, and IM content is scanned and filtered at the Internet level, it helps to prevent malicious code from ever entering the corporate network. As data is collected,

Important considerations for a hosted solution Hosted services are delivered and maintained via third parties, as opposed to on the customer premise. However, customers retain significant control over configuration, monitoring and management of policies and services. A good hosted services provider should deliver a reliable Service Level Agreement (SLA) as a means of ensuring service accuracy, efficiency, and availability.

This SLA, usually agreed to in the service contract for the service, calls out a series of metrics that the service provider agrees to meet, that can include: • Accuracy of virus detection • Accuracy of spam blocking • Performance levels, such as latency of email and web traffic • Uptime of the service If these levels are not met, customers can refer to the SLA for some form of redress, such as a money-back remedy. Hosted security services can provide excellent protection levels, and also provide access to a dedicated support team for the solution with high levels of training and expertise on the technologies involved. All in all, the hosted solution will improve your business agility.

CONTACT www.messagelabs.com.sg SINGAPORE BUSINESS REVIEW | MARCH 2011 17

FIRST

What do Chinese think about property?

If there is one thing the world will be looking at this year it is the Chinese economy, and the biggest driver of the economy right now is property. Construction projects, including infrastructure and property, accounted for 70% of China’s GDP last year, according to veteran investor Jim Chanos who is shorting China.

Amidst talk of “ghost cities”, empty shopping malls and as many as 25 million new apartments to be built this year, perhaps the biggest key to answering when, if, how and how much the Chinese property may fall depends on the psychology of the Chinese property buyer himself.

Investor Sentiment So just what do all those buyers of property have on their minds?

Are they planning to buy more, less, or sell what they already have?

Luckily, investment bank Macquarie Securities now regularly surveys a thousand households in seven Chinese cities to ask them exactly these sorts of questions to take a snapshot of investor sentiment. And the latest survey, taken in January, shows that while Chinese property investors are taking a pause, they are still, for now, big long term believers in local property.

Asked “whether now is a good time to buy property,” the index sank below the 50 benchmark (score of 100 the highest) to 43 from 66 in

Construction projects, accounted for 70% of China’s GDP last year

December. This buyers’ market also sparked an increase in respondents’ interest in selling their homes with the score for “whether now is a good time to sell your property” rising 3 points to 59, noted Macquarie.

But on the more important question of “What is the outlook for home prices in next 5 years?”, the index actually reached an 11-month high of 85, indicating that local households remain positive over the long term prospects for home prices.

And in spite of some very tough government measures to curb the market, sales volumes fell just 4% in January compared to December – hardly a rout. Yet Macquarie reckons there could be more falls to come and that volumes have yet to reflect the full impact of tightening measures announced in late January and tighter monetary conditions and noting that more banks in cities such as Shanghai and Beijing were dropping the 15% discount for first time home buyers.

Non-core is core

In Vietnam, India, China and Indonesia, food and energy inflation (non-core inflation in the conventional sense) is An obvious source of the recent now running at 8-13%, 4-8ppt higher acceleration in CPI inflation is higher than core inflation. In Thailand, Taiwan, food and energy prices, driven partly Hong Kong and Korea, where core by improving demand amid the global recovery and partly by supply disruptions inflation is below 2%, non-core inflation is two to three times higher. due to poor weather, notes Standard Although food and energy price Chartered. While the West treats food inflation may not reach their 2008 and energy prices as ‘non-core’ given records this time around given weak their volatile nature and relatively small weightings in consumer baskets, for Asian demand in the G3 economies and reduced leverage behind speculative consumers, a much larger 30-55% share demand, the stakes remain high of expenditure goes towards food and considering the social impact of high energy. food and energy prices on the poor, Non-core inflation in the West is core who are vulnerable to inelastic basic inflation in Asia. It is therefore risky to demand and are late to benefit from focus too much on conventional ‘core’ inflation as the yardstick for policy action. the recovery.

18 SINGAPORE BUSINESS REVIEW | MARCH 2011

Asian CPI inflation compared (y/y%)

*Dec/Nov 2010 data; Sources: CEIC, Standard Chartered Research

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HOnG KONG ECONOMy 2011 Credit growth is rising

Little investment, just more borrowing in 2011 2011 may be shaping up as one of the worst years in a long time for inflation, according to the economists at UBS, who warn that it may peak at 5% over the year, up from just 2.5%. What is to blame? Continued high property prices, expansion of bank lending, a weak currency due to the peg and imported higher costs from China are all risks this year, and may be underestimated, says the bank.

Credit growth is rising as banks flush with cash are pumping it into the economy, with narrow money growth up 60% last year over 2009.

Remember, that when the US prints more money, Hong Kong must do the same to maintain the peg. And while the US is desperately trying to re-inflate housing prices to stop its financial system from collapsing again, Hong Kong has the opposite problem – an asset bubble.

Investment drought So where is all this new bank lending growing? Not into real investment in things like factories which 20 SINGAPORE BUSINESS REVIEW | MARCH 2011

actually produce things. In fact, in 1997 investment in Hong Kong represented 34% of the economy but by 2008 it had fallen to just 17% and the latest figures showed it rose just 0.3% for the last quarter of 2010.

This at a time when bank lending increased 60%. And there is no sign of a pick up. The economists at UBS say they “remain sanguine on the medium-term investment outlook for Hong Kong. We expect the driver of investment to transit from the cyclical forces to the structural forces. Specifically, the slew of infrastructure projects (for instance, the extension of the MTR island line) already under construction, plus the government’s commitment to increase housing supply, should boost construction investment going forward.”

Note here that there seems to be very little private investment in anything outside more real estate.

So if companies aren’t borrowing to invest, where is all the money going?

Back into the world’s most expensive property, of course.

Quick, who is least indebted – Aussies, Hongkongers, Taiwanese or Koreans?

If you picked Hongkongers, you would be correct. Which is good news as our underleveraged citizens are seeing some modest income growth and are now looking to borrow a bit more and spend.

Median incomes are on the rise locally, jumping 3.4% in the third quarter of 2010 and staying slightly ahead of inflation. Let’s not forget that HK$28 an hour minimum wage that will help some when it finally kicks in. This combined with a bit of confidence, as well as perhaps banker’s confidence, saw consumer loan growth pick up the most in Hong Kong since its disastrous slide in 2008 and 2009.

“As the labour market continues to improve, we expect the gradual increase in household income to persist over the next few quarters.

In addition, the household balance sheet is relatively healthy (with debt-to-income ratio at around 80%, compared to 120% or above in Korea and Taiwan), which provides room for re-leveraging to smooth consumption during downturns,” noted UBS.

coRporate profile

Creative Precision

Jay Soo, CEO and post-production as well. And this is where we make sure that access to new technology and software doesn’t result in just showing off what our machines can do. The truth is, clients appreciate us most when we present an innovative way to solve their marketing problem. Technology merely brings ideas to life. Technology and style do not solve marketing problems.

Moving Bits stands out from other production houses because it focuses its craft on empowering the idea.

How would you describe the Moving Bits brand?

Moving Bits is a Project Studio that’s focused on the creation and production of marketing communication materials for moving media. It produces TV commercials, marketing videos, corporate videos and the occasional training video. In terms of craft, Moving Bits is staffed with writers, editors, producers, directors and a very accomplished team of 3D animators.

What is your edge over competition?

What makes the firm stand out? How has the firm grown over the years? Where would you attribute this growth?

By taking “The idea comes first” approach, Moving Bits stands out from other production houses because it focuses its craft on empowering the idea. Unlike many other production houses who earn their fame through slick execution, we prefer to build everything on the idea. We like it this way because: 1. It gives the project a benchmark by which the quality of the execution can be assessed.

2. It helps staff understand why they are doing what they are doing 3. It gives clients the confidence that their production agency not only knows production

Chew Ping Nan, Chief Creative Officer tricks but understands the marketing issues involved.

Since its inception in 1998, Moving Bits has enjoyed good growth – much of it coming from faithful clients, and satisfied clients who recommend us to others without fear of being let down.

Please walk us through your creative process.

Most times, a writer starts the production process by coming up with the concept. But there are many times when ideas for videos are hatched by directors, producers and animators.

The creative process stretches to production

How important is your collaboration with clients in coming up with the campaigns?

How would you describe your relationship with your clientele?

A lot of the work we do for clients has been used at major events and initiatives; and at very cost-efficient rates too! We’ve created marketing videos for Raffles Hotels & Resorts, Resorts World Sentosa and Singapore Youth Olympic Games.

We’ve produced recruitment videos for Deutsche Bank and Singapore Management University; TV commercials for Tiger Beer, OCBC and Guinness Stout; and viral videos for Microsoft.

Now and then, our work goes on to win international awards like Cannes Corporate, the New York Festivals and the CINE Golden Eagles. A nice bonus for the client!

How is the future shaping up for your firm?

We hope our successes in marketing communications can translate into good work in new media. We will still focus on the beauty of ideas. And by mastering new technology, we will also be able to offer better cost efficiencies to our clients in the future.

CONTACT Moving Bits PTE LTD. 883 buKIT timah road, singapore 279894 TEL: +65 6469-9163 FAX: +65 6463-7657 www.movingbitsonline.com

ECONOMICs

OPINION

Ian Perkin Singapore vs. HK: A tale of two bourses

“Hong Kong and Singapore adopt different strategies for stock market growth”

T

he demise of the “elite clubs” of the stockbroking fraternity and the rise of the listed entity in ownership and operation of stock exchanges world-wide unleashed a wave of competition, innovation and mergers and acquisitions – and new strategies for growth - that is, as yet, far from over.

For evidence of that look no further than the divergent paths to market growth and meeting the global competition now being taken by at two of the biggest exchanges in the East Asian region, outside of Japan and China.

Fired by the flood of new IPOs (initial public offerings) from the Mainland of China (and increasingly elsewhere), Hong Kong Stock Exchange appears to have opted for (or had thrust upon it) a strategy of organic growth, encouraging more and more new listings on its market. This will now also include Chinese Yuandenominated IPOs with the first expected shortly.

Singapore Exchange (SGX), on the other hand, is attempting to grow and re-make itself as a true global player with its $8.4 billion bid to acquire the Australian Stock Exchange (ASX) and merge the two entities. The SGX move comes amid further merger talks between Exchanges in the US and Europe.

At first sight, the strategies for growth – and meting the global competition - adopted by Hong Kong and Singapore appear to be quite different, but a closer look shows them to have some underlying similarities.

Both have the same objectives of creating greater market liquidity and more efficient (and therefore cheaper) operations to make them more attractive to global traders and fund managers.

Both are also driven by the same underlying logic – to tap into the China story, the boom in the demand for resources and the tipping of global economic “weight” towards the Asian region.

Hong Kong clearly has the advantage in the China growth story with a ready flow of IPOs out of Mainland,

IAN PERKIN Independant Economic Consultant perkin888@hotmail.com

initially in Hong Kong dollars and now with Yuandenominated issues about to take off. Hong Kong is playing to its strengths here.

