Construction costs may rise, say experts

Singapore’s construction costs may climb by as much as 6 percent in 2011 when government rules that restrict foreign workers set in, according to several property experts.

Among the manpower constraints that will start this month include a rise in the foreign worker levy and a reduction of man-year entitlement, restricting the number of foreign workers on a site. A new rule that will limit noise in construction sites will also be implemented in September.

Experts claimed that the changes may drive up overall costs and prolong the duration of projects. Several industry players are also concerned about the rising cost of crude oil and volatility in commodity prices.

“For this year, we think there’ll be an increase in the order of 3 percent. For next year, we expect it to be a little higher, probably in the range of 5 to 6 percent. Construction demand is the key driver in terms of price escalation, tender price escalation,” said Winston Hauw, managing partner of consultancy firm Rider Levett Bucknall.

The latest quarterly Real Estate Sentiment Index indicated that 9 out of 10 respondents, which include market watchers and developers, are concerned about increasing land prices.

Meanwhile, 76 percent are worried about the increase in labour costs and building material.

The index is jointly developed by the Department of Real Estate at NUS and the Real Estate Developer’s Association of Singapore (Redas). Redas hopes the index will become a forward indicator for the sector and an authoritative quarterly index, said Steven Choo, chief executive of Redas.

“It will provide the market with an idea of how the real estate development players perceive the market, so it will benefit the investors and guide them in their decisions,” he said.

Mr. Choo added that the index could influence policy directions, as well as provide insight to developers on industry trends.

Rule #1: Latour and Lafite-Rothschild Are Not the Only Worthy Wines

Relative to all wine that exists, only an exceedingly limited number of wines are considered investment-worthy.

And that universe largely spins around the very top end of the Bordeaux market.

Atop the list are the five Premier Cru (first growth wines) that always have big demand globally: Lafite Rothschild, Margaux, Latour, Haut-Brion and Mouton Rothschild. Chateau d’Yquem is the first growth Sauterne.

For historical reasons I won’t bore you with, several of the most-sought-after, most-expensive, most-collectible Bordeaux are not on the official first-growth list, which dates to 1855. That includes names like Petrus, Ausone and Cheval Blanc. They command big dollars, big respect, and tend to be some of the best investments over time because of the huge demand among oenophiles.

But that doesn’t mean investors must shop only at the top of the pile. Just as Wall Street has Blue Chips and then a bunch of other worthy investments, so, too, does wine.

Many second- through fifth-growth wines make excellent investments. And the reason is practicality.

Restaurant-goers can’t always afford a bottle of Latour or Ausone, but many do afford bottles of Léoville-Las Cases, Calon-Ségur, Troplong Mondot and Lynch-Bages. For investors, those names and others offer excellent profit opportunity.

The 2000 vintage of Ducru-Beaucaillou, a popular second-growth chateau from one the few top-notch vintages of the past 10 years, has generated a 9% annual gain since its release early last decade. Had you grabbed cases of this wine at the height of the global financial panic, you’d be sitting on rebound returns of about 35% annually since November 2008.

Lynch-Bages, perhaps the most-popular fifth growth, has seen a similar trajectory, as has second-growth Pichon-Lalande and many others.

Outside of Bordeaux, numerous Burgundies are investment-worthy. Particularly, prized names such as Domaine Romanée-Conti, or just DRC.

Also worthy are some Italian Super Tuscans (Sassicaia, Gaja, Solaia); Champagnes (certain Dom Perignons, Krugs, Louis Roederers); Spanish reds (Alvaro Palacios L’ermita, Dominio de Pingus) and vintage ports from Portugal (Fonseca, Quinta do Noval Nacional).

California has a selection of über-elite “cult” cabernets and pinot noirs that soar in value. But most are mailing-list wines — meaning, you can only buy them if you’re on the wineries’ mailing list.

And getting on the mailing list is often a years-long process … and even then you’re typically only allowed to buy between three and six bottles because production is so small and demand so high.

This limits profit opportunities in California cult wines because the wine market wants liquidity, no pun intended.

Rule #2: Buy Great Vintages over Good Vintages

In any given year, some producer in Bordeaux or Burgundy or wherever will produce a stunning wine that earns major plaudits.

But that’s not good enough as an investor.

Consumers of fine wine know little about the 2008 Bordeaux vintage or the Napa Valley cabernets circa 2003 and ‘04. Those vintages were pretty good. But they weren’t great.

Wine lovers know a lot, however, about the 2003 and 2005 Bordeaux, and the 2007 Napa cabs. Burgundy lovers know a great deal about the 2005 vintage, and Champagne fans can rattle off all sorts of information about 1997.

All were classic vintages, some of the greatest in recent history.

As an investor, you want to put your money on the vintages investors and the media know and write about.

That’s where the demand exists.

It’s also where the quality exists. The chateaux in Bordeaux across the board produced amazing wines in 2005, giving investors a greater selection of wines to invest in at all price levels from about $75 a bottle on up past the four-figure mark.

As such, restaurants in 2014 will be clamoring to buy 2005s across the spectrum. But they will consider very few 2004 offerings. They know customers will see “2005” on the menu and will quickly recall what a great vintage that was, and want that wine.

As I mentioned last week, I encourage new wine investors to start their effort with cases of highly rated 2005 Bordeaux, available for between $2,000 and $4,000 a case … names like Ducru-Beaucaillou, Pape Clement, Pavie-Macquin and others.

