All posts by Aditya

Forex, Remittances, SGD INR

SGD INR: Unexpected Rupee Weakness

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The sudden weakness in the Rupee has caught most of us by surprise and has caused Rupee to cross the 45 mark once again agsinst the Singapore Dollar.

I was expecting the pair to face stiff resistance at 44 mark and not breach the 44 mark any time soon (Sgd Inr expected trend till end of June 2013). The rationale being that SGD and INR would both move in tandem against the USD which would make SGD INR a stable pair.

However SGD strengthened very quickly from the 1.27 mark against USD to 1.25 in a matter of few days on its safe haven appeal with the fear over slowing global growth and Fed reconsidering the pace of Quantitative Easing (QE). My expectation was for SGD to touch 1.28 before starting to strengthen again

Indian Rupee (INR) on the other hand weakened against the USD with rising Gold Imports and expanding deficit and is nearing 57 against the USD as I write.

Its worrthwhile to look at the long term Implied Interest Rates trend line for SGD INR with such sudden changes

SGD INR Jun 2013

Its quite evident from the trend line that everytime SGD INR has crossed the trend line it tends to reverse back to the mean. Every cross over is a good opportunity to convert to INR for investment or other purposes.

Market rumours suggest INR would touch the 58 mark against the US dollar which could see SGD INR crossing the 46 mark which for me would be a great level to convert.

My suggestion as always is convert in small amounts to average out your conversion rate as its not possible to catch the top and bottom of any market.

Bullion, Investment

Falling Gold and its YTD Performance in Different Currencies

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Gold and Silver have been on a steady decline this year and having lost 17% and 25% respectively in USD terms got me curious to find out if there was any country where the value of these metals increased in the local currency terms.

After some research and marrying the Exchange Rates to the price of Gold and Silver at various points in time I got the below table ready…45 Currencies to look at :).

Gold Silver performance

I did not really find any country where the value had increased but Japan came very close to parity. Gold has lost only 2% value when measured in JPY. Given the massive weakness in JPY over the past few months the gold value has been able to off set the losses when measured in yen terms.

The second closest country was South Afria which has experienced similar currency weakness but not as large as the yen.

On the other extreme are countries like Mexico, China, Thailand and Malaysia where strengthning local currency and growth prospects of economy have aggrevated the losses for those holding gold or silver. Gold is down 22% in Mexican peso terms and 19% when measured in Yuan.

The stark contrast between Japan and Mexico does highlight how Gold and Silver could act as store of wealth when countries go through or are expected to go through inflationary periods or there is a general run on the currency.

Now you would be wondering what is my view on the metals?

Well i treat them as any other investment avenue and continue to have my exposure to these through collectible coins 🙂

Finance, Forex, SGD INR

SGD INR: Expected Trend till End of June 2013

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We are well into second quarter of the year and its time for an update on the SGD INR projection.

Even with my best intentions to share thoughts on the pair as early as April its only now that I got sometime. Neverthless there have been some interesting developments in the past weeks which can impact the movement of the pair and its a good time to try and ascertain the trend in light of these.

On April 13 2013 the MAS maintatined its tight monetary policy stance even though the GDP unexpectedly contracted in the first quarter of the year and On 3 May 2013, the Indian Central bank lowered the key rates to 7.5%.

There was a expectation that with slowing GDP growth the MAS would allow the SGD to weaken against the other currencies and the USD-SGD might touch 1.28 mark. However with the inflationary pressures the monetary authority decided to keep the band and slope of policy bank unchanged.

On the other hand the RBI lowered the rates to boost growth in the slowing Indian economy.

Both the events are positive for the respective currencies and though INR has remained around 54 mark to USD, SGD moved from lows of 1.25 to 1.23 after the news.

With both the currencies showing some strength the SGD INR pair would remain stangnant in the 42-44 band. The pair has formed a strong resistance at the 44 level and I do not see it breaching this in the next few months.

With slowing growth the SGD might march back towards the 1.25 mark which would push the SGD INR pair towards the 42 levels.

So if you are looking to invest in India then a exchange rate of 43.5 – 44 would be a good rate to use

Finance, Investment

Over 5% annualised return with Low Risk Funds in 3 months

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Close to 3 months since I first talked about the Low Risk funds that are liquid and generate good returns in my post – Good returns and Low Risks with Funds that Invest in Singapore Bonds and its great to see that 2 funds have generated over 5% annualised returns in 90 days.