Singapore is taking a more indirect route, locking into the China/Asia story through the Australia link. The ASX is very much a resources driven market and through that has close links to the China story, with that country’s huge resources demand. Seen in this context, the broader listings of the Australian market are a bonus.

The SGX’s interest in the ASX also reflects the evercloser economic ties between Singapore and Australia, especially Singaporean investments in the country.

In the final analysis, the Hong Kong and Singaporean market strategies are therefore not openly competitive (at least in the short term), but complementary. Over time, however, the SGX-ASX tie-up, with its enhanced capitalization and liquidity (the world’s fifth biggest equity market) will make in it a hefty competitor to HKEX (see tables below).

Yet it is the path of organic (IPO-led) growth that is paying off for Hong Kong in the short term. HKEX led the world in IPO capital raisings last year and seems to be set to do the same again this year, but with a broader range of offerings than merely Mainland China sourced listings.

It will be the third consecutive year that Hong Kong topped the global IPO rankings, in numbers of offerings and capital raised.

In 2009, HKEX had 69 IPOs raising HK$240 billion (US$31 billion) and last year (2010) there were 60 offerings raising a record HK$300 billion (US$38.5 billion). Mainland China companies continued to dominate the market, as they will in 2011.

Hong Kong’s open capital and foreign exchange markets (including the linked exchange rate to the US dollar) have facilitated outside investment in the record number of IPOs in recent years, as has its solid regulatory and governance environment, which provides a further comfort to outside investors.

“

Hong Kong and Singapore market strategies: not openly competitive but complementary.

Share Market Capitalization by region 2010

Selected Stock Markets - Capitalization (Dec 2010)

Source: WFE

Source: WFE

22 SINGAPORE BUSINESS REVIEW | MARCH 2011

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co-PUBLISHED

Delivering Value through Innovation in Asia

Augusto Muench, Regional Managing Director of Southeast Asia and Singapore, Boehringer Ingelheim

J

uan Augusto Muench Castañeda, Regional Managing Director of Southeast Asia and Singapore of Boehringer Ingelheim, shares his views on the outlook for the pharmaceutical company in the region, its future challenges, prospects and company philosophy.

As the Regional Managing Director of Boehringer Ingelheim SEA and Singapore, Augusto calls the shots at the head office in Singapore and leads a management team which collectively markets a broad spectrum of pharmaceutical products. Although everyday spent supervising the affairs of the pharmaceutical company presents a different challenge, the Latin American expatriate performs his role with great passion and enthusiasm.

Born and raised in Mexico, Augusto joined Boehringer Ingelheim in Mexico City in July 1999 and has held various positions over the years. He began his career as an IT Infrastructure Manager and moved up the corporate ladder to become Boehringer Ingelheim’s Senior Business Regional Manager with a posting to the company’s headquarters in Germany.

During his four years stint in Germany, Augusto was responsible for the prescription medicines business in South America, new business opportunities in emerging markets as well as participated in definition of corporate strategies.

“I am always looking forward to new and

24 SINGAPORE BUSINESS REVEIWS | MARCH 2011

“The company’s responsibility has always been to the people who help make it a success and to the people who benefit from our research and its medicines…” exciting career platforms and to see what comes next. My switch in career from IT to the business side of the pharmaceutical company was only possible at Boehringer Ingelheim because opportunities are made available to those who want to excel.”

Boehringer Ingelheim offers individual performance related programmes that feature results-driven remuneration focusing on employee opportunities to develop and advance their careers at both national and international level. This in turn creates a good working environment that provides a good quality of life with a range of attractive benefits for its employees.

Boehringer Ingelheim is a successful, family owned business founded in Germany in

1885. “Our willingness to change and adapt in response to the future is further complemented by how we regard our employees as they form our most valuable asset,” says Augusto. “This gives us the strength, direction and confidence to shape our future in Asia. We strongly believe in striving for value through innovation, which is the central concept of our corporate vision. Our goal is to serve societies through research into diseases and the development of prescription medicines, consumer healthcare, and animal health products.”

Adopting a good work life balance for its employees takes precedence over maximising earnings in the short term.

Even though Augusto’s job requires him to travel regularly, Boehringer Ingelheim’s flexible work life balance gives him ample time to spend with his family. “My wife has also been supportive of my career although there have been some personal challenges moving from one country to another with our three children,” he says.

Despite patent woes after losing two exclusivity rights last year, Augusto explains that the pharmaceutical company is still making headways. “It is part and parcel of the business of a pharmaceutical company. It is impossible to

CO-PUBLISHED predict the future precisely, and at times we have lost exclusive patent rights, but we actively and creatively face the changing tasks and challenges by building on experiences and achievements,” adds Augusto.

A testimony to this feat is what Boehringer Ingelheim has planned for the future. “The company’s R&D division has also been a major thrust forward in producing innovative, new prescription medicines. It has four products in the pipeline that will be market ready in two and three years time concentrating on many of the most common, and most challenging, conditions of the century, particularly in the areas of oncology, respiratory diseases, and cardiovascular / metabolic diseases.

Parallel to pursuing its goals, Boehringer Ingelheim also seeks to foster economic and social well being in the Southeast Asian and the greater Asian countries in which the pharmaceutical company does business. “We see this part of the world to be of growing importance and societies can benefit from our products. We expect to double our company size in the regional emerging markets. It entails a willingness to make the necessary changes and be critically receptive to new ideas and developments,” says Augusto.

“The company’s responsibility has always been to the people who help make it a success and to the people who benefit from our research and its medicines. It is the fundamental conviction that has guided the familyowned pharmaceutical company from the beginning,” elaborates Augusto.

Some of the challenges he faces in Singapore includes the humidity and understanding the local pidgin language, Singlish. But Augusto finds Singapore to be a city which

Many of Boehringer Ingelheim’s products are market leaders in SE Asia

“We see this part of the world to be of growing importance and societies can benefit from our products. We expect to double our company size in the regional emerging markets.” offers much vitality. “For the first time, my family and I are experiencing different cultures and religious festivals in one country. Back home in Mexico, there is only one culture and one religious festival – Christmas. Singapore is such a colourful place.”

A Business with Vision Boehringer Ingelheim is a family owned pharmaceutical company founded in 1885

by German entrepreneur Albert Boehringer (1861-1939) in Germany. From its beginnings, when it employed just 28 people, the company has grown to become a global enterprise with over 43,000 employees in 50 countries.

The company’s net profit was E1,759 million (US$2,453.2 million) in Financial Year 2009,

an increase of 23.5% over 2008. Net sales grew by 9.7% to E12.7 billion (US$17.16 billion) in that year.

Over the years, the company has introduced a range of successful products from drug discovery to market. The pharmaceutical company is spending 21% of net sales in its largest business segment Prescription Medicines (2009) on Research and Development.

It focuses on six major therapeutic areas: Respiratory diseases, Cardiometabolic diseases, Oncology, Neurological diseases, Immunology and Infectious diseases.

Its researchers and scientists are addressing more than 22 chronic conditions and have successfully launched 12 major products in the past decade, with several more therapies in its pipeline. Boehringer Ingelheim is also making headway in diabetes, oncology and other areas.

Boehringer Ingelheim’s objectives and beliefs can be summed up in a single vision: Value through Innovation. It recognises the balance between work and private life is not only important to employees; it’s the key driver for company’s overall success.

In every city where it operates, they work closely with community partners to understand where its resources—both financial and volunteer—can have the greatest impact and do the most good. Boehringer Ingelheim considers itself to be part of a global community that feels strongly about making a difference for people at home and around the world.

In 2009 Boehringer Ingelheim was ranked a Top Employer in Science journal, a recognition that reflects the special corporate and work culture of the company’s 125-year history.

This high degree gives them a space that it needs for innovation and creativity.

CONTACT

Boehringer Ingelheim’s reception and functional area

Boehringer Ingelheim 300 Beach Road #37-00, The Concourse Singapore 199555 Telephone: (65) 64198663 Facsimile: (65) 6297577 www.boehringer-ingelheim.com

numbers

Asian nations happiest in the world :) Happy Asians top world happiness index

How we spend disposable income Don’t know I have no money Decorating Entertainment

How to utilize spare c covering essential livi expenses HONG KON How to utilize spare c covering essential livi expenses SINGAPORE

Retirement

Paying off debt Gadgets Shares New cothes Holidays

Savings 0

Pragmatic consumer behavior will continue Did This Past Year

Will Continue To Do

54% Spend less on clothes

34% Save on gas and utilities

53% Reduce entertainment

22% Spend less on clothes

47% Save on gas and utilities

22% Reduce entertainment

40% Reduce grocery spend

21% Reduce take - out

39% Reduce take - out

19% Reduce grocery spend

38% Delay technology upgrade

17% Cut down on telephone exp

36% Cut down on vacations

15% Use car less

Frequency of accessing social networks in Asia % Frequently Accessing Social Network Sites

Several times a week

At least once a day

10

20

30

40

50

70

Hong Kong vs. Singapore - who is number 1 HONG KONG

SINGAPORE

36% own any Luxury Watch (US$500+) (regional: 22%)

76% own Laptop/ Notebook Computer (regional: 53%)

76% own LCD TV /Plasma TV/ HDTV (regional: 57%)

37% have International Business Travel in the past 12 months*(regional: 18%)

27% own Foreign Currencies as an Investment (regional: 10%)

62% have International Leisure Travel in the past 12 months (regional: 31%)

41% own Privilege/ Priority Banking Account (regional: 20%)

Asian attitudes to brand interaction on social networks % Open and Not Open to Interacting with Brands on Social Networks

I sometimes try to find out more about brands

I find this intrusive

For more information contact: Nielsen, Margaret Lim (margaret.lim@nielsen.com); Synovate contact Tim Hill (Tim.hill@synovate.com); TNS Global contact Khaw Mei-Ling (meiling.khaw@tnsglobal.com)

26 SINGAPORE BUSINESS REVEIWS | MARCH 2011

60

PROPERTY

Top residential transactions LOCALITY

PROJECT NAME

OCR PRIVE RCR SPOTTISWOODE 18 OCR CANBERRA RESIDENCES OCR THE TENNERY OCR AUSTVILLE RESIDENCES OCR WATERFRONT ISLE CCR THE VERMONT ON CAIRNHILL CCR LOFT@HOLLAND CCR D’LEEDON RCR THE CASCADIA OCR WATERVIEW OCR VIBES @ KOVAN OCR THE CANOPY OCR SPACE @ KOVAN OCR THE LAKEFRONT RESIDENCES CCR LOFT @ NATHAN OCR POETS VILLAS RCR SILVERSEA RCR THE INTERLACE OCR THE MINTON OCR CENTRO RESIDENCES OCR NV RESIDENCES RCR LA FLEUR RCR NIN RESIDENCE OCR WATERFRONT GOLD OCR ESPARINA RESIDENCES RCR THE SHORE RESIDENCES OCR VACANZA @ EAST RCR CITYSCAPE AT FARRER PARK RCR PRESTIGE HEIGHTS OCR OASIS @ ELIAS OCR ISUITES @ PALM RCR SPOTTISWOODE RESIDENCES RCR CLOVER BY THE PARK CCR ROBINSON SUITES RCR TIVOLI GRANDE RCR AALTO RCR CAVAN SUITES CCR LINCOLN SUITES RCR FLORIDIAN OCR SIGLAP V OCR MI CASA CCR MARINA COLLECTION CCR CYAN OCR PARC ELEGANCE OCR EAST COAST RESIDENCES OCR SUMMER SCENT RCR ST MICHAEL REGENCY OCR CABANA CCR SCOTTS SQUARE CCR TWIN PEAKS CCR BELLE VUE RESIDENCES RCR JARDIN RCR 16 @ AMBER OCR KOVAN RESIDENCES OCR WATERFRONT KEY OCR VERDANA VILLAS CCR THE LAURELS CCR PATERSON SUITES CCR THE ORANGE GROVE RCR REFLECTIONS AT KEPPEL BAY CCR SUITES AT ORCHARD

