Complete Property Market Updates of Singapore

June 4, 2008

Eye on the US economy

Filed under: Community Voices,General,Market Watch,Singapore Economy,USA — Propertymarketupdates @ 5:30 am

How do you see the downturn in the US playing out? Will it be V-shaped, U-shaped or L-shaped? Given your prediction, how do you see that downturn affecting your organisation and how are you planning for it?

MY ASSESSMENT is that the US is likely to go through a U-shaped scenario, where the downturn is prolonged and takes longer to recover from. While the fallout from the sub-prime mortgage crisis is pretty much evident, the full extent of the damage has yet to manifest itself as there is usually a lag between what is reported and the actual impact on the economy. Given that the crisis has not bottomed out yet, I am not optimistic that the US downturn will take the form of a V-shape.

The situation in the US will definitely impact consumer confidence in Asia, and Singapore is unlikely to be spared. As a leading mode of cashless payment pitched at everyday spending, Nets will not escape unscathed once consumers start tightening their belts. Should our economy slow down, our business will certainly be affected.

However, the impact is unlikely to be significant as consumers will still need to purchase daily necessities, which have always been Nets’ traditional strongholds in the payments market. As a point of reference, Nets’ transaction volumes actually rose during the Sars crisis, when the retail economy took a hit and businesses floundered.

Against such an economic backdrop, our strategy is to remain prudent as a company in monitoring our costs and discretionary spending. This will ensure that Nets remains on course to expand beyond Singapore, in becoming Asiaâ€TMs preferred world-class solutions provider for payment and processing services.

– Poh Mui Hoon

US downturn may be U-shaped

With the recent data from US pointing to an unexpected lower unemployment followed by a spike in the stock market, it may indeed indicate a U-shaped recovery. Most companies have reported their financial results within expectations, but we do see some big companies missing their numbers. Hopefully, all the bad news from the finance sector is already out. Hence, the few factors that could be hampering a speedy economic recovery would be the ever-increasing petroleum prices and spiralling commodity costs. This current high inflation would eventually have a negative effect on the world economy that extends far beyond the US economy.

As a US-headquartered company, there are several steps that we can take to counter the effects of a slowing US economy.

Firstly, we will have to continue to source and grow new opportunities within Asia. Secondly, we will have to closely monitor our sales operations costs. It is imperative that we maintain our Singapore business while seeking to expand our sales opportunities into other markets such as Vietnam and even Cambodia. All employees will be expected and encouraged to watch all business expenditures carefully. Therefore, we will have to work more with less budget. We are cautiously optimistic about our strong pipeline in Asia and believe our growth rate will continue to accelerate and outshine all other regions.

– Benjamin Low
Managing Director, South-east Asia and India
Secure Computing

We are taking a moderate view of the situation and predict a U-shaped reversal of the trend in next 12-18 months. The loss from securitisation of housing loans initially estimated at US$100 billion could now hit US$1 trillion. The looming crisis has bequeathed a recession in the US economy which could last as long as two years.

Nonetheless, signs are encouraging. The US economy grew at an annual pace of 0.6 per cent in the first three months of 2008, slightly faster than expected. Fewer jobs were lost than expected – at 20,000 jobs in April. And measures are underway. The Federal Reserve has announced its seventh rate cut since September last year, bringing down the federal funds rate from 5.25 per cent to a mere 2 per cent. On top of that, the Federal Reserve has also lent billions of dollars to the banking sector to avoid a financial meltdown. But worrying signs persist. Consumer spending, a key driver of growth, rose by just one per cent in Q1 2008. However, it will receive a boost with the US government’s tax rebates.

The US economy has a ripple effect on the rest of the world. Shrinking margins will force many US companies to shift business to India and other low-cost countries, hence increasing offshoring and outsourcing. The key is for organisations to constantly innovate and provide the best solutions that increase the productivity of the business while helping the organisations to reduce operating costs.