Based on the historical performance of wines of this caliber, I would expect these cases to fetch between $6,000 at the low end and upward of $12,000 to $16,000 at the high end by the time 2015 rolls around.

That would mark annualized returns of 12% to 15% for the decade from 2005 to 2015, but returns of 20% or more for investors buying now.

The returns won’t come in a static, straight line. Wine prices bounce around … and I would use any meaningful bounces to the downside to grab a few cases here and there at attractive prices.

Rule #3: Where You Buy is as Important as What You Buy

Even if your local mini-mart, through some magic, ends up with a case of Chateau Le Pin, the ultimate Bordeaux cult wine, the resale value at auction will be marred by the “provenance,” or the wine’s history. (More on that in a moment.)

Auction houses and collectors want to see that your wine comes from reputable dealers or, preferably, from the winery directly.

That way they know the wine is authentic. Specifically, they want you to prove the wine’s provenance.

With Bordeaux, you’ll be buying from wine merchants, since the chateaux don’t generally deal directly with consumers.

California’s most collectable/investment-worthy wineries work on a direct-to-consumer model, though you can also find some of the more-sought-after cult wines in high-end wine shops online or in major American cities. Sorry, but the average wine retailer or, worse, grocery store is generally not the place you want to be buying wine for investment purposes.

Rule #4: Keep Meticulous Records and Store Wines Properly

This goes hand-in-hand with provenance and buying from reputable sources.

You absolutely must keep good records on your wine purchases, and you absolutely must keep wine properly stored.

Wine is a living creature. It evolves over time. Indeed, high-end Bordeaux, Burgundy and California cabernet makers build their wines to age. You can drink them early, sure. And they’ll be darn good.

But the best a fine wine can be won’t appear for many years.

Yet you can’t just stick your bottles in a cheap wooden wine-rack on top of the refrigerator or in a bedroom closet and go about your day.

Hot wine matures too rapidly and spoils. And the relatively dry conditions in a typical home cause corks to dry and shrink. That lets oxygen seep into the bottle, oxidizing the wine, or making it “skunky.”

Skunky is bad. No one will buy that wine.

And buyers know when a collector has improperly stored wine. Because a shrunken cork allows some wine to evaporate out of the bottle, the missing wine is obvious when a bottle is held up to a light.

Optimal conditions: A custom-built cellar or a pre-made wine cabinet that keeps bottles around 55° to 58° with a relative humidity of 60% to 75%.

You can buy an environmentally controlled wine cabinet for a couple thousand dollars that will hold 100 or so bottles, though much bigger units also exist. A custom-made, closet-sized cellar starts at about $5,000 if you have someone build it … and can run many thousands more, depending on your wants.

Or, in bigger cities you will increasingly find wine-storage facilities that make a market in maintaining proper cellar conditions for investors/collectors. Google “wine storage” and your city and you’ll likely come up with a few. Heck, I even have one here in South Louisiana, attached to a self-storage center.

As for records, keep receipts on every bottle you buy from wineries or dealers. They are proof of provenance. This is your way of showing a buyer or an auction house where your bottles originated.

That goes a long way in alleviating concerns that a wine is a forgery, which is a big concern with wine collecting/investing.

Plus, it offers greater assurances that the wine has been properly cared for.

Perfect provenance: Proof that you are the wine’s only owner and that the bottles came from the winery directly or through a respected merchant who bought them directly from the winery (generally the case for Bordeaux).

Directors at Sotheby’s auction house have told me that without the proper paperwork – without provenance – a case of wine can lose 20% to 30% of its true value.

Rule #5: High Ratings are a Must! … Though Exceptions Exist

Rightly or wrongly, ratings issued by widely followed wine critics affect the perception of a wine’s value.

That’s because ratings have become the great equalizer and a de facto standard by which investors/collectors trade wines.

No two palates are the same. I might think the 2001 Chateau d’Yquem I mentioned last week is the greatest liquid I’ve ever tasted.

Someone else will say it’s cough syrup unworthy of the price.

But because the wine market puts its faith in the palates of a tiny lot of critics, buyers know what to expect from a 95-point wine … or an 80-point wine. That provides a measure of comparability that lets wine trade like a standardized commodity.

Las Vegas Sands tops estimates as Asia outperforms

Adjusted EPS 17 cents vs estimate 9 cents

* Revenue up nearly 51 pct

* To amend $5 billion US credit facility

* Shares up 2.3 percent

By Deena Beasley

LOS ANGELES, July 28 - Las Vegas Sands Corp <LVS.N>, the casino operator run by billionaire Sheldon Adelson, posted a better-than-expected quarterly profit on Wednesday, aided by strong performances at its new Singapore resort and in Macau.

Sands, whose shares rose 2.3 percent in morning trading, earned 17 cents a share in the second quarter after adjusting for one-time items. Analysts on average expected 9 cents a share, according to Thomson Reuters I/B/E/S.

Net revenue rose nearly 51 percent to $1.59 billion.

“They had a monster quarter,” said Sanford Bernstein analyst Janet Brashear, adding that much of the outperformance was driven by better-than-expected profit margins.

Gambling revenue in Macau, the world’s largest gambling center and the only place in China where gambling is legal, has soared this year, most recently rising 65 percent year-over-year in June.