Source: Urban Redevelopment Authority

DEVELOPER

Punggol Field EC Pte Ltd RL Developments Pte Ltd MCC Land (SG) Pte Ltd Dollar Land Singapore Pte Ltd MaxLeeDevelopment Pte Ltd FCL PEAK PTE LTD Bukit Sembawang View Pte Ltd Oxley Star Pte Ltd Morganite Pte Ltd Boonridge Pte Ltd Sim Lian (Tampines One) Pte. Ltd Oxley Assets PteLtd MCC Land (SG) PteLtd RP North Pte Ltd Keppel Land(Mayfair) Pte Ltd Oxley JV Pte Ltd Feature GreenPte Ltd Marina Green Ltd Ankerite Pte Ltd Peak Garden Pte Ltd Eunos Link Technology Park Ltd Hong Realty (Private) Limited

Teambuild Properties Pte Ltd Qianjian Realty (Serangoon) FCL Peak Pte Ltd FCL Compassvale Pte. Ltd. Dover Rise Ltd/Whitewater Prop.

Hoi Hup Sunway Property Pte Ltd Mergui Development Pte Ltd Fragrance Land Pte Ltd CES Land Pte Ltd I Development Pte Ltd UOL Development (Dakota) Sim Lian (Bishan) Pte Ltd 50 Robinson Pte. Ltd. KS Development Pte Ltd Hong Leong Holdings Ltd World Class Property (Central) Phileap Pte Ltd Orwin Development Ltd DB2 Realty Pte Ltd Tian Hock Properties Pte Ltd Lippo Marina Collection Pte Ltd Kentish Court Pte Ltd Fragrance Realty Pte Ltd East Coast Residences @ Bayshore KDC (Kovan) Development Pte Ltd Evan Lim Industrial Bullion Holdings & Cabana JV Wheelock Properties (SG) Ltd Cove Development Pte Ltd Winquest Investment Pte Ltd YHS Dunearn Pte Ltd Novelty Amber Pte Ltd Centurion Kovan Pte Ltd FCL Peak Pte Ltd Novelty CentralPte Ltd Sing Holdings (Cairnhill) Pte Ltd Bukit Sembawang View Pte Ltd Ho Bee Developments Pte Ltd Keppel Bay Pte Ltd Allgreen Properties Ltd

PROPERTY TYPE Exec Condo Non-Landed Non-Landed Non-Landed Exec Condo Non-Landed Non-Landed Non-Landed Strata-Landed /NonLanded

Non-Landed Non-Landed Non-Landed Exec Condo Non-Landed Non-Landed Non-Landed Strata-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Exec Condo Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Strata- Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed Strata-Landed Non-Landed Non-Landed Non-Landed Non-Landed Non-Landed

TOTAL UNITS NO. OF LAUNCHED UNITS IN IN THE PROJECT MONTH 680 0 351 251 320 320 338 0 540 540 561 211 158 44 41 41 70 1715 0 536 0 696 34 36 0 406 0 140 0 629 20 121 20 40 0 383 0 1040 0 1145 0 329 30 642 58 58 0 219 0 361 0 573 0 408 0 473 0 250 1 154 0 388 64 64 0 351 0 616 0 167 0 82 0 196 0 36 0 175 0 336 0 114 0 457 0 124 0 278 0 157 0 59 0 16 0 49 0 119 0 338 0 462 38 176 0 140 0 40 0 521 0 437 0 56 0 229 2 102 0 72 0 1129 0 118

MEDIAN UNITS PRICE SOLD ($PSF) IN IN THE MONTH THE MONTH 694 217 1992 204 831 155 1217 105 719 95 980 76 2181 44 2107 41 1554 35 1441 34 888 24 1306 22 657 21 1193 20 1042 20 1946 18 628 18 1669 16 1010 16 855 16 1410 15 875 15 1143 14 1220 13 973 13 773 12 1378 12 1097 12 1388 11 1483 11 773 10 1203 9 2081 9 1003 8 2839 7 1020 7 1871 6 1624 6 2002 5 1759 5 1452 5 911 5 2400 4 2299 4 1307 4 1092 4 1068 4 980 4 670 4 4621 3 2945 3 2376 3 1880 3 1670 3 972 3 960 3 661 3 3311 2 2640 2 2400 2 2203 2 2124 2

SINGAPORE BUSINESS REVEIW | MARCH 2011 27

WILL THE RABBIT RUN OR STEW in 2011?

2010 was an odd year for investing, but will 2011 be any better? Tim Charlton sought some expert advise on where to stash your dosh in this rabbit year.

T

he Chinese may have a proverb that wishes the unsuspecting “live in interesting times”,, but for most investors the last three years have been certainly interesting but definitely not profitable. Still, we have to park those hard earned dollars somewhere, don’t we. So with the big caveat that trying to predict investment outcomes is as easy as trying to predict winners in a horse race, we have scoured our sources and come up with some ideas for 2011. Happy investing, and good luck.

Idea # 1 Gold Sure, gold may be trading at close to record highs, and it is certainly no cheap bet. But if we end up facing the nuclear winter of our hyper inflated currencies, gold may just be a good bet. Spruiking the gold story is Albert Cheng, managing director far east for the World Gold Council.

According to Cheng, 2011 will be a year speckled with ongoing global fiscal imbalances, sovereign debt problems in the Euro zone, inflation

28 SINGAPORE BUSINESS REVEIWS | MARCH 2011

“The negative for gold is rising real interest rates.”

woes and currency tensions. “Against this backdrop, many analysts expect the upward trend for gold prices over the last decade to continue into 2011, with prices possibly reaching a new high during this year, as safe haven assets like gold enable investors to hedge against inflation and currency fluctuations, mitigate macro risks and preserve their wealth in the long run.”

Unlike other assets, adds Cheng, gold tends to exhibit lower volatility on negative returns than it does on positive returns. In addition, gold tends to have little correlation with many asset classes, thus making it a strong candidate for portfolio diversification.

The price of gold does not always behave like other asset classes and especially other commodities, as gold is part commodity, part luxury consumption good and part financial asset and gold should therefore be allocated as an asset class on its own merits. “In our view, the outlook for the gold market in 2011 is positive.

The total demand for gold is expected to increase year on year, and in India and China gold demand will continue to increase as rising income levels, high savings rates and strong economic growth push up consumption and investment in gold. In addition, gold investment demand in established products such as physical gold ETFs is expected to increase due to economic conditions and the need to preserve one’s wealth,” said Cheng.

But Gold has made a reasonably poor start to the year and investors are questioning the longevity of the market’s bullish run over the past decade, counters BlackRock, an investment firm. “Investment demand, in our view, remains the key determinant. With concerns about Eurozone debt, US$ weakness and inflation likely to persist, this has the potential to propel the metal higher.

Another important issue is the potential for a reduction in net central bank sales. Indeed, according to GFMS, central banks made net purchases in 2010 for the first time in many years. The negative for gold is rising real interest rates. This will increase the opportunity cost of holding bullion, and investors in the metal may become sellers.”

Our take: It may be expensive, but at least you can hold it, and it looks very James Bondish stashed in your safe at home. And unlike those bank shares your correspondent bought

ending peg cover the story when the CEO’s and analysts were assuring everyone the worst was behind them, gold can never be diluted.

Idea#2: Asian Equities America may be headed for bankruptcy and the Euro for a sovereign debt crash, so Asia is looking increasingly safe even if China hits the skids.

But where ? And How ? Nick Cringle, Global Co-Chief Investment Officer RBS Coutts reckons investors will benefit from re-directing their focus from the Asian bond markets to opportunities in Asian equity markets.

“In particular, North Asian equities, led by Greater China and Korea are expected to outperform their South East Asia counterparts, as discounted valuations, a greater prospect for currency appreciation against the US

to participate in currency gains in select markets.”

Our take: Buy Singapore and Hong Kong equities, and if you are brave maybe banks.

“Asia is looking increasingly safe even if China hits the skids.”

Idea #3 Commodities – yes, again.

Okay, so gold is a commodity, but we are talking a more broad range of commodities here which, despite suffering a bit of a setback in 1010, may offer some upside in 2011. Investors who heeded the clarion call to commodities, led by chief cheerleader, Jim Rogers, who incidentally is based in Singapore, had two bonanza years for commodity prices in 2009 and 2010.

Some believe that 2011 will be a year in which commodity prices consolidate and plateau at elevated levels, but

2011 will be a year in which commodity prices consolidate and plateau at elevated levels dollar, combined with the expected acceleration of US growth are set to buoy North Asian economies,” he says.

And getting a loan should be easy with credit growth momentum continuing for Hong Kong’s banks on the back of the accelerating growth in the offshore Chinese Yuan market, according to Cringle. Oh, and investors should stay away from bonds in general but there may be opportunities in “individual credit opportunities to drive return within the Asian corporate bond market or shift their focus to local currency Asian bond markets

this could be merely a pause ahead of more fundamentally driven price gains in 2012.

After bottoming in late 2008 enthusiasm for commodities has been broad and voracious. Prices have soared for base and precious metals, bulk commodities, through to agricultural and even oil has awoken from its slumbers. 2009 was the recovery year, driven by record Chinese commodity stockpiling, widespread producer supply cutbacks and cash for clunkers stimulus schemes, all bathed in accommodative monetary and fiscal environment.

Major hard commodities in 2010- Precious metal RED, Base metals YELLOW, Bulks GREEN, Oil & Gas BLUE.

Shanghai Composite Index a steal Percentile Range

P/E (Percentile)

P/B (Percentile)

P/C (Percentile)

Dividend Yield (Percentile)

90 – 10 Bubble 0 75 – Expensive 90 25 – Reasonable 75 10 – Attractive 25 0 – Bargain 10 Source: Bloomberg data

2.06 (12)

13.22 (1)

7.29 (4)

The second year, 2010 was more problematical in that events external to commodities such as the Greek and Irish dramas and the mid year double-dip recession scare mongering, according to the commodities team at RBS. But now that the pin-striped financial investor is hugely active in investing in commodities, we will likely see a suite of physically backed base metal ETFs listed in 2011 to meet their desire for direct access to commodities. The physically backed precious metal ETFs have already risen to over US$100bn in value. Many commodities ended 2010 close to or at record price levels, but momentum is waning.