– Pramod Ratwani
President and CEO
Consilium Software Inc

WHILE many economists have ruled out an L-shaped recession because of US’s aggressive monetary and fiscal policies, the US economy will face a U-shaped recession because of several factors. While the US central bank has helped regain some confidence in credit markets, particularly in its bold rescue of Bear Stearns, many investors are choosing to wait on the sidelines. This will further aggravate the US economy.

The impact of the US recession will be definitely felt in Singapore in several sectors which Prime Minister Lee Hsien Loong had highlighted in his May Day Rally. Because of the nature of our business and our reach of clients from a range of industries and countries, the GMP Group will be affected as well. However, we have faced similar challenges during the Sars outbreak in 2003. During that time, recruitment was at its lowest since the economic crisis in 1997. We capitalised on the demand for health screeners from local hospitals.

Such an experience has taught us to look for opportunities amid adversity – the US recession is no different. This is a good time for us to take stock and re-evaluate our business goals. The ability to adapt to market changes and the foresight of such change are some of the hallmarks of a successful company. GMP will channel its energies and resources to where talents are needed most and re-focus our business strategy. With this, I believe we will be able to weather the storm.

– Annie Yap
The GMP Group

PEERING into the future can be dangerous because one single event could change everything, but it seems the worst of the credit crisis has passed. Thatâ€TMs the message from heavyweight analysts, who say economic health now hinges on how well the US and other governments tackle inflationary pressures. This is likely to take months, suggesting a U-shaped curve.

CA is in a strong position because our technology is sound, essential and difficult to live without in the enterprise community. An interesting aspect is that our solutions are extremely helpful in times like this because they help enterprises to manage risk and control costs. The group is also safeguarded to a degree by the very nature of our business plan, which is cautious and prevents us from over-extending ourselves at times of uncertainty.

I also feel CA became even stronger this year after adopting a channel partner-led sales strategy in parts of Asia, including Singapore. As well as streamlining our cost structure, this bold move provides CA with broader coverage and deeper penetration of markets, which equals access to more prospective customers.

– Gavin Selkirk
Senior Vice-President & General Manager
CA Asia Pacific & Japan

I BELIEVE that the US economy will follow a U-shaped trajectory whereas Singapore will experience a V-shaped one. This stems from the fact that unlike the US, Singapore is small, adaptive, and has a government that is able to respond quickly to the needs of the economy. Besides, we have several large-scale projects in the pipeline, including the integrated resorts and Youth Olympics, which are expected to greatly boost our economy.

In the case of Best World, we have weathered various crises and economic downturns in our 18-year history and have built on our core competencies and capabilities. Being in the direct selling industry, Best World is fairly ‘economy-proof’. When times are good, we place emphasis on selling our innovative products; and when times are tough, we focus on grooming business builders. During the latter scenario, people are keen on making money and seeking business opportunities. We would then be able to support their needs via the entrepreneurial platform we offer. In addition, the group has developed into a regionally strong organisation that does not depend solely on Singapore for continued growth and success.

– Dora Hoan
Group CEO
Best World International Ltd

MY PREDICTION is that we’ll see a U-shaped trajectory, with a definite recovery at the end. However, I also believe that the fallout from the US sub-prime crisis is still in its early days, and thus the ‘bottom of the U’ will be at least 18 months to four years.

While much of Singapore trade is directly US-based, even non-US-direct trade will be affected simply by referral, as other economies we trade with also suffer setbacks for the same underlying reason.

Our organisation remains focused both internally, and in assisting Singapore companies, to continue to restrain and manage costs in the IT area, and look carefully at all near-term expansion plans for viability in this scenario.

– Peter Rigbye
Managing Director
PASR Technologies Pte Ltd

US downturn may be V-shaped

I BELIEVE that the US is likely to see a V-shaped downturn. To me, whether there is a technical recession in the US is moot, but the economy is likely to have slowed dramatically in the first half of 2008. The slowdown would have been more pronounced had the Fed not taken decisive actions for JP Morgan to rescue Bear Stearns, put more liquidity in the market and cut interest rates in quick succession. With these measures in place, I think the US economy is likely to show some signs of a recovery in the second half of the year once the government’s stimulus package kicks in.