Sands said second-quarter net revenue at its three Macau properties rose 41 percent from a year earlier to $1.03 billion, while adjusted earnings before interest, taxes, depreciation and amortization increased 74 percent to $307 million.

Singapore’s Marina Bay Sands generated $94 million in EBITDA in its first 65 days of operation. The $5.7 billion casino resort began operating in April.

In Las Vegas, where a glut of hotel rooms has led to rate discounting, EBITDA fell to $66 million in the second quarter from $78 million a year earlier.

“With property performance better than our expectations in Macau and Singapore, and with the Las Vegas Strip weaker than expected, we believe Asia will be the key driver of the story, and the report is bullish for the shares,” Jefferies and Co analyst David Katz said in a research note.

HIGH HOPES

Chairman and Chief Executive Officer Adelson said during a conference call that he still expects the Singapore resort to bring in $1 billion in EBITDA next year, due in part to a broader-than-expected customer base.

“There are so many people that are coming from different countries in Asia … We have a group of Koreans flying in every week,” he said. “I think that the outer reaches of our marketing radius is wider than what we thought before.”

The company has lined up financing for development of two sites in a section of Macau known as the Cotai Strip, but construction has not yet started due to government requirements for the hiring of local workers.

Company officials said they are confident the Macau government will not let the project continue to stall, but they reported no tangible progress on a construction start date.

Chief Financial Officer Kenneth Kay said highly-leveraged Sands plans to launch later this week an “amend and extend” transaction for its $5 billion U.S. credit facility.

“The transaction contemplates a paydown of our term loans and a reduction of a revolving credit facility commitment in exchange for the extension of maturities and other modifications to the credit agreement intended to increase the company’s financial flexibility,” he said.

After payment of preferred stock dividends, Sands had a second-quarter net loss of $4.7 million, or 1 cent a share, compared with a net loss of $222.2 million, or 34 cents a share, a year earlier.

In addition to Singapore’s Marina Bay Sands, Sands owns the Palazzo and Venetian resorts on the Las Vegas Strip, three casinos in Macau and a casino in Pennsylvania. 

Singapore property firms wooing Chinese investors

Several Singapore-based property companies have been doing extra work to attract Chinese investors to invest in the Singapore property market.

According to several property firms, 60 percent or 6 out of 10 prospective Chinese customers are inquiring about Sentosa Cove, which offers luxurious waterfront living. It seems that Chinese investors are not only after the property, but the lifestyle as well.

HSR International said that currently, foreign customers contributed 40 percent of the company’s total sales in major districts. To further lift HSR’s market, the company now has a representative office in China and hosts trips for a group of wealthy Chinese investors to Singapore once every two months.

Mr. Jeffrey Hong, executive director at HSR International Realtors, said, “We target to do slightly more in the fourth quarter of this year and the first quarter of next year.” 

“We may have exhibitions, we may have road shows, we may even bring prestigious local projects all the way to China to do a launch over there,” he added.

ECG Property has also formed a team to link up with wealth managers to reach out to high net worth individuals in China.

“Either we will fly over there or correspond through emails, after which we will just shortlist the properties they wanted; they will usually fly over to Singapore over the weekends, that is when we will bring them around to see the properties,” said Daryl Ou, executive director of ECG Property.

ECG Property noted that sales of high-end homes increased 5 percent in the first six months of 2010. The company plans to have an investment office in Guangzhou, China.

Real estate agents believe that the growing demand for homes from Chinese buyers will sustain due to the yuan appreciation that has strengthened their buying power, as well as the fact that home prices in Singapore are more affordable compared with other Asian countries.

In the collection, a half-bottle of the 2001 Chateau d’Yquem – one of the exceedingly few wines that wine critics Robert Parker and the Wine Spectator both rated 100 points. Yquem is a Sauterne, what some people call a dessert wine, though pigeonholing it as such is no more accurate that pigeonholing Wayne Gretzky as a Canadian athlete.

I was, at the end, literally licking the inside of my glass, and running my finger across the bottom of my wife’s glass to get the last precious drops of what is, without question, the finest liquid to ever coat my tongue.

Through Dave, I bought four half-bottles of the stuff at a nice discount. But the current price runs between $275 and $400 for a half-bottle depending on where you find it. Yet, as much as I love this wine, I have no intention of drinking them. (Well, I’ll drink one with my young son when he turns 21.) Instead, they now rest, properly cooled and humidified, in a small cellar I built in my home to house “investment-grade wine”.

I share this story because it speaks to the value of wine – not just the drinkable liquid, but, as the title of Dave’s book announces, the liquid asset (literally) that can juice a portfolio’s returns.

To give you an example of what individual wine prices can do over time, consider the 1961 Chateau Latour. Back in the day, you could have bought a case for £25. Today, 50 years on, that same case fetches, at the low end, £35,000.

A bit of spreadsheet work and you see the return is about 15.6% annually.

Or let’s look at something more recent: the 1990 Cheval Blanc – released at £400 a case and now trading near £9,200 an annualized return of a 37%.

Or even more recent: the 2000 Chateau Lafite-Rothschild – released at $300 a bottle, it now fetches between $1,500 and $4,300 a bottle, depending on where you find it. Either way, you’re looking at annualized returns of between 17% and 31%

singapore property news

Q2 investment sales market improves

Singapore’s investment sales market in the second quarter has strengthened further, recording a 24.3 percent jump to S$7.11 billion, compared with S$5.72 billion in the first quarter this year, according to property consultancy group Colliers International.