RBS has a Base Metal price Index which has risen 145% since its December 2008 low, the rise in 2009 was 91% but in 2010 only a further 21%.

Dampening will be such factors as a stronger US dollar; still onerous inventories for some metals (zinc at 15 year highs, lead at near 8 year highs).

The over arching theme for 2011 will likely be the producer supply response. So what does user commodities bull Jim Rogers think? In an interview in January this year he said that he remains long commodities.

Rogers thinks that the recent decline in gold and copper is nothing more than corrections in a major bull market, and it still has years to go and argues that massive money printing will make investors put some of their money in the stock market, but that more money will go into commodities.

Palladium Silver Iron ore Thermal Coal Nickel Copper Gold Brent Oil Platinum S&P 500 Aluminium Lead Zinc US Natgas

2.23 (6)

-3% -21% -30%

Source: Bloomberg, RBS

53% 46% 34% 31% 30% 22% 21% 13% 12% 7%

0%

30%

60%

97% 83%

90%

120%

cover story “If the world economy gets better, commodities are going to make a fortune. If the world economy does not get better, commodities are the place to be because they’re going to print more money, and that’s how you protect yourself. This is time when you should own real assets, not stock and bonds,” Rogers said.

Rogers doesn’t think stocks provide protection against inflation because stocks weren’t a good place to be when America had inflation during the 70’s.

Our take: There has been a lot of bad talk about commodity ETF’s, so just stick with the raw products. And a little silver or oil looks cool in the portfolio.

Idea #4 – China You are either a bull in a China shop or in the slow boat out of China on this one. Either you believe that it is set to crash, or that it is a brilliant buy for the long term. If you are the latter, then there are some pretty good reasons for buying China right now.

We all know the story - It has received considerable hype for a while now and been an unwilling recipient of overwhelming speculative capital inflow and recently overtook Japan as the second largest economy in the world. But some, such as wealth advisors IPP, reckon China still rep-

Commodities - Winners and losers of 2010 and what to expect for 2011 in 400 words!

Base metals: Nickel was the best performer of the major base metals in 2010 up 34%, benefiting from a supply deficit and a 14% draw down in LME stocks. New supply remains our main concern in the coming years that may limit price upside for nickel. Copper, the metal with the strongest fundamentals came in second, up 31%, finishing the year at a record US$9,687/t. Exchange stocks fell by 18% in 2010. The underlying copper story remains a compelling one and the launch of physical ETFs could provide more price excitement in 2011, however on a risk reward basis there may be better value elsewhere. Aluminium lagged in 2010 rising just 12% as exchange stocks fell by 4%; we believe aluminium is the most attractive risk reward play out of the base metals in 2011. Our least preferred base metal zinc was the only one to finish the year down, smothered by a large surplus with exchange inventories rising 53% to finish at a 15 year high of over 1mt. Zinc remains our least favoured base metal for 2011.

Precious metals: After rising 118% in 2009, RBS long time top precious metal pick palladium topped the charts in 2010 rising 97%, up 400% from its Dec. 2008 low. Despite these gains we expect further price upside for palladium in 2011. Silver rose 83% finishing the year at a 30 year high over $30/oz. However, we are cautious on the outlook for silver and expect sharp price corrections in 2011. Despite rising to a record high of US$1,431/oz. and enjoying the 9th consecutive year of price gains gold finished mid table, up 30%. We believe gold will plateau in H111 and slide lower in H211. Platinum was the laggard rising 21% in 2010; we remain positive on the outlook for 2011 but platinum will need a bounce in EU sentiment to catch up lost ground.

Bulks: A choppy year for the bulk commodities iron ore and coal as new spot pricing mechanisms replace traditional annual benchmark pricing systems. Both spot iron ore and thermal coal finished the year on a high up 53% and 46% respectively. Iron ore benefited from sustained demand from Chinese steel producers and limits to Indian ore exports. Both coking and thermal coal prices rose in Q4 on the back of weather related supply disruptions in Australia and South Africa and Indonesia.

Supply disruptions have potential to cause further price excitement for coal in H1 11. Longer term we expect bulk commodity prices to remain elevated relative to historical levels but new supply will likely limit significant price upside in the coming years. Source RBS

short-term investors in particular, against sustained government measures to dampen the market. “It might be advisable to then wait it out slightly before increasing positions.”

Our take: It may be all in the timing, but steer clear of Chinese banks

This is the time when you should own real assets, not stock and bonds. resents a bargain, and here in a nutshell is the argument. Stocks are still down 50 % off their peaks and this economy is still growing. Put simply, it’s a bargain.

A simple analysis of China’s valuation metric will show quite plainly just how cheaply priced it currently is, says IPP. The Shanghai Composite Index is clearly a laggard versus most other markets that have already begun trading upwards decisively.

In a nutshell, fundamentals are strong and the main repressor in the Chinese market is likely the government’s attempts to keep speculative moneys from destabilizing its economy. Any market correction represents an opportunity to add positions. IPP recommends Fidelity China Focus and Henderson Horizon China.

And the downside? IPP cautions 30 SINGAPORE BUSINESS REVEIWS | MARCH 2011

and property stocks and head for staples and you should do OK. #5 - Other ideas Of course, ideas change all the time, as do markets, but for what its worth Goldman Sachs put out an interesting report at the beginning of the year outlining their thoughts on sectors and countries that would do well.

China to market weight from overweight as inflation and policy tightening concerns may continue to pose challenges to the equity market in the near term. “Strategically, we remain positive on its long-term fundamentals, and we forecast nearly 30% fullyear return, which is likely to be back end loaded.

Japan to market weight on a moderately firmer US outlook, the reversal of the yen, strong earnings growth and

“If the world economy gets better, commodities are going to make a fortune.”

supportive valuations, after being a laggard for the past few months. We expect it outperform in 1H 2011.

India maintain on underweight stance on India on expensive valuations (even after they have moderated post recent pullback) and high inflation pressures. We are also underweight on Australia, given better expected returns elsewhere in the region.

• For the remaining four ASEAN markets (Malaysia, Thailand, Indonesia, Philippines), our market weight stance points to the appeal of their domestic demand stories, but offset by full-to-stretched valuations.

• Inflationary pressures will likely be manifested in a number of ways, including rising input costs as well as policy responses. We are more cautious on Food, Beverage & Tobacco for this reason.

•We believe Financial stocks will diverge next year, withHK Banks benefitting from RMB liberalization, Korea Financial performing well on low valuation and recovering earnings, while India Financial and Australia Banks will likely under perform the region.

Our take: Ever known anyone who made money betting against Goldman Sachs ? Neither do we.

co-PUBLISHED corporate profile

Are you losing GEMS? Companies must not lose emails from their customers, suppliers and partners positive standard for email security filtering services is one (1) lost email in every 400,000.

Most vendors publicly claim their anti-spam filters are accurate to this level. However, independent research has shown that the actual false positive rate for most anti-spam filters is often several hundred times worse than the acceptable standard. The false positive rate among vendors can range between 1 in 100 and 1 in 1000 of legitimate email. Statistically, this failure results in over 50 million emails everyday that are not being delivered to end users.

How many GEMS are you losing per month?

Manish Goel, CEO of TrustSphere

T

oday, email replaces most other forms of business communications (eg. fax, telex); it is the lifeblood of communication flow for most organizations. Currently, around 250 billion emails are sent worldwide daily. This is estimated to grow to over 500 billion by 2013.

As a consequence of email’s popularity, spam and malware have become key threat vectors to an organization’s network infrastructure, accounting for 80 – 90% of incoming email traffic. “To combat this, email filters have to be more aggressive. The higher the vigilance of email filter, the more spam is caught. However, this also results in users losing genuine emails.

This problem of genuine emails marked as spam [GEMS] is also known as ‘false positives’.

This dilemma is experienced across most organizations every day. Yet alarmingly, many are unaware of the actual level of risk that their spam filters are causing,” said Manish Goel, CEO of TrustSphere.

What losing GEMS is costing you GEMS add unintended operational risk to those business processes which rely on email messaging. They threaten the integrity of such processes. The more important though harder to quantify consequences of GEMS include: • Opportunity cost for sales and business development teams who miss time sensitive enquiries from prospects; • Reducing customer service delivery

standards – by not responding on a timely basis (or in some cases not at all) to a customer enquiry; Missing a time-sensitive email (eg. a change to a meeting or an electronic airline boarding pass) because it was trapped in the “junk” folder and not sent to an executive’s blackberry; • Creating vast and varying impact on several other stakeholders’ reputation and customer relationships right across a business’s value chain.

The impact of these failures affect risk management governance, revenue and operational processes within an organization. It is estimated that losing GEMS costs businesses over $20 Billion annually.

Meeting Gartner’s standard According to Gartner, an “acceptable” false

“A contract from a customer was lost in the email filter which resulted in us missing key project deliverables. This caused confusion and embarrassment .”

- Sales Director, IT Software Provider

“Lost an account for not replying to RFP because it was in my junk folder. Our competitor beat us to the post.”

- Director, Publishing Company

Fighting for Email Integrity TrustSphere aims to redefine the agenda for email security by creating a new category of email security solution – Email Integrity.

Their technology focuses on adding an email integrity layer that works towards active false positive prevention, while complementing organizations’ existing email security solution.

TrustSphere’s technology is designed to balance the two parts of the spam filtering problem by first protecting legitimate, authenticated traffic and then blocking spam.

It quickly and automatically builds an organization’s correspondence graph in order to “protect” and “fast track” traffic from its network of ‘known’, authenticated correspondents.

TrustSphere has developed a unique audit tool to help organizations measure the number of GEMS they are losing. Companies can request for an email integrity audit by sending an email to info@trustsphere.com.

TrustSphere solutions are available worldwide through a network of leading IT solution providers.

TrustSphere’s major partner across Asia Pacific is SingTel Alatum, the leading “in-thecloud” commercial grid computing solution provider to businesses and the public sector across the Asia-Pacific region.

CONTACT TrustSphere 3 Phillip Street #13-03 Commerce Point Singapore 048693 email: info@trustsphere.com Fax: +65 6536 5203

What the 2011 Budget means to you and your business There is more for business in this year’s “productivity” budget, says KPMG

S

ingapore had recovered fully from the crisis by the second quarter of 2010. While most other Asian economies have recovered or are on the path to recovery, the outlook for the US, the Eurozone and Japan is challenging.

Therefore, Singapore’s economy is likely to grow more slowly this year.

In his Budget 2011 speech, Tharman Shanmugaratnam, Minister for Finance, said that the Government expected Singapore’s economy to grow by between four and six percent this year.

“This is still above our estimated trend growth of three percent to five percent for the next 10 years, and reflects the continuing momentum in the economy. Investments and activities are still flowing into Singapore, attracted especially by opportunities in Asia. The record investments that

32 SINGAPORE BUSINESS REVIEW | MARCH 2011

“Some businesses will feel the double hit of higher employer Central Provident Fund (CPF) contributions and foreign worker levies..”

we saw in 2010 are also of an exceptionally high quality...”