Notwithstanding the slowdown in the US economy, demand for steel worldwide continues to be strong. The Middle East is undergoing a huge infrastructure and building boom fuelled by petro-dollars. The Chinese and Indian success stories are likely to continue for many more years to come. The other two Bric countries – Russia and Brazil – have also benefited from the rise of commodity prices and embarked on major infrastructure and building projects.

– Wee Piew
HG Metal Manufacturing Ltd

IN TERMS of the economic outlook for Asean, I will go with the V-shaped projection. The US slowdown will inevitably have some impact on the region’s economic performance, but the foundation that the region has built over the past decade is strong enough for it to weather a downturn and see its economy bounce back quite quickly.

The Asean region particularly has shown strong resilience in the face of the slowing US economy. The service sector, for example, is one area that Asean is performing exceptionally well in. Hospitality establishments understand the importance of maintaining high service standards to continue to attract the growing influx of visitors.

The outlook for DoCoMo interTouch also remains positive. Even in times of economic slowdown, renowned hotel brands will not cut back on providing first-class broadband Internet and in-room entertainment to their guests. We therefore plan to continue our rapid expansion into new markets to ensure support for our global hotel partners.

– Charles Reed
DoCoMo interTouch

CORPORATE America has the uncanny ability at turning around businesses and entreprises that are in trouble or in dire straits. It is a characteristic of the US corporate and business culture – ‘bite the bullet, take the hit, restructure and start on a clean slate’.

Therefore, I am cautiously optimistic that the US economy will follow a V-shaped trajectory which involves a quick recession, followed by a quick rebound. My prediction is also predicated on the fact that any prolonged recession in the US is bad for the global economy; the economic forces, including that of government interventions, will provide the necessary check and balance to ensure that this will not happen. If the lower unemployment rate announced recently is anything to go by, the US may be getting out of the recession.

In times like this, CEOs should follow the key economic indicators closely, from as many sources as possible, to monitor the situation. I would carry out scenario planning to ensure that when the turnaround happens, I have the plan ready, be it Plan A, Plan B or Plan C.

While most companies may adopt a cautiously optimistic stance, given the current climate, it would be to their advantage and in their interests to avoid the pitfall of underscoping the opportunities, which often leads to under-providing for critical resources such as human capital, manufacturing capacity and financial capital to win a larger slice of the upturn.

– Lim Soon Hock
Managing Director
Plan-B Icag Pte Ltd

THE latest indicators on the US economy seem to suggest that we might be looking at a V-shaped recession in the US, and a bit of a plateau for Asia.

Despite global instability, most of the Asian economies look surprisingly resilient. While we may not see the growth rates of the past few years in Asia, there is still significant latent demand, tremendous desire to consume and sufficient resources to support this desire.

By focusing on the fundamentals – delivering the business outcomes that our customers are looking for (greater cost efficiency, more performance, security and value-added telecoms services) – Cable & Wireless is enabling our customers to weather the current business environment.

– Nick Lambert
President of Asia Pacific
Cable & Wireless Europe, Asia & US

Other views

NO ONE can say with certainty how the US economy will play out or its impact on Asian economies, although the next few months will give a clearer indication of where it is headed. I prefer to be a cautious optimist. We have learnt much from the last Asian crisis and many Asian economies today are in a better position to handle the situation than before.

I believe that we are only digging our own graves if we let ourselves be too affected by the doom and gloom surrounding the US economy – we cannot let it become a self-fulfilling prophecy. For example, if there is an opportunity for me to expand my business further, I would seize it rather than be paralysed into non-action by all the ‘what ifâ€TMs’. Of course, recognising how things could play out for the worse, I would not, at the same time, be on an expansion or spending spree.