United SGD Fund and Fullerton Short Term Int Rt have gained 1.44% and 1.18% in this period clocking annualised gains of over 6% and 5% annually.

Fund Performance 3 months

My personal favourite Nikko AM has lagged behind at 2.64% annualised but still much better returns than a bank deposit, Though I must say that mid way I did re-allocate some money to United SGD and Fullerton Funds when the SGD crossed the 1.25 mark against the USD.

I have noticed that these funds generate better returns when SGD is strengthening. Looking at the returns in past 3 months I am going to re-balance my portfolio and move some money from US Equities to these funds before the “Sell in May, Go away” phenomenon hits the wall street. Till then enjoy the gains 🙂

 

Finance, Forex

SGD @ 1.30 in next 3 months

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“What? you must be kidding!!”

I know, I know – that’s exactly what my reaction was looking at the chart for SGD USD. I would not have bothered to look at the charts if not for SGD breaking 1.24 mark, specially not after the forecasts earlier in the year by leading financial institutions was for SGD USD to break the 1.20 barrier.

SGD forecast

The charts show an interesting trend – the one of SGD bottoming out and heading higher. Overlaying that with macro economic picture confirms the trend.

Now if you are wondering what has changed in just 2 months then I would say its just the feel good factor nothing more, other bits were in the making for long.

MAS provide guidance on SGD through monetary policy and the NEER bands for SGD but rarely suggests a target. The stance of MAS has not changed.

My hypothesis for reasons of SGD weakness primarily starts by looking at the bond markets. Singapore has a robust economy and reserves which make SGD government bonds literally risk free. In the past years money flowed into SGD Bonds seeking safety of capital. Also the property market in Singapore attracted a lot of foreign investors.

With the US stock markets on all time high, Nikkei on a bull run and general sense of economy looking better the capital has started moving from safe havens to more risky assets. I am guessing that the money if moving out of SGD bonds to equities here. Also with the latest government measures to cool down the property market some of the hot money chasing the properties in Singapore would be looking for other avenues. Both these factors mean that demand for SGD denominated assets would go down thereby resulting in lesser demand for Singapore dollars.

With the inflation well within Government targets and  falling fuel prices a weaker SGD augurs well for the economy – specially tourism and services sectors.

You would still be wondering what makes me boldly suggest a 1.3 target specially when the charts suggest a reversal at 1.28 and yes I agree I might have pushed a little too far with 1.30 forecast but markets are not always rational and tend to overshoot, nevertheless 1.28 certainly looks very real 🙂

 

Bullion, Economics

How much Gold do Central Banks Hold?

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Chanced upon this interesting set of data from World Gold Council on the Gold reserves each country has and the percentage allocation as a part of the Total Reserves.

Gold reserve

It was surprising to see that Portugal has 90% of its reserves held in Gold whereas China has only 1.6% even though the total gold holding is upwards of 1054 tons and ranks 5th on the table. Japan also has a low percentage of 3% and ranks 8th on the table with gold reserves of 765 tons.

One should note that China and Japan own US debt to the tune of 1.2 trillion and 912 billion USD respectively. At current prices the value of Chinese and Japanese Gold is 55 and 40 billion dollars and the US treasury bills make up 35% and 54% of their Reserves.

The high US Gold Holding could be one reason why China and Japan have not increased their exposure to Gold as they would feel they are owning Gold indirectly by owning US securities. In case of a US default the debt could be paid by using Gold reserves.

In the recent months the Chinese purchase of Gold has increased many fold and it could be a attempt on part of the government to shore up Gold reserves to thwart any financial crisis.

With Gold falling in the recent days and continued central bank purchases Gold supply in the market might reduce and force a short squeeze resulting in higher Gold prices

Finance, Forex, Remittances, SGD INR

SGD INR – Expected Trend till Mar 2013

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Its hard to believe that we are already in February of 2013 and that calls for me to keep up on my promise and share with you my thoughts on SGD INR movements in the near term.

The trend so far has been inline with what I had expected in Dec 2012 – The pair has maintained the range of 42-46 with a downward bias (Read more: SGD-INR: How does 2013 look like?) and trades at 42.99 as I write.