With the much improved economic performance, the Government now expects the overall budget deficit for FY2011 to be about $0.3 billion.

Mr Tharman also revealed that Singapore’s economic recovery had put its fiscal position on a stronger footing. This has raised expectations, especially in an election year, for a giveaway Budget.

One cloud on the horizon is inflation, which is expected to hover around three to four percent this year. Mr Tharman outlined several measures to moderate medium term inflationary pressures. They include managing the Singapore dollar exchange rate policy of the Monetary Authority of Singapore, and fiscal policies focused on providing greater subsidies and benefits to those who

need it most.

Overall, added Mr Tharman, the Budget had two objectives. The first is to grow incomes, with the goal of increasing income by 30 percent in real terms over this decade. The other goal is to strengthen society by introducing measures for inclusive growth.

Corporate intiatives Some businesses will feel the double hit of higher employer Central Provident Fund (CPF) contributions and foreign worker levies. However, the impact of these increases is cushioned by a corporate tax rebate and an enhanced Productivity and Innovation Credit (PIC) scheme.

The overall impact of the Budget will vary, of course, from company to company. Leonard Ong, tax partner, KPMG in Singapore, reckons that the

SINGAPORE BUDGET 2011 Budget is a neutral one for multinational corporations (MNCs) and corporates. “This is because any increase in costs arising from raising the CPF rates and foreign worker levies are not too significant for most MNCs. Such increases are likely to be negated by the benefits arising from the Budget in the corporate tax rebate and the lower personal income taxes on individuals where the MNCs have to pay their personal income taxes ” For the small and medium enterprises (SMEs), the Budget is more of a mixed bag. The impact of the CPF employer contribution and foreign worker levies hike would be more costs, “very welcome indeed”. Echoing his sentiment, Tay Hong Beng, Head of Tax, says, “Having a 400 percent tax deduction under the PIC scheme is an aggressive the strategy that will position Singapore as a gateway to Asia while enhancing its attractiveness as a regional hub for MNCs.” Singapore-based regional tax partner is significant for them. Certainly, these increases could deal a blow to businesses just recovering from the downturn. “However ” adds Mr Ong “this increase in costs would be negated by the reduction in corporate taxes through the tax rebate and through the enhancement of the PIC.” Improvements to PIC The PIC plays a pivotal role in the Government’s drive to encourage productivity-led growth. This is essential for Singapore since it competes in the global marketplace on quality and innovation rather than cost.

Explaining the need for productivity led growth, Mr Tharman said, “In the next decade, productivity needs to contribute two-thirds of our economic growth. Otherwise we will fall short of the three percent to five percent economic growth that we are aiming for.” Tax partner Chiu Wu Hong comments, “The PIC scheme announced by the Finance Minister is now more pervasive and geared towards all enterprises, both big and small. Overall, I am happy that the Government has indeed responded to industry feedback quickly by liberalising the PIC scheme both on the quantum of tax benefits as well as the scope of coverage. This is a generous measure that will deliver long-term economic benefit for Singapore, and

make Singapore a compelling location for R&D ” He adds the Government’s continued commitment to supporting productivity and innovation initiatives, against a background of inflation and higher wage costs is “very welcome indeed”.

Echoing his sentiment, Tay Hong Beng, Head of Tax, says, “Having a 400 percent tax deduction under the PIC scheme is an aggressive move to encourage innovation.

Coupled with the proposed increase in foreign worker levies, it is not difficult to understand what the motivation is behind these bold moves – to do away with the reliance on foreign workers and push productivity growth.”

With the government push for productivity-led growth, companies can take advantage of the enhanced PIC and other initiatives. With manpower and other operating costs on the rise, these incentives will play an important role in maintaining and enhancing their cost competitiveness.

Tax partner Harvey Koenig points out, “Rising salary expectations and increasing rentals together with the newly announced increases to foreign worker levies and employer CPF contributions will impact business bottom lines significantly in the short term. Businesses have no choice but to move away from cost containment measures to productivity-enhancing and growth strategies. Businesses should therefore look closely at tak-

“To do away with the reliance on foreign workers and push productivity growth.”

ing advantage of the significantly enhanced PIC scheme and other government support schemes.”

An enhanced regional hub In the area of developing Singapore as a global Asia hub, the Government has taken a step in the right direction.

Tham Sai Choy, managing partner, KPMG in Singapore, says, “Budget 2011 represents a step forward in Singapore’s desire to be a Global Asia Hub. The measures bring to life the strategies that will position Singapore as a gateway to Asia while enhancing its attractiveness as a regional hub for MNCs.” Singapore-based regional tax SINGAPORE BUSINESS REVIEW | MARCH 2011 33

SINGAPORE BUDGET 2011 partner Graeme Reid adds, “There are some welcome measures which enhance Singapore as a gateway to Asia such as the investments in the Economic Development Assistance Scheme (EDAS) and the withholding tax exemption for banks.

However, there may have been a missed opportunity to elevate Singapore to be the premier holding company location in the region. The foreign tax pooling measure while helpful is not as attractive as the full exemption system found in some locations such as Hong Kong and the Netherlands.” More too could have been done to boost Singapore’s competitiveness in terms of attracting foreign investments.

Head of Tax, Mr Tay, points out that the competition for foreign investments in the region is intensifying with lower corporate tax rates and aggressive tax incentives. “What we have for this year’s Budget is very much focused on priming the growth for local enterprises and promoting productivity.

We were hoping that more could be introduced to compete for these investments, by refining our tax exemption rule for foreign income and creating more certainty on tax treatment on disposal of long term investments.” For the financial services sector, all interest payments by financial institutions will be exempted from withholding tax.

Commenting on this move, Alan Lau, tax partner, says, “The move by the Government to exempt all interest payments made by financial institutions from withholding tax will help to widen the funding base of banks operating here. Traditionally, the interest payable from non-bank funding sources has not been tax-exempt. This latest exemption shows the increased maturity of the local banking scene.

Apart from exemption, the financial services sector did not receive any further incentives. As such, Mr Lau adds, “There may be some disappointment there.”

Give aways for individuals In line with the Government’s aim for inclusive growth, the lower and middle-income groups will receive a host of goodies including a reduction in personal income tax through a more progressive tax schedule, and a tax rebate.

34 SINGAPORE BUSINESS REVIEW | MARCH 2011

“It is a caring Budget for Singaporeans, where the lower income gets a more generous share of the surplus. It also represents a push for labour intensive businesses to innovate and automate.”

Mr Tay notes, “This year’s Budget has gone a step further in promoting inclusive growth and ensuring no one is left behind in Singapore’s march towards globalisation. While it is not possible to completely address the issue of a widening income gap, the new measures nevertheless represent a step forward.”

The proposed changes to the tax structure spell good news in particular for the lower income. Ooi Boon Jin, tax partner, says, “This year’s Budget favours a wide spectrum of society – the low income and sandwiched groups, children, students and the elderly. A tax rebate of 20 percent was also given, but unsurprisingly capped at $2,000.

Nevertheless, this still helps lower income individuals. Looking ahead, the reduction for taxpayers from next year news to cheer will be the tax rate where the proposed change affects those with incomes of $120,000 and less.” Commenting on the personal tax reductions tax partner Dennis McE-

voy adds, “Although the Government has maintained the top 20 percent tax rate, the new tax rate structure provides tax savings to all taxpayers, with those at the lower income tax levels deservedly benefiting the most.”

Strong local flavour This year’s Budget clearly reflected the Government’s two-fold goal of increasing the real incomes of Singaporeans, while promoting inclusive growth that helps the less well off.

Therefore in dishing out the goodies this year, Mr Tharman was clearly focused on strengthening the local economy and homegrown businesses with the tax breaks for lower and middle-income earners and a raft of incentives for the SMEs. Summing up the Budget, Head of Tax, Mr Tay, says, “It is a caring Budget for Singaporeans, where the lower income gets a more generous share of the surplus. It also represents a push for labour intensive businesses to innovate and automate.”

May 31st Hilton Hotel, Singapore SPEAKERS Rudiger Papsch Managing Director GfK HealthCare Asia

Callum Bir Director Healthcare & Life Sciences Practice lead for SE Asia Deloitte Consulting

For more Information about speaking and sponsorship opportunities or to register email julie@charltonmediamail.com

Full day conference passes start at US$995 HONG KONG BUSINESS | FEBRUARY 2011 35

SINGAPORE BUDGET 2011

A Budget with something for everyone:PwC

T

he spectre of inflation – possibly reaching 4% this year – and an economy bouncing along very nicely meant that there was no need to pump prime anything.

PwC has responded to the Singapore Budget 2011, delivered by Finance Minister, Tharman Shanmugaratnam. Entering a period of gradual but steady economic recovery, Gautam Banerjee, Executive Chairman, PwC LLP (Singapore) commented: “It’s a Budget that gives something to everyone, and lots more for the low income. It aims to share the largesse of government surplus with people at the bottom while at the same time, help to raise productivity across the board and sharpen the competitiveness of several priority sectors. On the whole, a smart and strategic move to help Singapore stay relevant and compete on an advantageous footing against other economies.”

Not spectacular It was never expected that this would be a spectacular Budget, even in the context of a healthy fiscal surplus available for dishing out, and an election just around the corner.

The spectre of inflation – possibly reaching 4% this year – and an economy bouncing along very nicely, thank you, meant that there was no need to pump prime anything.

Much needed hand-outs for those at the lower end of the income scale could not be given entirely as free cash, as this would only serve to throw fuel on a fire that needs to be put out.

The approach therefore was to ensure that the bounty ($6.6 billion was earmarked as benefits to households) found its way to the target, but in a way that mostly provided longer term benefits for those most in need, rather than simply cash-in-hand. (Having said that, the $1.5 billion in growth dividends did have the feel of a freebie). In addition, some attempt was made to address the increasing issue of the aging population, by introducing certain measures to incentivise retention of older workers. Though the measures are welcome, it is clear this issue needs to be catapulted up the agenda next time round.

On the corporate tax side, the pickings were slim, and were aimed almost exclusively at the local small and medium enterprises.

At a general level, a 20% corporate tax rebate was introduced for income earned in 2010 but this was capped at $10,000; and

36 SINGAPORE BUSINESS REVIEW | MARCH 2011

Comparison of tax payable for a married taxpayer Years of Assessment 2011 and 2012

for those not earning enough to benefit fully from this, a cash grant of 5% of turnover is on offer, subject to a cap of $5,000. Perhaps the biggest change came in the shape of enhancements to the Productivity and Innovation Credit scheme, introduced last year to provide enhanced tax deductions for investment in productivity enhancing assets and processes. This showed the Government listens, with some quite generous enhancements being offered.

The thorn in the side however came through a continued Government insistence that the continued reliance on foreign workers could be modified if the stick was made bigger – in the form of a re-asserted commitment to gradually increase the foreign worker levy. This is unlikely to be met by enthusiasm in a number of quarters, where technological innovation is not just something that can be dusted down from the shelf and put into action. The inevitable result is simply a cost to business.

