First, the trade ministry announced that Singapore GDP surged 13.1% year on year in the 1st quarter 2010. On a quarter on quarter basis, the surge in GDP was an eye popping 32.1%, the highest ever growth on record, and higher than any economist had dreamed of forecasting. On the back of this, the monetary authority of Singapore (MAS) also announced that it was recentering SGD’s trading band as well as signaling a policy towards gradual appreciation. This is an unprecedented move in terms of tightening monetary policy as MAS has never done both at the same time before. It also represents a very significant shift in policy. MAS is essentially saying that with the surging economy, the worst is not just over for Singapore, in fact, the Singapore economy is now booming so much that they need to rein in potential inflation, so they are taking action immediately.
Remember when back in July 2009 (last year) when Singapore was the first to announce that its economy was coming out of recession, and this was soon followed by other Asian economies in the region. Singapore is one major trading hub in Asia, and closely tied in to the global economy. Its health and overall economic growth direction is an early indicator of how the rest of the export oriented Asian economies are faring. Singapore’s stunning 1st quarter GDP growth is a telling indicator that global trade is recovering, and along with that, Asia is now not just experiencing a “V” shaped recovery, it is now literally going into a boom period.
Hard numbers tell a bigger story that anything else. While Europe may still moan and worry about Greece and other potential debt ridden European countries, and US is still trying to slowly lower the jobless rate, Asia is now literally running on full steam ahead. Investors are beginning to recognize that emerging economies as a whole, and Asia in particular, is the locomotive pulling the entire world out of the 2008 recession. And Asia is now experiencing a red hot economy. Central banks in Asia should be more worried about inflation and asset bubbles than on double dip recessions. Property prices has surged in many parts of Asia including Singapore, Hong Kong, China, and Taiwan, and this is despite various moves by Asian governments to keep a lid on property speculation. The latest is that Singapore March home sales were up 47% month on month. Stock markets have also risen, though not as strongly as property.
The next two to three quarters will continue to see this trend being played out. While 1st quarter numbers are already eye popping, second quarter numbers will be good as well. Let’s not forget that while stock markets started to surge in 2nd quarter 2009, most of the economic indicators themselves did not show as much improvement at all. This led many to question the sustainability of the rally in the 2nd quarter market rally last year. This means that as we move into 2nd and third quarter this year, the numbers will continue to look very good, compared to the base last year, which is very low.
I am already fully invested, and I even shifted some money from bond funds into equity funds during the February correction. For now, I am sitting back and enjoying the ride up though I am monitoring the situation closely. The improving fundamentals of the economic recovery are now in the process of showing up in solid GDP numbers throughout the region and in companies earnings as well. Singapore is a precursor to the rest of Asia. The question should be whether markets move up beyond what the improved fundamentals justify on the strength of investors turning into a very bullish mode. We are not quite there yet, because the full improved numbers have not shown up in reported economic data or company earnings yet. Nor are we at the stage where everyone and their neighbor is shouting buy.
But as the market climbs higher, then such euphoria will be things that investors need to watch out for. The next two quarters should be glorious and very exciting for investors as they ride the market up. Many who bought in since last year or start of this year are now seeing their patience rewarded. While it is human nature to want to check on your holdings often to see them rising, don’t get drawn into making any emotionally driven decision. The coming few months are likely to be volatile even if on the uptrend, so investors need to be careful. As market sentiment gets more and more bullish, investors tend to get less careful. In actual fact, it should be the reverse. As the market surges ever higher, we should be more cautious instead. So, I will be monitoring the markets closely. At some point in the next few weeks, I may shift back some money which I shifted out of bond funds towards a more neutral stance if the market gets euphoric.
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