SGD INR made multiple attempts to breach the 45 mark but have been unsuccessful. In the meantime a few interesting developments have happened on the fundamental front.

RBI came out and cut the rates by 25 basis points to stroke growth and the financial markets have taken a more “risk on” approach. The former would result in NRE deposit rates being lowered in the long term and the latter would attract FII in to the Indian Markets chasing growth.

At the same time the Indian Finance minister has promised financial reforms and started with reducing the fuel subsidies which helps reduce the Indian Budget deficit. This is also positive for the Rupee.

On the SGD front the currency has lost 2% against the USD and now trades at 1.24 as compared to 1.22 late last year.

These factors combined have seen SGD INR soften below 43 mark.

The question which people ask often is that how low will the pair fall and will SGD INR reach 45 again?

My view is that in the short term the pair would increase and move to cross the Rs.44 mark – The US debt ceiling discussions are due soon and so is Indian budget for 2013.

The uncertainty on the policy front would result in INR weakening against the USD which would mean a weaker INR against the SGD.

The recent spike in Crude Oil prices would add to woes for Indian Rupee.

So in-case the recent drop of SGD/INR has left you scrambling like Oct 2012 then don’t panic – next few weeks should give you an opportunity to see the pair touching 44 again.

 

Enjoy the Holidays and wishing you a very Happy Chinese New Year!! Gong Xi Fa Chai

Bullion, Investment

Is Bullion really a store of wealth and hedge against inflation?

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I hear it all the times that Gold and Silver are a hedge against inflation but they do not always maintain purchasing power…a very simple example would be comparing mcdonalds Burgers in various years with price of silver:

1955 Hamburger 15 cents, Silver 1 USD per ounce

1967 Hamburger 18 cents, Silver 3 USD per oune

1979 Hamburgers 43 cents, Silver 30-40USD per ounce

1995 Big Mac hamburger $1.99, Silver 4.4~6 USD per ounce

2002 Double cheeseburgers $1.00, Silver 4.25~5.1 USD per ounce

2013 Mcdouble cheeseburgers 99 US cents, Silver 29.95~33.5 USD per ounce

Interesting to note that while price of Burger rose from 43 cents to 1.99$ an increase of 5 times, the silver value fell from 35(average) to 4.75 USD.

If one could buy 81 Hamburgers using an ounce of Silver in 1979 the same one ounce of silver fetched only 5 burgers in 2002.

There was no period of negative inflation between 1979 to 2002 to warrant a reduction in Silver price based on the theory that bullion is hedge for inflation.

I have used Mc for the comparison as BigMC index is a commonly used index for estimating cost of living across various countries. There could be asset classes that could throw a different result and compounded with Exchange rates the results would differ for different countries.

Would be great if you could contribute similar data in comments and lets see if the hypothesis holds good?

Finance, Investment

Good returns and Low Risks with Funds that Invest in Singapore Bonds

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With the low-interest rates in most of the developed economies in the world the bank deposits tend to yield low returns. Singapore is no different and one could get as low as .25% interest on Savings Bank accounts. Fixed deposits do slightly better and could yield up to 1.68% p.a.

This clearly is less than the inflation that the country experiences, below are a few funds that invest in short dated Singapore government bonds and have yields good enough to cover inflation.

As these funds invest in Singapore Bonds they carry relatively low risk. of course they are not as safe as a Bank deposit but the yields are favorable given the risk-reward ratio.

Fund Info

Lion Global Singapore Fixed Income fund has the lowest risk and yielded a positive return even in 2008 (during the financial turmoil). On the other hand United SGD fund gives occasional stellar returns like that in 2009 and 2012 yet still remaining largely in positive territory.

Nikko AM fund has managed to beat inflation in most years and is the one I prefer.

Forex, Remittances, SGD INR

SGD INR: How does 2013 look like?

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4 more days for 2012 to end and its a perfect time to analyse what would 2013 be like for the currency pair.

SGD-INR started the year 2012 at 41.28 and trades at 44.80 at the time of writing, a gain of 8.5%. The pair touched a low of 38.88 and highs of 45.11 during the year a volatility of appx 12%.

Let me take stock of how the past analysis has fared before delving into how the pair could move in 2013.
Continue reading SGD INR: How does 2013 look like? →