Stony silence for foreign talent For foreign talents and multinationals – a stony silence – almost. There were some small concessions made in relation to stock options, and the biomedical industry, with the only cross-border tax change coming in the guise of a loosening up of the foreign tax credit rules, which on the face of it look to add to complexity rather than reduce it. It still eludes many as to why the Government does not just simply exempt all foreignsourced income and be done with it. Hong Kong and Malaysia seem to live happily with such a regime. Taking a step back then, this was a very local budget with multinationals and foreign talent being put on the back burner, hopefully until no later than this time next year. While the Budget paid attention to and kept a lid on its own inflationary potential the fact that people on the other side of the world are printing money like there is no tomorrow, means the threat of inflation still kind of lingers.

OPINION

Chris Reed Singapore & jobs: It’s a game of two halves

S

chris reed Regional Partnerships Director (Asia), Partnership Marketing

ingapore’s full employment is a source of pride but it is also the source of many of the problems employers have.

Singaporean employees have all the power and they know it. There is a lack of commitment which has a negative effect on a company’s long term planning. Length of employment is short and a promiscuous attitude from employees pervades. This comes through in the enormous number of sick days taken (almost to the degree that it is an unwritten rule that sick days are really just holidays with an MC) lack of drive, responsibility taking, lateral thinking and desire to go above and beyond the call of duty. Why do too much when you won’t be in the job that long?

Singaporean’s generally live at home into their 30’s and 40’s. This allows them to have no financial concerns when it comes to a job. If they lose one or decide to leave to pursue another one without having a job to go to they know that they won’t lose their home as all their bills are covered by their parents. Money is then less of a motivating factor to committing to a job. Hunger is lacking.

Is this the education system or just the attitude?

There is a lack of responsibility and creative thinking.

Ironically you would expect Singaporean’s to actually be braver, take greater risks and think more laterally.

They have the safety net of knowing that if it all goes wrong and they lose their job they still have their home living with their parents and minimal debts.

Many other people around the world don’t have that plan B. If they take a risk and it doesn’t work out and they get fired or the company goes under they know that it will have a detrimental effect on their home, lifestyle and wellbeing. Yet they still take the risk.

Why don’t Singaporeans?

Singapore’s country football team is facing calls from inside and outside of the game to be taken

La Masía, its in-house training academy. All three finalists for Fifa’s 2010 are graduates of the academy and the winner, Lionel Messi, won for the 2nd successive year. Their was to develop successful football players, sought out players who were talented, with drive to win and the ability to work as part of a team. That is key. Personal development and athletic performance are made inseparable in the lives of young players.

Contrast that with the Singaporean players where instead of going to a boarding house at the age of 12, (as many current Barcelona players did), they are still living at home with mom and dad in their late 20’s and 30’s. Most Singaporean players have the comfort of knowing that if it doesn’t work out as a football player they will be able to find Money is then less of a motivating factor to a job very easily in the full employment world that is Singapore. This fall back committing to a job. Hunger is lacking. plan B psychologically tempers desire, determination and ambition. It’s not all or nothing. It also means that they will always look after apart and abandoned such is the state of the national themselves rather than think of the team. Spain has team but is it more to do with the same risk free, 20% unemployment. If Singapore had that, would safety net lack of commitment factor? Contrast Singaporean’s go that extra mile, take that risk that that with Barcelona. Barcelona is no bigger than would lead to greater security and rewards, remain in Singapore with an immediate population of 1.4 mln their jobs for longer and succeed to greater heights? and even in Greater Barcelona it is only 4 mln, less Of course the society wouldn’t be as content and than Singapore’s 5 mln. The bedrock of its success happy.. You can’t have it all! has been its ability to produce top players through 38 SINGAPORE BUSINESS REVIEW | MARCH 2011

Singapore is considered to be one of the best places in the world to work

OPINION

David Cohen

Hong Kong’s ‘Dim Sum’ market poised for take-away growth

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significant development currently unfolding is evolution of the CNY into a more international currency. China has begun relaxing historically tight restrictions on convertibility, and use of CNY outside of its borders. One motive for liberalization is their hope to encourage increased use of CNY when settling trades with China, still largely settled in USD, EUR, and JPY. Beijing last year unveiled new measures permitting increased CNY balances in Hong Kong, allowing Hong Kong to play the role of offshore money market for CNY. By permitting CNY to circulate in the interbank market, and facilitating emergence of a CNY-denominated bond market, Hong Kong will serve as a laboratory for Beijing to test the waters before establishing full currency convertibility.

PBoC-HKMA accord in July 2010 allowed banks to offer CNY loans and deposits, while freeing them from previous restrictions on CNY conversion.

Relaxed rules are boosting offshore CNY circulation in HK, though they can still only flow freely cross border through trade settlement or via 20,000 CNY daily conversion cap. Yuan deposits in Hong Kong more than tripled to 280 bln CNY by November from 89.7 bln CNY in June, and should surpass 1 tln CNY by 2013. Together with allowing CNY to accumulate in Hong Kong, has been opening up channels for investors to access Chinese domestic market.

Historically, overseas investors have needed special quotas to buy mainland assets, but last August, China said it would allow overseas financial institutions to invest yuan accumulated outside the country in China’s interbank bond market.

These facilitated emergence of an offshore market in CNY-denominated debt, the so-called “dim sum” bond market in Hong Kong. Foreign investors, prevented from buying domestic CNY debt by strict

was welcomed as helping establish a benchmark yield curve in Hong Kong, and highlighted disparity with the onshore market - - HK coming in over 100 bps inside the on-shore curve, reflecting appeal of CNY assets to foreign investors.

For borrowers, the offshore CNY bond market provides an opportunity to fund on-shore operations at an attractive rate. Last year saw offerings by government-related issuers as China Development Bank, and Export-Import Bank of China, along with Asian Development Bank and World Bank’s IFC unit.

McDonald’s last August became the first nonfinancial foreign company to issue CNY-denominated bond in HK to finance Chinese expansion, followed in November by Caterpillar, to fund its mainland leasing subsidiary. Total offerings totaled 40.7 bln CNY in 2010, according to Bloomberg, which could more than double to exceed 100 bln CNY this year.

Another aspect of currency liberalization is emergence of an offshore fx market, after trading in CNY had been confined to the state-run exchange in Shanghai. ICAP and Thomson “For borrowers, the offshore CNY bond Reuters electronic trading platforms have market provides an opportunity to fund onbegun accommodating offshore yuan, quoted under the symbol CNH (for HK) shore operations at an attractive rate.” rather than the standard CNY, legally distinct capital controls, face no such obstacles here, providing from fx on the mainland. As there is no free flow of a new way to bet on CNY appreciation, enhancing yuan between the two markets, spot yuan in Hong appeal amid expectations for continued appreciation.

Kong has consistently traded at a premium to onshore Bloomberg put the amount of outstanding yuanyuan. Outlook for the offshore market appears bright denominated debt in Hong Kong at about 55 bln yuan as continued inflow of yuan into Hong Kong will in early December. support growth in CNY-denominated debt issuance Beijing signaled intention to promote development and offshore fx-trading. Reforms implemented of offshore market last November by issuing 8 bln last year represent notable steps in evolving CNY of government bonds of various maturities. This internationalization of the CNY. 40 SINGAPORE BUSINESS REVIEW | MARCH 2011

David Cohen Director Asian Forecasting, Action Economics

CNY VS basket and USD-CNY.

analysis

The Real Value of the Yuan and Inflation Inflation in China slows down its exports. Is this the beginning of rebalancing, asks Menzie Chinn.

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recent NY Times article highlighted the fact that international competitiveness (as defined by macroeconomists) depends on not just the nominal exchange rate, but also relative price levels. From “Inflation in China May Limit U.S. Trade Deficit,” by Keith Bradsher: Inflation is starting to slow China’s mighty export machine, as buyers from Western multinational companies balk at higher prices and have cut back their planned spring shipments across the Pacific.

It’s useful to recall that one definition of the (log) real value of a currency (defined as number of foreign units of real goods required to obtain one single unit of domestic goods, so up is appreciation) is:

r ≡ e + p - p*

Where e is the log value of the currency (number of foreign currency units to obtain one single unit of home currency), p and p* are the log domestic and foreign price levels.

As Chinese inflation (4.6% y/y in December) exceeds US (or rest-of-world) inflation, then the Chinese real exchange rate appreciates (r rises).

It’s important to keep in mind the magnitude of these effects, though. To me, RMB appreciation is still trending along the same path it was before the financial crisis.

Here’s the caveat. The BIS (as well as IMF) indices are CPI deflated. As I’ve discussed elsewhere, there

PROF. MENZIE D. CHINN www.econbrowser.com mchinn@lafollette.wisc.edu

are actually many definitions of real exchange rates, which depend upon the deflator used. In the article, Bradsher is actually referring to several related versions, including one deflated by manufactured exports prices, and by wages. Clearly, these two are linked -- the higher the wages, the higher the price of the finished good, assuming a constant price-cost margin.

Actually, once one writes out the expression for pricing by a monopolistically competitive firm, one sees the price is a function of the price-cost markup (itself a function of demand elasticities) and unit labor costs -- the wage rate divided by productivity.

This suggests a more appropriate deflator for assessing competitiveness is the unit labor cost deflated real exchange rate.

Thus, in focusing on wage movements (which do seem quite dramatic), Bradsher is assuming

Inflation is starting to slow in China.

Western multinational buyers balk at higher prices and have cut back their planned spring shipments across Pacific. productivity trends are not too marked relative to wage changes (and further the scope for compression of price-cost margins is limited, which seems reasonable). However, unit labor costs have in the past diverged from CPI. If indeed wages are rising rapidly due to exhaustion of excess labor supply in the coastal regions, then this would be an important milestone in rebalancing the Chinese economy.

Log real value of trade weighed CNY, broad basket.

The real exchange rate is now around the level of a decade ago

Source: BIS, accessed 2/2/2011.

Source: People’s Republic of China 2010 IMF Article IV Consultation – Staff Report, p.19.

SINGAPORE BUSINESS REVIEW | MARCH 2011 41

The 4 scenarios you need to know about Hong Kong Property Despite the roller-coaster 2010 of HK, there is still optimism about 2011 market outlook.

W

here is the Hong Kong Property Market headed to in 2011?

Will it crash anytime soon? I have written my views on Hong Kong real estate market here and there, but rarely have I made any specific predictions. I thought it is a good idea to integrate all these ideas together and put together my prediction of Hong Kong Property market in 2011.

The average land cost for all sites sold in government land auction in 2010 was HK$8,082 per square foot, which would be a record year if we exclude the only site sold in 2008, of which the land cost was HK$13,348 per square foot for a tiny 1,236 square feet project (we can safely say that the single site sold was not quite representative). Also worth noting is that in the previous peak of the property

42 SINGAPORE BUSINESS REVIEW | MARCH 2011

“As Hong Kong real estate has become pretty much driven by money flow, it is important to forecast money flow in order to make any serious predictions on property market.�

market in 2007-08, the average land cost for all the sites sold in 2007 was only HK$5,723 per square foot. This reflects developers’ increased interest in luxury segment of residential market, such that they were willing to pay premium prices for superior locations which (in their views) can be developed into premium housing.