The group said the increase in the investment sales market was largely attributed to the aggressive land acquisition activity by several property developers, acquiring nearly $3.25 billion worth of land both from the public and private sectors

It added that the total investment sales value for the first half of 2010 hit S$12.83 billion, exceeding the S$10.54 billion of sales for the whole of 2009.

Colliers is expecting more developers to continue purchasing development land, particularly for residential sites situated in outlying suburban areas. However, these developers will likely be more choosy given the huge supply and wide selection of land sites, which are available in the government’s H2 2010 GLS programme.

Collier’s report also indicated that the office property market in the country recorded a moderately strong rebound in Q2, on the back of growing concerns about large new supply.

The average gross rents per month for Grade A office space increased between five percent and seven percent. The increase came as occupancy rates tightened over micro-markets, despite the addition of over 1.5 million sq ft of Grade A office space since the second half of 2009.

singapore stock market news,singapore stock market ‘

RPT-Singapore’s NOL places $1.2 bln ship orders from Daewoo

Holland Tower, a freehold residential redevelopment site  located in District 10 has been put up for sale through a public tender by Jones Lang LaSalle (JLL).

The URA said the redevelopment of the 21,879-sq-ft site, which is zoned for residential use, can maintain its current height and can be redeveloped into a boutique residential development with 52 units of 82 sq ft with no development charge.

Holland Tower is located at 10 Holland Heights and sits in the Holland Park Good Class Bungalow Area. It has a maximum gross floor area of 43,691 sq ft and comprises a single 14-storey tower development with 19 units. It is well served by Holland Road, Queensway and Farrer Road, as well as major expressways including the AYE and the PIE.

The site is only minutes away from Orchard Road and the Botanic Gardens, and is close to the lifestyle facilities at Dempsey Cluster and Holland Village.

“With strong take up rate of residential new launches in the vicinity, this elevated site is expected to draw strong interest due to its locality, proximity to amenities and the potential to be redeveloped into a boutique development offering exclusivity and lush greenery. The site is totally unblocked as its surrounding area is prestigious landed housing under the ‘Good Class Bungalow’ segment,” said Ms. Stella Hoh, National Director and Head of Investments at JLL, which is the sole marketing agent for the property.

The public tender for the site will close on 25 August.

High-end market has room for growth

Singapore has long been regarded as a safe investment haven, which is why foreigners are snapping up property throughout the island.

Foreigners have bought around 23,000 non-landed private homes since 2007, 35 percent of which are high-end homes in Districts 1, 2, 4, 9, 10 and 11, according to the URA’s record of caveats lodged.

However, the high-end apartments sector still has chances for growth if trends in other cities are anything to go by.

According to data from Savills, the average price of high-end apartments stood at $2,154 psf in Q2 and $3,055 psf for super luxury private homes – a subset of high-end homes that reached an average of $2,500 psf in Q4 2006.

Prices for high-end residences in Hong Kong in Q2 were 20 percent higher than those in Singapore, reaching HK$14,520 (S$2,570) psf. The actual price disparity could even be bigger as common spaces such as corridors are considered in computing unit prices in Hong Kong.

Apartment prices in Sydney are approximately 28 percent higher compared to Singapore’s, while prices in London are 41 percent higher.

While prices in two of China’s major cities are lower, there was still a 15 percent increase in Beijing and a 32 percent rise in Shanghai last year, which are both at record levels, marginalising any possible short-term capital gains.

Singapore’s high-end market is the only sector where prices remain below earlier peaks. High-end apartment prices are 11 percent below record levels achieved in Q4 2007, while prices of super luxury units are 17 percent cheaper.

Prices of mass market homes in May were 15 percent higher over the earlier peaks, while mid-tier apartments were five percent up. As positive economic prospects for Singapore are expected to continue into H2 2010, high-end apartment prices are likely to reach earlier peak levels by early 2011.

Many East Asian investors may also shift their funds to Singapore due to the increasing anxiety over bubble risks and fears of additional tightening measures that threaten to derail prices.

China’s central government implemented 11 cooling measures earlier this year, which helped new homes sales to drop 60 percent to 70 percent in Shenzhen, Shanghai and Beijing in May.

Consequently, more foreign buyers, particularly mainland Chinese, have flocked to Singapore, sometimes buying in full cash, with the Chinese replacing Malaysians as the No. 2 buyers of super luxury homes priced from $5 million and above.

The increasing number of millionaire Singaporeans and high net worth individuals could also see a growing demand for luxury homes.

Visitors at Shanghai World Expo get a taste of Singapore cuisine

Visitors at Shanghai World Expo get a taste of Singapore cuisine

SHANGHAI : Visitors at the World Expo in Shanghai got a taste of Singapore cuisine at the Singapore Pavilion on Friday.

Curry chicken, mee sua, carrot cake, fried prawn rolls, yam paste, egg tarts and fried wantons were some of the dishes on display at the Singapore Pavilion.

Mark Ng, Area Director (Eastern China), Singapore Tourism Board, said: “We are really delighted to bring the Singapore Food Festival to the Shanghai World Expo to the Singapore Pavilion and to coincide it with the actual launch in Singapore. We are bringing one of our biggest events from Singapore to share it with everyone at the World Expo.”

Catering company Kriston said visitors can expect quite authentic hawker fare - although there were some challenges.