Those who are in the retail business like us are often the first to experience the effects of a downturn. Instead of making two or three shirts in one go, some customers may cut back and make only one or postpone the spending. Fortunately, business has been steady and we have not noticed any out of the ordinary drop in sales. We are looking to grow organically and looking at extending special privileges to reward loyal customers, while growing a base of newer and younger customers.

CYC is not making any special provisions to deal with a financial crisis. Rather, we will stick with our tried and tested values: prudent spending, hard work and quality service and products.

– Fong Loo Fern
Managing Director
CYC The Custom Shop Pte Ltd

WE BELIEVE that the bottoming of the US economy is underway but this could be an extended process due to the damage done to key economic segments such as housing. The good news is that accommodative fiscal stimulus and monetary policy have been put in place to reflate the economy. In addition, corporate balance sheets excluding financials remain strong and exports are healthy, aided by a cheaper US dollar.

As such, we think the depth of the downturn may not be as severe as some would believe, but it will take some time before the impact of policy stimulus filters down into the real economy. From a corporate perspective, we need to tighten our belts and balance the financial spreadsheets while we continue to grow our footprint in Asia during this difficult period.

– Deborah Ho
DBS Asset Management Ltd

WE HAVE ruled out the possibility of a severe L-shaped downturn in the US economy. Though somewhat belated, the US Federal Reserve had acted, thus calming the market turbulence considerably.

We feel that the most likely scenario would be somewhere between the V and U-shaped economic downturn – not terribly harsh – but would take a longer period (from 12 to 18 months) to recover as more unexpected problems emerge.

There are two major problems we face. With the volatile exchange rates, we insist that some customers pay in Sing dollars for services rendered and products delivered.

The other related crisis is the shocking rise in the cost of living. As we have done in the past, our company has to go through this difficult phase as a united, unique family – without any retrenchment. Such a scenario exists globally and is a storm we are prepared to tide over.

– R Theyvendran, PBM
Chairman/Managing Director
Stamford Media International Group of Companies

WHILE I wish for a V-shaped recovery, it’s just my hope. V-shaped, L-shaped or U-shaped, it’s a game of predicting and there are very few who can accurately forecast the path the US economy would take. It is a high-risk game, and my advice to the investor would be to always behave as if a bad market is around the corner, even when the market goes up. This way, your guard is always up and you will always do your research well, hedge bets against sensational reports and be vigilant with your funds.

Never play with money you donate have and never pile up your debts, because in an L-shaped recovery, this could end up being your downfall. Ultimately, when facing uncertainty, it is always a safe bet to consult your financial adviser.

– Gary Harvey
ipac Wealth Management Asia

AS A region, South-east Asia still has tremendous growth opportunities backed by strong economies in Indonesia, Thailand, Malaysia and Singapore, and a combined GDP of more than 690 billion euros (S$1.459 trillion) per annum. With such impressive figures, TNT is confident that the region will remain robust and resilient even as the US economy slows down, and we believe we’ll see a rebound in the US in the near future. And with the talented workforce and stable infrastructure here, we believe businesses will withstand the current economic downturn.

We expect growth momentum for TNT to increase as we have always maintained a long-term business strategy to successfully build on our capabilities, to ensure that we remain nimble in the highly competitive global business landscape. As part of this strategy, we recently announced a 100 million euro investment in this region that includes the thrice-a-week flights of our Boeing 747-400ER freighter into Singapore, to meet growing demand for air freight services in the region.

– Onno Boots
Regional Managing Director
TNT South-east Asia

WITH US consumer spending growing at its weakest pace, the sub-prime mortgage problems still unravelling, a weakened dollar and high crude oil prices, it is really anybody’s guess how the US economic downturn will pan out. I hope that it will be a quick recession with a quick rebound. Any prolonged US recession will affect the global economy.