As Hong Kong real estate has become pretty much driven by money flow, it is important to forecast money flow in order to make any serious predictions on property market.

There are two main forces which are channeling money into Hong Kong property market. The first one is quantitative easing in the United States, in which the Federal Reserves injects money into its banking system. Excess liquidity is looking for return, and thanks to strong Asian economic growth, Asian real estate

including Hong Kong real estate seems to be a good place to put the money. The second force is Chinese buyers, who have been buying Hong Kong property (especially the luxury segment) over the past few years or so.

4 Scenarios There are basically 4 possible scenarios concerning capital inflow into Hong Kong: 1. Quantitative Easing and Chinese Buyers continue to drive capital flow, thus home prices in Hong Kong 2. Quantitative Easing continues to drive money flow, but Chinese Buyers retreat 3. Quantitative Easing ends and/ or interest rates increase, but Chinese Buyers continue to buy 4. Quantitative Easing ends and/or interest rates increase, and Chinese

analysis Buyers retreat The reason for the end of quantitative easing and/or interest rates increase is that economic growth seems to be picking up of late, and inflationary pressure has emerged even in developed countries. Recent increase in US Treasury Yield and the closing of the spread between 30-year and 10-year Treasury Yield suggested that the Federal Reserves is unlikely to extend or enlarge the quantitative easing programme after they have finished the pledged US$600 billion purchases, and an early interest rate hike in 6 to 12 months will be a real possibility. If that happens, the liquidity driven Hong Kong property market will be under pressure as the Fed exits their unconventional monetary policy.

On the Chinese buying interest, it will very much depend on how aggressive the tightening actions of the Chinese government will be.

Although it is commonly assumed that Chinese Yuan appreciation will be good for Hong Kong property because home prices in Hong Kong will look cheaper and inflation in Hong Kong will be higher, there is also a downside for this argument. Chinese Yuan appreciation is essentially a tightening policy from the Chinese perspective. Even though it is in the Chinese government interest not to create a recession in China, when it comes to moderating economic activities, no government can claim to be omnipotent.

Commercial Real Estate Similar to residential real estate, Hong Kong commercial real estate has recovered strongly in terms of both rents and capital values. In particular, Central Grade A Office has performed very strongly. Rents have increased 33.3% from Jan to Nov 2010, and capital value increased 35.5% in the same period, and vacancy dropped to a mere 3% according to Jones Lang LaSalle.

Although they certainly have different driving forces, I believe the commercial and residential markets are exposed to some similar major driving forces. This is demonstrated by the fact that the residential and commercial real estates cycles in Hong Kong have been quite synchronous. It is also worth noting that the capital values of Hong Kong Grade

The share prices performances of Cheung Kong (1.HK) and Hysan (14.HK) in 2003 and 2009 recovery and subsequent years.

*Red: Hysan, Blue: Cheung Kong Source: http://www.alsosprachanalyst.com/wp-content/uploads/2011/01/CheungkongvsHysan.png

A office recovered since early 2009, pretty much together with the residential market on the back of massive unconventional monetary stimulus (quantitative easing I), while office rents only bottomed out in late 2009.

The rise in capital values in 2009 was driven by yield compression due to record low interest rates, rather than any improvement in rental values, which improved markedly only in 2010. So the commercial properties space, in my view, is exposed to similar risks that residential market is exposed to, namely, money flow. The only risk that commercial real estate in Hong Kong does not face is policy risk, as it has nothing to do with home ownership, so that it is much less likely for politicians to express any concerns on higher office rents, for example.

Physical Market vs. Stocks Market For the physical market, I am looking for a more stable 2011, with a bull case of 10-15% upside for all properties, while the main risk would be premature money outflow, which will almost certainly break the bull market.

For the stock market, despite strong performances in the real estate market in the past 2 years, there has been a huge divergence in stock performances between property investors (landlords) and property developers. Intuitive explanations might be that because most property investors hold portfolios which are mostly composed of commercial real estates, they are arguably exposed to much less policy risk than

“There are no easy explanations of the outperformance of property investors in early recovery.

But if history is a good guide, this is certainly something to bear in mind.�

developers, whose main businesses are building and selling mostly residential units. But when we look further back into the history, we can actually see that property investors’ stock prices recovered more strongly in the early recovery of 2003 than developers, and developers are only catching up at a relatively late stage of the up-cycle.

There are no easy explanations of the outperformance of property investors in early recovery. But if history is a good guide, this is certainly something to bear in mind.

Another worth-noting point is that, there is a certain conventional wisdom that stock market performances lead real estate market performances. Despite the huge correction in developers stocks after the announcement of extra stamp duty, developers stocks are regaining some ground that would suggest that the real estate market is yet to turn south.

I believe HK home prices will not turn negative in the next 3-6 months.

In 6-12 months time, however, if economic growth is going faster in the developed countries and inflation returns, we will see higher interest rates and liquidity will be removed as central banks exit from unconventional policy tools. By the end of 2011, I believe we will see a much less favorable environment in Hong Kong real estate market, and will be headed for a correction in 2012.

By Zarathustra W. Also Sprach Analyst www.alsosprachanalyst.com SINGAPORE BUSINESS REVIEW | MARCH 2011 43

Why the Chinese economy could already be larger than America’s But in real dollar terms, its just about anyone’s guess as to which is the larger economy

A

ccording to preliminary estimation, GDP for the year 2010 was 39,798.3B Yuan, up by 10.3% at comparable prices, or 1.1 percentage points higher than that in the previous year.

In terms of growth by quarters, it was up 11.9% for the first quarter, 10.3% growth for the second quarter, 9.6 percent for the third quarter and 9.8 percent for the last quarter. – NBS report This places China’s official GDP for 2010 at a nice, round $6.0 trillion.

There is of course a lot more interesting stuff in the NBS report. Those who are worried about excess investment will find it hard to see the data as anything other than worrying. Investment has gone up 23.8% from last year’s already sky-high numbers, and even the best consumption numbers merely reinforce the sense that there

44 SINGAPORE BUSINESS REVIEW | MARCH 2011

“China’s economy is already bigger than the US economy according to PPP.”

has been no rebalancing – three of the four consumption items that registered the most rapid growth were actually investment related.

China’s economy is already bigger than the US economy according to PPP. I am not disputing Subramanian’s numbers, but comparisons between two such disparate economies on a PPP basis of course have no meaningful content at all. The fact that it is much cheaper to get a haircut or massage in China (something the latter of which I am happy to exploit voraciously) tells us very little about the two countries that we wouldn’t have already known.

But excitement aside, this whole exercise is pretty meaningless, and not only for the reason you might think – is that economic growth not a horse race between countries. It is meaningless for a far more funda-

mental reason, and this is because the comparable official GDP numbers for China (and PPP numbers start with the official numbers and then adjust for local prices) are wrong.

GDP may be higher GDP is supposed to measure the total value of goods and services produced in China, but there are several problems with the official numbers. There are problems with all GDP numbers, but the biases, especially in the developed countries, are fairly consistent, which makes cross-country comparisons more or less meaningful. But in China there are additional problems, which make cross-country comparisons very complicated.

First of all we know that a lot of Chinese income – more than in most other major countries – is hidden, for

analysis whatever reasons, and this tends to pull down reported GDP numbers.

One plausible recent estimate is that roughly 10% of total income is hidden beyond the NBS surveys, and so this suggests that GDP might really be substantially higher.

Second, when you compare the US and China (or any two countries), you have to think carefully about the exchange rate you’re using. The standard method is to use the current market exchange rate, not because it is the conceptually correct exchange rate, but rather because it is broadly meaningful when you think about international trade and, more than anything else, it is objective. At any point in time I can convert any Chinese GDP number into its incredibly precise dollar equivalent.

If part of the country’s high growth rate is a consequence of the undervalued exchange rate, and certainly Beijing seems to believe it is, then raising the value of the RMB would automatically cause a slowdown in Chinese growth. That is why analysts should consider the relationship between the two when they make projections, and by the way they are implicitly (if not very accurately) doing so when they calculate PPP numbers.

GDP may also be lower So far nearly all the adjustments and predictions about Chinese growth that we have seen in the press suggest that the “real” size of China’s economy requires upward revisions of official GDP numbers, but that might reflect China hype more than a judicious approach might justify. What if China’s GDP numbers seriously overstate the true value of China’s economy?

The same is true with the environment, which has a real economic value that can be adversely affected by certain kinds of economic activity.

Here is an article that came out four months ago on Bloomberg: China, the world’s worst polluter, needs to spend at least 2% of GDP a year — 680 B Yuan at 2009 figures — to clean up 30 years of industrial waste, said He Ping, chairman of the Washington-based International Fund for China’s Environment. Mun Sing Ho, a senior economist at Dale W. Jorgenson Associates and a visiting scholar at Harvard University in Cambridge, Massachusetts, put the range at 2 to 4% of GDP.

Failure to spend that much — equivalent to the annual GDP of Vietnam — may cost the Chinese economy half as much again in blighted crops, health costs and pollutionrelated expenses, He said: “The clean up can’t catch up with the speed of pollution” if spending is less.

There is no objective way to figure out how much of Chinese GDP growth should be reversed because of environmental degradation (and in this China is simply an extreme case – most countries to a lesser extent have this problem), but there is no question that the number is big, and the result is that we overestimate China’s GDP growth today and will underestimate GDP growth tomorrow. In other words environmental degradation simply causes us to take future growth and count it today.

Environment Degradation When you add the impact of misallocated investment and environmental degradation, the necessary cumulative adjustment to Chinese GDP might be huge. For example, if the two adjustments combined range from 2 to 4 percentage points annually, over one decade China’s “true” GDP would be below the official numbers by anywhere from 1631%. Over twenty years official GDP would be overstated by 31-52%. That means that we are massively overstating GDP today and will experience very low apparent GDP growth for many years in the future as the official number returns to some reasonable approximation of the real number.

“Household consumption might be at least as good an indicator of the real growth in wealth as productionside GDP numbers.”

These are big adjustments, both above and below the official GDP numbers. This is why I find the whole horserace to predict the earliest date by which China’s economy will overtake the US to be so silly. In reality anywhere from $3T to $15T in size, will overtake another economy that is roughly around $15T in size.

And this is not the first time we have played this game. Look at Japan, 15-20 years ago Japan’s GDP was officially 17-18% of the world’s GDP and it was rapidly catching up to the US. Today it is 8%, and there seems to be no chance of it ever catching up.

Is it possible that Japan’s official GDP growth was vastly inflated by misallocated investment before 1990, and vastly deflated by the repayment of that investment after 1990?

If you look at the growth in Japan’s household consumption, you will find that household consumption grew much more slowly than GDP before 1990, and much more quickly after 1990. Household consumption might be at least as good an indicator of the real growth in wealth as production-side GDP numbers. So might it not be true that Japan’s official GDP was too high before 1990, and it has been slowly adjusting since then?

And if this could have happened in Japan, whose investment growth was high but way below China’s, why can’t it happen here?