Stanley Jong, chef, Kriston Food & Beverage, said: “The biggest challenge is to find raw materials and bring them into Shanghai. Some of the ingredients are not allowed to be brought into the country and some can hardly be found in Shanghai. It is inevitable that some ingredients have to be substituted, but we try our best to find ingredients similar in taste to the original.”

The event was a crowd pleaser and not even the wet weather could dampen the enthusiasm.

One visitor said: “After tasting this food, I feel good about it and wish to go to Singapore to experience it again.”

Another commented: “It tastes very delicious. When I took the lid off, I could smell the aromatic flavour. It is nice. If I have the chance, I would like to visit Singapore.”

A third noted: “I come from Fujian and the flavour of this food is similar to that in my hometown. After visiting the Singapore Pavilion and tasting Singapore food, I really want to go there now.”

And from Friday till the following Sunday, 400 lucky visitors each day will get a sampler coupon which will allow to taste the food for free

Earnings to drive U.S. stocks after ugly data

NEW YORK (Reuters) - After ugly economic data and an unexpected downturn in sentiment on quarterly earnings, Wall Street will face a tough time battling back from the latest sell-off.

Technology and banking results will once again shape investor mindset in the week ahead. But it’ll be a tough job to shift back into a positive mode after stocks dropped nearly 3 percent drop on Friday.

Minutes of the Federal Reserve ’s June meeting got the market seriously worried this week after officials said they were more concerned with the pace of the economic recovery.

A raft of disappointing data didn’t help, prompting questions this week on whether the economy had merely hit a soft patch or was primed for a double-dip recession.

“It doesn’t mean the market can’t rally, but the structural problems are there and there is no doubt about it,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

From a technical perspective, the picture is even less certain. The Standard & Poor’s 500 Index is stuck in a tight range after it failed to hold its 50-day moving average, now near 1,090, after closing above it for two days.

The Nasdaq Composite, meanwhile, failed in its attempt to break its 200-day moving average, but has support around its 14-day moving average at 2,171.

At Friday’s close, the three major U.S. stock indexes were each down about 1 percent for the week: The Dow Jones industrial average lost 1 percent, while the S&P 500 slid 1.2 percent and the Nasdaq shed 0.8 percent.

The coming week’s earnings will include results from 12 Dow components, as well as earnings from financial powerhouses Goldman Sachs Group Inc and Morgan Stanley along with tech bellwethers Apple Inc, Texas Instruments Inc and Qualcomm Inc.

For the second quarter, earnings are expected to increase 28 percent from the year-ago period, according to Thomson Reuters data.

DOUBLE SHOT OF HOUSING DATA

The week’s major economic indicators will zero in on the housing sector, which is still struggling in the wake of the worst recession since the 1930s. In the second quarter, banks repossessed a record number of U.S. homes as U.S. unemployment stayed high, according to RealtyTrac, a real estate data company.

On Tuesday, Wall Street will get data on housing starts for June, which are expected to show a slight decline to a seasonally adjusted annual pace of 580,000 units from 593,000 in May, according to economists polled by Reuters.

Another snapshot of the housing market will be provided on Thursday with existing home sales for June. The forecast calls for a drop of 8.1 percent in June existing home sales versus the 2.2 percent decline in May, the Reuters poll showed.

REVENUES UNDER THE MICROSCOPE

But investors will focus on earnings next week. Close attention will be paid to revenue for signs of improvement, in light of the contrasting results from Intel Corp and Google Inc.

“That’s been the problem. They’ve been meeting or exceeding on cost cutting and not on demand for their products,” said Terry Morris, senior vice president and senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania.

“That has got to end pretty soon because the market was expecting sales to start improving and it’s not materializing.”

According to Thomson Reuters data through July 16, 48 companies in the S&P 500 Index have reported earnings for the second quarter, with 75 percent having topped analysts estimates, 13 percent in line with expectations and 13 percent below expectations.

On a revenue basis, of the 48 companies in the S&P 500 that have reported results so far, 71 percent have topped analysts’ expectations and 29 percent have fallen below estimates.

TAMER OUTLOOK FOR TECHS

Options investors appear to be expecting less volatility in the technology sector than the broader market next week.

Implied volatility on the at-the-money options for the SPDR S&P 500 ETF, an exchange-traded fund that tracks the benchmark S&P 500 , was slightly higher than on the PowerShares QQQ Trust ETF that tracks the performance of the Nasdaq 100, according to Steve Claussen, chief investment strategist at online brokerage OptionsHouse.com.

Implied volatility, a key component of options prices, measures the expected movement in stocks calculated by options prices. It is also seen as a barometer of anxiety.

“It’s notable that QQQQ is showing less implied volatility, which suggests more movements in the broader market than the straight technology sector. The tech sector will be a less exciting place in terms of movements next week,” he said.

Implied volatility on August options for the S&P 500 ETF was 25.5 percent, slightly higher than 25.25 percent for the Nasdaq ETF. Usually, the Nasdaq ETF has an implied volatility that’s 5 percent to 10 percent above that of the S&P 500 ETF.

The most actively traded options on the S&P 500 ETF were the August $100 and $105 puts, excluding July options that expire at the end of the day. Late Friday, the SPDR S&P 500 ETF was down 2.8 percent at $106.63.

For the QQQQ, the highest volume was on the August $44 put and August $45 call options. On Friday, the ETF was down 2.78 percent at $44.34.