Our strategy, even before the current gloomy scenario, was to grow our service offerings, expand our customer base and explore new market opportunities in the region so as to be less dependent on a single market. We will consider ways to take advantage of the cheaper US dollar, utilise hedging instruments to minimise our risk exposure, and innovate for better cost efficiency.

– EH Lim
Avi-Tech Electronics Ltd

TECHNICALITIES aside, I believe the US has already entered a recession. We are probably looking at a V or U-shaped dip rather than an L-shaped scenario due to a number of factors including a still robust labour market, low interest rates and inflation and continued leadership in technology and innovation which will facilitate growth.

Singapore will only be marginally affected by the US slowdown; only 10 per cent of Singapore’s exports go to the US, with 90 per cent going to the European Union and regional trade partners where strong growth continues.

At Talent2 we continue to support our clients throughout the business cycle. We ensure our client base is diversified across sectors so that if one sector slows down, for instance financial services, we can pick up the slack in other sectors such as energy, construction and hospitality where demand for talent remains strong.

– Matt Beath
Talent2 International – Singapore

THE recovery could be V-shaped, U-shaped, L-shaped or even W-shaped. It doesn’t matter. What is important is where are we now in relation to these economic cycles. Going forward what should we do? And are there any dramatic shifts in mega-trends or changes in the global market space that demand that we conduct our business or investments differently?

I would say, as financial adviser and portfolio manager to HNWs (high-net-worth individuals), we were more nervous four months back than now.

In every major crisis, there will always be a notable ‘big name’ victim. On March 14, we saw the plight of an 85-year-old institution, Bear Stearns. Bear announced a rescue by JP Morgan Chase and the Fed. It once traded as high as US$172 but was sold to JP Morgan at US$2 a share, later renegotiated to US$10. It was Fortune’s top securities firm in the ‘America’s Most Admired Companies’ survey for three years running, from 2005 to 2007.

History has shown that when a ‘big name’ victim emerges, it is normally the beginning of a healing process for an ‘injured and over-fed market’. Will there be another casualty in the months to come? Possibly, one more. But we at GYC Investment Desk believe that 80 per cent of the risk has been removed.

Going forward, if we have $1 to invest, we would have already invested 30 cents two months back in March and we will invest another 30 cents in the next three months. And we will continue to monitor the situation to further invest the remaining 40 cents when the opportunities arise.

Our favoured asset class remains high-quality equities. Implied yield of equities are still higher than bonds. Balance sheets are still healthy, so are profit margins. Valuations are at a historical mid-to-low range. Emerging markets are offering growth and a US dollar shield. The crisis of confidence appears to be ending or simmering down.

Sub-prime-related writedowns 70-80 per cent disclosed + big-name casualty = improved investing environment compared to three months ago. It is time to be contrarian, not time to realise losses. Look to shift towards more aggressive allocation. We expect equities to reward within a three to four-year time horizon.

The ability to recognise that there is a major shift of power in the years to come is important. There is certainly more than one engine of global growth in the next decade. History has shown the rise and fall of major empires. We are certainly looking at a turning point of a significant transfer of power in the world economy.

– Goh Yang Chye
Managing Director
GYC Financial Advisory Pte Ltd

IT IS very hard to know how the downturn in the US will play out. And, as Warren Buffett told us, even if you knew what was going to happen in the economy, you still wouldn’t necessarily know what was going to happen in the stock market.

The increased volatility we have seen over the last year reflects systematic instabilities, which will take time to fix. In such an uncertain world, we think that investors will favour fund managers whose process they can understand. With our simple, long-term stock picking approach, we believe that we are well-positioned strategically, whatever the shape of the recovery.

– Hugh Young
Managing Director
Aberdeen Asset Management Asia

THE US slowdown has some way to go. While corrective measures have been taken, the damage to the US financial system created by the sub-prime problem cannot be repaired overnight. Losses have been made by companies and by individuals. Consumers have become unsettled by falling house prices and by widely reported job losses.