By Michael Pettis michael@pettis.com www.businessinsider.com

SINGAPORE BUSINESS REVIEW | MARCH 2011 45

The Financial Crisis of 2015 What, again? Maybe, according to a report by Oliver Wyman Group.

O

liver Wyman Group has released a very interesting piece about the potential for a future financial crisis. They make the case that the next great financial crisis will occur around 2015 and will be the result of a massive bubble in commodity markets that results in widespread economic collapse and sovereign defaults.

Wyman describes how the bubble will form in commodities and ultimately collapse: “Based on favorable demographic trends and continued liberalization, the growth story for emerging markets was accepted by almost everyone. However, much of the economic activity in these markets was buoyed by cheap money being pumped into the system by Western central banks.

Commodities prices had acted as a sponge to soak up the excess global money supply, and commoditiesrich emerging economies such as Brazil and Russia were the main beneficiaries.

High commodity prices created

46 SINGAPORE BUSINESS REVIEW | MARCH 2011

“Banks pursuing high growth strategies, particularly those focused on lending to the booming commoditiesrich economies, started to attract high market valuations and shareholder praise.”

strong incentives for these emerging economies to launch expensive development projects to dig more commodities out of the ground, creating a massive oversupply of commodities relative to the demand coming from the real economy. In the same way that over-valued property prices in the US had allowed people to go on debt-fueled spending sprees, the governments of commodities-rich economies started spending beyond their means. They fell into the familiar trap of borrowing from foreign investors to finance huge development projects justified by unrealistic valuations. Western banks built up large and concentrated loan exposures in these new and exciting growth markets.

The banking M&A market was turned on its head. Banks pursuing high growth strategies, particularly those focused on lending to the booming commodities-rich economies, started to attract high market valuations and shareholder praise.

The narrative driving the global commodities bubble assumed a con-

tinuation of the increasing demand from China, which had become the largest commodities importer in the world. Any rumors of a slowing Chinese economy sent tremors through global markets. Much now depended on continued demand growth in China and continued appreciation of commodities prices.”

The bubble bursts Western central banks pumping cheap money into the financial system was seen by many as having the dual purposes of kick-starting Western economies and pressing China to appreciate its currency. Strict capital controls initially enabled the Chinese authorities to resist pressure on their currency. Yet the dramatic rises in commodities prices resulting from loose Western monetary policies eventually caused rampant inflation in China. China was forced to raise interest rates and appreciate its currency to bring inflation under control. The Western central banks had been granted their wish of an appreciating Chinese currency but with the unwanted side effect of a slowing Chinese economy and the reduction in global demand that came with it.

Once the Chinese economy began to slow, investors quickly realized that the demand for commodities was unsustainable. Combined with the massive oversupply that had built

analysis up during the boom, this led to a collapse of commodities prices. Having borrowed to finance expensive development projects, the commoditiesrich countries in Latin America and Africa and some of the world’s leading mining companies were suddenly the focus of a new debt crisis. In the same way that the sub-prime crisis led to a plethora of half-completed real estate development projects in the US, Ireland and Spain, the commodities crisis of 2013 left many expensive commodity exploration projects unfinished.

Western banks and insurers did not escape the consequences of the commodities crisis. Some, such as the Spanish banks, had built up direct exposure by financing Latin American development projects. Others, such as US insurers, had amassed indirect exposures through investments in infrastructure funds and bank debt.

Inflation pressure in the US and UK during the commodities boom had forced the Bank of England and Fed to push through a series of interest rate hikes that forced many Western debtors that had been holding on since the subprime crisis, to finally to default on their debts. With growth in both developed and emerging markets suppressed, the world once again fell into recession.”

Of course, this scenario is already largely playing out in real-time. We are seeing investors drive up the prices of commodities as the global economy recovers and speculators look for the next big boom. Wyman elaborates: “However, it is already apparent that increasing commodities prices are also creating inflationary pressure in China, which is exacerbated by China holding its currency artificially low by effectively pegging it to the US dollar. This makes commodities look like an attractive hedge against inflation for Chinese investors. The loose monetary policy in developed markets is similarly making commodities look attractive for Western investors.

This “commodities rush” is demonstrated in the right-hand chart below, which shows the asset allocations of European and Asian investors. A recent investor survey by Barclays also found that 76% of investors predicted an even bigger inflow into commodities in 2011.”

Ultimately, they conclude that the

The Commodities Rush CRX index vs. S&P 500 (Market value of equity of commodity-related companies)

European and Asian mutual fund investments in commodities

1. Based on Q3 data Source: Bloomberg, FERI, Oliver Wyman analysis

imploding commodity bubble will lead to another financial crisis and sovereign defaults. Their “base case” scenario involves mostly European nations experiencing defaults. This looks not only likely, but probable. It is likely that the periphery of Europe will remain mired in recession for several years as austerity measures put downward pressure on their economies and the Euro governments fail to enact a true fix to the flawed single currency system. Persistent weakness in Greece and Ireland will cause continual political turmoil and ultimately the scenes of Egypt would not be surprising throughout many parts of Europe as citizens demand real change. The Euro would likely remain the primary European currency, however, several periphery nations would reconsider their involvement.

Now, where I disagree with the Wyman analysis is in their “worst case” scenario. Any regular reader knows that it is highly flawed analysis to conclude that the USA could potentially default on its obligations – all of which are denominated in the currency in which it alone has monopoly supply of. This simple point eludes even some of the brightest minds in economics today. A default of the USA is impossible. The only form of default could come through hyperinflation. Considering the deflationary collapse that would likely result during the Wyman “worst case” scenario I think it’s likely that we would once again see the USA become the global safehaven and the USD would not collapse, but surge as it did in 2008.

“With growth in both developed and emerging markets suppressed, the world once again fell into recession.”

Still, the economic impacts would be deeply negative for the entire global economy though a collapse of the USA is not on the table.

We continue to see increasing disequilibrium in the global economy.

The flaws in the Euro, China’s misguided economic policy and the endless financialization of the USA are the three primary factors contributing to what is unavoidable future calamity.

It’s clear that none of these countries are interested in any sort of nearterm pain that would be required to fix these structural imbalances so it’s not a stretch to assume that we will continue the boom/bust cycle that has become a trademark of the last 25 years of global economic growth.

Wyman concludes that this event could be several years away, however, I fear that this event could easily occur sooner than 2015. We remain in one continuing balance sheet recession with rippling waves that could cause these imbalances to resurface sooner than anyone believes. The resulting impacts will be broad and have the potential to forever change the way we approach future economic growth and the way governments intervene in markets. I would expect the Bernanke Fed to be in the middle of the ensuing storm. Such a crisis would likely result in wide ranging policy changes that will finally clear the imbalances of the credit crisis and create a foundation for truly sustainable economic prosperity.

By Cullen Roche cullenroche@orsusinvestments.com www.orsusinvestments.com SINGAPORE BUSINESS REVIEW | MARCH 2011 47

LIFE & STYLE

Clothes maketh the man

For the fashion-minded gent, a sharp suit is a business necessity. Here are five of the best men’s tailors in Singapore CYC The Custom Shop

2-12 Raffles Hotel Arcade, 1 Beach Road 6336 3556 Daniel Mah takes a month to create a bespoke suit – two weeks for fittings and another two weeks to perfect the cut and finish. The tailor is supported by an extremely loyal (and celebrity-studded) clientele who return for the sharp cuts and fine fabrics, and if the bespoke option is a bit too pricey, they also have madeto-measure designs which change seasonally.

Aston Blake

1-83 Millenia Walk, 9 Raffles Boulevard - 6337 3504 Aston Blake is the self-proclaimed expert in bespoke tailoring and on-trend design. For a more modern look, pair your suit with an angle tie this year – and for those who take pride in sporting a cohesive ‘look’, stylists are on hand to provide a holistic image consultancy service.

Tai Pan Row Tailors

Shop 3015, ifc mall, Central - 2147 2828 / Shop 202, The Galleria, 9 Queen’s Road - 2368 8834 Working with cloth by Ermenegildo Zegna, Versace and Givenchy, Tai Pan Row has considerable designer cred and is considered a Hong Kong institution by many. With two locations in Central, they cater to the wellsuited and booted crowds and are a reliable option for the gentleman on the go.

Loa Hai Shing

201-203 Tak Shing House, 20 Des Voeux Road, Central - 2523 6167 With suits ranging from ‘leisure’ to ‘urban’ in style, LHS takes pride in crafting pieces that can be worn year-round, are easily maintained and of course, of excellent quality.

Oxford Tailor

4-12, 1 Raffles Place, OUB Centre - 6533 7131 A Singapore staple and for good reason – classic styles using quality fabrics and fashioned with a careful eye for detail. A little more expensive than the mass-market tailors but you get what you pay for.

48 SINGAPORE BUSINESS REVIEW | MARCH 2011

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OPINION

Karin Clarke How to resign gracefully

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Karin clarke Regional Director (Singapore and Malaysia) Randstad

hile admitting it’s a difficult process, Karin Clarke, Regional Director (Singapore & Malaysia) of global recruitment & HR services company, Randstad, has some tips to make sure you leave professionally, with your dignity and reputation intact.

It’s a small world Resigning is a fact of professional life. We’re all changing jobs more often, which means every colleague is a potential boss, and every manager is a potential employee. What goes around is now coming around more quickly. Make sure you treat your peers, colleagues and managers with respect, whatever your personal feelings about them.

Be aware of the impact It’s important to understand that this decision might not be good news for others that you work with.

Understand that the act of resignation will have a different impact on various people around you, so be sensitive and thoughtful about how you do it.

Check what you signed up for Know the conditions of your contract. This may include (depending on your industry) working for a competitor or taking clients with you, how many leave days you have, and what are your rights in case you want an early exit.

Resign for the right reasons Don’t resign as an emotional knee-jerk reaction. Think logically, think broadly and think calmly about it.

Keep any negative perceptions and negative emotions separate to the act of resigning. Approach the situation with a clear head, manage your emotions and choose your language carefully. Be professional about it.

• Your decision to resign • When you intend to leave (this will depend on the terms of your contract) • What the next steps are (usually in a written letter confirming your resignation) • Thanks and appreciation for the experience, support and/ or opportunities you have had during your employment Feedback The exit interview is an excellent opportunity to let the company know exactly why you’re leaving, without burning your bridges.

‘Resigning is a fact of professional life, we’re all changing jobs more often.’

Timing is key Resigning during the working week gives everyone involved time to absorb the decision and consider their options.

The conversation Open the conversation by thanking your boss for making the time to meet, and then get straight to the point. Focus on your key messages: 50 SINGAPORE BUSINESS REVIEW | MARCH 2011

The resignation letter The letter should be short and to the point. Any issues or feedback should be given in a formal exit interview and a letter of thanks should also be kept separate.

Take a break Consider taking a short break before starting your new role or your next plan of action. Exercise and meditation are also good ways of releasing any negative stress. This will help you identify the right job for you.

Plan your job search. If you have the opportunity to commit time to the process it will produce the results you seek.

It is important to make your resignation as smooth and as grudgefree as possible, without burning any bridges.

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