Sometimes it becomes a little too easy to attack the Fed, and we have to hold back, because well, you may get a little sick of hearing our constant ‘ranting’ at their ridiculous policies.

Okay, that one just slipped out.

However, you have to congratulate the Fed for their repeated attempts to kick start the American economy to get things moving along again. They haven’t given up.

That’s because it’s been well documented that they’re desperate to get the recovery ‘happening’, or ‘back on track’. You know, like in the in the good old days.

When credit was easy, debt was not only normal but encouraged and it didn’t matter whether you could pay for the product, as long as you had the ‘assets’ to back up the purchase.

Let’s be honest, where is all the fiddling around with the economy getting the American people small business? Nowhere. Even when the government steps in with tax incentives to buy houses and cars to entice people, it only makes it appear that things are ‘working’.

And then the next batch of economic ‘numbers’ come out and you can see that effects of whatever the stimulus - or bribe - was, were short lived.

But no matter what the Fed does, it just can’t ‘fix’ this. In fact, it was only Wednesday Fed officials admitted that the recovery in the US could take as long as six years.

And yet, just the day before the Fed were blasting the banks for not lending to small businesses. Yep, you have to admire their persistence. They are trying to step in again to fix things again, convinced that one more ‘tweak’ will make everything okay.

However, you must be starting to wonder if the tweaking is being ignored by the very economy the Fed are trying to save.

See right now, banks in the US have returned to one of the more traditional methods of lending. And that is relying on cash flow to determine businesses suitability for a loan, rather than the pre GFC lending practice of using collateral.

So you can imagine how this process is slowing down the recovery that the Fed is desperately seeking. When real estate prices were at an all time high only a few years ago and credit was applied on that basis, cash flow was a second thought.

After all, if you had strong assets - like an overpriced home maybe - the bank didn’t need to worry about your ability to pay back the loan. I’m sure they thought the worst case scenario was ‘Well, if it all goes to pot, we can sell the client’s assets and we still make money.’ This would have been a fine assumption in an every rising property market.

But in a depressed real estate market like the US has now, these methods can’t be relied on anymore.

And quite simply, the lender and private sector businesses have more an idea on what will drive the US recovery. Right now, both of these parties have a very different idea on what the recovery should be instead of what the Fed is hoping for.

It doesn’t matter how many times Dr Ben Bernanke chairmen of Fed, has insisted that banks ought to lend to credit worthy business, the banks are pretty much ignoring him.

Rather than let the Fed determine what a credit worthy business is, the banks taking the actual risk of lending are deciding who, or who isn’t suitable for finance. And that’s how it should be.

Private businesses in America have decided that they don’t want to return to ‘old ways’, or how life was during the credit boom. They have no interest in the recovery the Fed sees. These small businesses are far more wary of protecting their own interests.

It’s a similar story for lenders too. Thanks to the recent crisis, banks and financiers have seen just how a credit binge can completely destroy a company. And if those lending practices are applied in multiple circumstances, it can destroy an economy. You know, like what the US are trying to pull themselves out of right now…

Now, you couldn’t call the US an entirely free market, but this current situation where lenders and business decide what is best for their own interests, is what happens in a free market.

The actual market participants - the banks and the businesses - are choosing how they want to move forward from the recession. Rather than let themselves be led - or dictated - too, they’ve come to realise they way forward isn’t about getting life back to how it was before the crisis.

The market has decided that it doesn’t want to go back to the way it was before. It’s finally worked out that it wasn’t sustainable.

Finally, it may appear that no matter how much tweaking or meddling the Fed try use to get banks lending and private businesses spending again, the market’s decided that this time it’s not going to work.

These market participants will recover when they want too. Not because they’re told too.

Economists said Singapore is set to become this year’s fastest-growing economy in the world, following the government’s upgrade of the annual growth forecast to 13-15 percent.

The new estimate, up from the previous prediction of a 7.0-9.0 percent expansion, exceeds forecasts of about ten percent growth in regional powerhouse China and comes in spite of fears over the European and US economies.

“Singapore will be the strongest-growing economy in Asia for the year and probably in the world,” said Song Seng Wun, a Singapore-based regional economist at CIMB Research.

He added that the new growth estimate was “realistic” in spite of a projected slowdown in H2 because gross domestic product (GDP) expansion in H1 was likely to be 18 percent.

Other Asian export-oriented economies are also likely to see growth this year, but Singapore has other growth drivers, such as its financial services and tourism industry, he said.

David Cohen, a regional economist at research house Action Economics, said Singapore will “probably come on top of the charts worldwide”.

However, Cohen said it should be seen in the context of the country’s GDP contraction of 1.3 percent in 2009 because of the global recession, while China’s GDP increased at about 9.0 percent last year.

The strong Q2 GDP figures “reinforce the view that fears from the eurozone crisis may be exaggerated”, said DBS Bank.

As the country is the “most sensitive to headwinds in the global economy, this is good news for investors looking to put on risk again,” it added.

“Hence, sentiment should remain constructive, not only for the Singapore dollar, but also other Asia ex-Japan currencies and commodity currencies linked to a positive growth outlook.”

The strong demand for manufactured exports in Singapore, particularly semiconductors and biomedical products, led to the sharp increase in the GDP growth forecast for the trade-driven island.

Growth in Q1 was 16.9 percent and 19.3 percent in Q2, said the Ministry of Trade and Industry (MTI).