Twelve months of very sluggish activity seems likely before activity begins to pick up. We expect our Singapore unit trust business to grow in the next 12 months, but more slowly than in the previous 12 months. Singaporeans may invest more conservatively as a result of the uncertainty caused by the US economic situation.

– Lindsay Mann
Regional Head, Asia
First State Investments

FORMER Federal Reserve chairman Alan Greenspan has said in an interview that the US has fallen into an ‘awfully pale recession’. I certainly hope the economic downturn in the US will turn out to have a V-shaped recovery.

Despite weakening consumer spending in the US and the challenging market conditions faced by the electronics industry, we believe the rapid development in Asian economies will continue to offer opportunities for us. The important things are to manage business risks, stay focused on executing to strategy, and continue to stay ahead of competition.

At times like this, we will maintain our R&D investment and emphasise innovation across the group to ensure that we keep developing new applications and technologies for our customers. Since our transformation to a total solutions provider to Asiaâ€TMs electronic manufacturers and industrial corporations, we now cater to wider customer segments and cover more geographical markets.

Having diversified our business and markets, we believe we are better placed to cope with any downturn in a particular sector or market.

Albert Phuay
Chairman and Group CEO
Excelpoint Technology Ltd

SCENARIO #1 V-shape: The US federal funds rate will drop further to one per cent by September 2008. By then, the market is expected to rebound strongly ahead of the Nov 4 presidential election. This will lead to a Santa Claus rally in December 2008.

Scenario #2 U-shape: By March 2009, the US recession would have lasted for 16 months, which has happened only twice in the past 60 years.

Scenario #3 L-shape: From March 2009, if the US economy continues to stagnate in the face of rising inflation, then we are facing prolonged stagflation which will eventually lead to the great depression of the world economy.

– Clemen Chiang
Freely Business School

OPINIONS conflict as to whether the US is entering a recession, is in the midst of an extended decline, or is exiting a shallow downturn. The duration of this economic cycle, and its combination of contributing factors (shaky credit markets, rising energy prices, stagnant employment), are historically unprecedented – making the outcome difficult to predict. At present, we see no signs that conditions are dramatically worsening or improving.

Kelly Services’ strategy is to diversify geographically, lessen our dependence on the US economy, target expanding markets around the globe, increase our skilled professional and technical staffing services, place more emphasis on outsourcing and consulting services, and focus on cost control. Those actions have allowed us to minimise risk, remain profitable, and expand sales.

– Dhirendra Shantilal
Senior Vice-President of Asia Pacific
Kelly Services

THE reality of a downturn in the US is starting to hit home, with businesses across the globe now starting to brace for and ideally reduce the impact of the impending slowdown in the global economy. Although there will still be growth in certain segments across various markets, the ripple effects of reduced corporate spending and consumer demand are undeniable. However, even in periods of reduced activity, there are still opportunities for the resourceful.

A downturn, V, U or L-shaped in nature, would unlikely have any influence on the threat posed to businesses and organisations from malicious online attacks via email, for example, or through denial of service attacks, spam, etc. In fact, a downturn could very likely spawn a flood of spam and phishing campaigns, heightening the need for security. In fact, spam attacks have already demonstrated their immunity to recessionary pressure both in the US and here in Asia in the 1990s.

The Radicati Group recently published a report that estimates 78 per cent of the 210 billion messages sent worldwide each day are unsolicited and squeezing through corporate firewalls; a disturbing statistic for companies trying to improve the efficiency of their mail and web servers. Proofpoint operates in the area of email security and while we see mega projects being scaled down in investment budgets, our position as a best of breed player in the email security space does afford us some new areas of opportunity.

In this climate of reduced spending, as we continue to help our customers better align their defences to these threats, we are seeing that any US slowdown will have little impact on Proofpoint’s triple digit growth targets for the Asian region.

– David Habben
Regional Manager – Asia

Source : Business Times – 12 May 2008


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