Singapore’s exports are now likely to grow by 17-19 percent this year, an increase from the earlier forecast of 15-17 percent, with the robust trade with Asian economies as a major factor for the export forecasts’ upgrade.

Growth would moderate in H2 this year due to problems in two major markets for Singapore’s exports, said MTI.

“In the US, there are now signs of a slowdown in the labour market following the recovery earlier in the year. This has affected consumer confidence. In the EU, domestic demand remains depressed as concerns over the sovereign debt crisis persist.”

While a slowdown in the global economy is expected, Cohen said he does not expect another recession. “So the Singapore government’s projection for full-year growth seems within reach,” said Mr. Cohen.

Parkway Life REIT
Company update - Optimising Japanese exposure - by Janice Ding
(PREIT SP / PWLR.SI, OUTPERFORM - Maintained, S$1.39 - Tgt. S$1.57,
Property)

Maintain Outperform and target price of S$1.57 for PLife REIT. PLife REIT
has acquired 11 nursing homes in Japan for S$107.3m at an average net
property yield of 6.6% after withholding tax. With this acquisition,
income contributions from Japan had increased to 38% from 28% in 1Q10. We
maintain our DDM-based target price of S$1.57 (discount rate 7.2%) as we
had earlier factored in S$170m of acquisitions for FY10. Stock catalysts
could include early debt refinancing on lower costs in 2H10 and a change
of the holding structure for its Japanese assets in 1H11 which would lower
the withholding tax for its Japanese assets.

Singapore real estate prices jumped to a record high in the second quarter as the city-state’s economic recovery broadened.

Private residential property prices rose 5.2 percent in the April-to-June period to the highest level since the government began the index in 1975, the Urban Redevelopment Authority said Thursday.

Prices leapt 5.6 percent in the first quarter and 7.4 percent in the fourth, bouncing back strongly after diving 25 percent in the 12 months to mid-2009.

Singapore’s low crime rate, good schools and low personal and corporate taxes have helped the island rank near the top of expatriate global quality-of-life surveys and attracted investors to the residential and office property markets. Singapore opened its first two casino-resorts this year, boosting tourist visits.

Singapore has sought to slow price gains by implementing a series of measures this year to discourage short-term speculative investment in property.

The government earlier this year imposed a 1 percent to 3 percent tax on residential properties sold within one year of purchase and lowered the loan-to-value limit to 80 percent from 90 percent on loans for private housing. Officials have also pledged to release more government land this year for real estate development to help boost housing supply.

Policymakers throughout Asia have grappled with balancing low interest rates to spur economic growth and the danger that cheap credit can fuel asset bubbles.

By the end of last year, Singapore prime residential property was selling at $1,500 to $2,000 per square foot — still less than the $2,000 to $2,500 per square foot in Hong Kong, Asia’s most expensive property market, according London-based real estate consultancy Knight Frank.

Investor confidence in Singapore has been bolstered by a soaring economy in the first half, led by a surge in manufacturing. Gross domestic product grew a record 15.5 percent in the first quarter from a year earlier, and DBS Bank said it expects a 16 percent expansion in the second quarter.

DBS raised its 2010 growth forecast Wednesday to 13 percent from 10.3 percent and expects the manufacturing sector to grow 50 percent in the second quarter.

China, the worst-performing stock market
after Greece, looks like a buy by almost any measure, according to
top-ranked analysts of the Asian nation’s shares.
   The Shanghai Composite Index’s 26 percent plunge this year,
including yesterday’s 4.3 percent slump, sent its price-earnings ratio
to 18, the lowest level versus the MSCI Emerging Markets Index in a
decade. The largest owners of yuan-denominated stocks have turned net
buyers for the first time since equities bottomed in 2008, while
international investors are paying the biggest premium in 21 months to
bet on a rally in funds that hold China’s yuan-denominated or A shares,
data compiled by Macquarie Group Ltd. and Bloomberg show.
   Morgan Stanley, BNP Paribas SA and Nomura Holdings Inc. say stocks
will rally as China’s June 19 decision to end the yuan’s two-year peg to
the dollar helps curb inflation and asset bubbles. The Shanghai index
rose 62 percent in 12 months after China last allowed a more flexible
exchange rate in July 2005.
   ”We are very bullish,” said Jerry Lou, the Hong Kong- based
strategist at Morgan Stanley, among the top-ranked analysts for China
stocks by Institutional Investor, who predicts the Shanghai Composite
may climb 65 percent to 4,000 by June 2011. “We like valuations and
inflation will peak. All we need is a catalyst such as a change in yuan
policy.”
   Prospects for a stock rebound may be cut as China’s exports face
“strong headwinds” in the second half and loan growth may slow by the
end of 2010, Citigroup Inc. said this week, even as the average of 14
economist estimates in a Bloomberg survey calls for economic growth of
10.2 percent this year and 9.2 percent in 2011.

The Conference Board yesterday revised its leading economic index
for China, contributing to the biggest sell-off in Chinese equities in
six weeks. Agricultural Bank of China Ltd., which priced the Shanghai
portion of its $20.1 billion initial share sale, also drove banking
stocks lower.
   The Shanghai Composite fell for a sixth day today, losing
0.8 percent to 2,408.46 at 10:14 a.m. Its slump this year is second only
to the 35 percent plunge in Greece’s ASE Index among the world’s 60
biggest stock markets, according to data compiled by Bloomberg.
Companies on the Shanghai gauge will increase earnings by 40 percent in
12 months, more than double the pace of the ASE, analysts’ estimates by
Bloomberg show.
   Rising profits reduced the Shanghai Composite’s valuation premium
over the MSCI emerging index to 26 percent, down from an average of 140
percent since 1997, based on weekly price- earnings ratios compiled by
Bloomberg. The last time the gap was so small in February 2000, the
Shanghai Composite gained 27 percent in 12 months, while the MSCI
measure sank 26 percent.

                      Lower Valuations

   Lower valuations spurred the biggest Chinese investors to buy last
month. Shareholders who own at least 5 percent of a company’s stock
boosted their holdings by 1.1 billion yuan ($162 million), according to
Macquarie analysts Michael Kurtz and Shirley Zhao in Shanghai, basing
their analysis on data from Wind Information. Similar purchases in
October 2008 signaled the end of the Shanghai Composite’s year-long bear
market, with the gauge rallying 82 percent from its low on Oct. 28,
2008, through October 2009.
   Yuan-denominated shares, restricted almost exclusively to local
investors, fell below Chinese stocks traded in Hong Kong this month for
the first time in almost four years, according to the Hang Seng China AH
Premium Index. When A shares last traded at a discount in November 2006,
the Shanghai Composite tripled in 12 months, outpacing a 156 percent
gain in the Hong Kong benchmark index and a 58 percent rise in the MSCI
gauge.

                      ‘Pay for Exposure’

   ”The premium between A and H shares is disappearing,”
said Hao Hong, Beijing-based global equity strategist at China
International Capital Corp., the top-ranked brokerage for China research
in Asiamoney’s annual survey. That indicates “foreign investors are
willing to pay for exposure to China’s stocks.”
   International investors pushed the price of BlackRock Inc.’s
iShares FTSE/Xinhua A50 China Index exchange-traded fund to 11 percent
above the value of its underlying assets last week, the highest level in
almost two years, according to data compiled by Bloomberg. The fund
trades in Hong Kong and tracks the 50 biggest A-share companies.
   The Shanghai Composite fell 22 percent this quarter, lagging behind
gauges in the other so-called BRIC markets of the largest developing
economies, after China raised banks’ reserve requirements to the highest
level in at least three years and curbed real-estate speculation.
Property prices rose 12.4 percent in May from a year earlier, the
second-fastest pace after April’s 12.8 percent record gain.

                        BRIC Markets

   Brazil’s Bovespa index dropped 8.7 percent during the period and
Russia’s Micex slipped 8 percent, while India’s Bombay Stock Exchange
Sensitive Index advanced 0.2 percent. The MSCI emerging gauge lost 7.6
percent.
   The New York-based Conference Board corrected its April gauge for
the outlook of China’s economy this week, saying its leading index for
the country rose the least since November, rather than registering the
biggest gain in 14 months.
   A flood of new stock may also weigh on the market, according to
Credit Suisse Group AG’s Sakthi Siva. Chinese companies will sell about
320 billion yuan ($47 billion) of new shares in Shanghai and Shenzhen
this year as they fund expansion and banks bolster capital after a
record amount of government- led lending, PricewaterhouseCoopers
predicts.
   Agricultural Bank’s share sale in Shanghai and Hong Kong is the
biggest initial public offering since Industrial & Commercial Bank of
China Ltd.’s $21.9 billion sale almost four years ago.

                      ‘Quite Cautious’

   ”I’m still quite cautious,” Siva, the Singapore-based top-ranked
Asia strategist in Institutional Investor’s 2010 poll, said in an
interview. “There’s quite a lot of supply.”
   Ending the fixed 6.83 yuan peg to the dollar should help “contain
inflation and asset bubbles,” China’s central bank said in a June 20
statement. Inflation will probably peak at 3.7 percent toward the end of
the third quarter then “level off”
the rest of the year, according to CICC’s Hong.
   Chinese authorities had prevented the currency from strengthening
against the dollar since July 2008 to help exporters cope with the
global financial crisis.
   The yuan appreciated 21 percent in the three years after a managed
float against a basket of currencies was introduced in 2005.
Twelve-month non-deliverable forwards yesterday indicate investors are
betting the yuan will strengthen 1.6 percent. A yuan revaluation won’t
happen quickly or fix all of the global economy’s imbalances,
International Monetary Fund Managing Director Dominique Strauss-Kahn
said this week.

                    Vanke, China Merchants

   China Vanke Co., the Shenzhen-based property developer that sank 37
percent this year, trades for 13 times reported profits, down from 35
times a year ago, according to data compiled by Bloomberg. Earnings
growth of 29 percent this year will help lift the stock 42 percent,
according to analyst estimates on Bloomberg.
   China Merchants Bank Co.’s 2.7 price-to-book ratio is near a record
low relative to the MSCI Emerging Markets Financials Index after the
Shenzhen-based company declined 24 percent this year. The stock is
poised to surge 49 percent in 12 months, according to analysts, who have
35 “buy” ratings and one “sell,” according to data compiled by
Bloomberg.
   Consumer-related shares will benefit from a shift in the economy to
increase domestic spending, said Leo Gao, who helps oversee about $600
million at APS Asset Management Ltd. in Shanghai, whose APS China Alpha
Fund has beaten 87 percent of peers in the past year, according to
Bloomberg data.
   ”Stocks will end the year higher,” Gao said.