<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Feb 24, 2009
NEWS ANALYSIS
</TR><!-- headline one : start --><TR>No recovery until US fixes housing crisis
</TR><!-- headline one : end --><TR>Traders better off looking at local champions able to withstand crisis </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Goh Eng Yeow, Markets Correspondent
</TD></TR><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->THE global financial market turmoil is starting to resemble scenes from the 2007 semi-documentary Nanking.
Like the refugees who fled blindly into enemy fire as the invading Japanese army approached Nanjing in 1937, investors find themselves getting scorched switching from asset to asset as markets come under attack.
But staying put in cash is not a safe option either.
Confidence in the US dollar has plummeted on worries that the American government will have to issue up to US$2.7 trillion (S$4.1 trillion) in fresh debt to stimulate the ailing economy and bail out its tottering banking system.
And the euro has come under heavy attack on mounting concerns that the eurozone might be wrecked by Eastern Europe's inability to service its US$1.7 trillion debt. Countries such as Hungary and Latvia are reeling from the impact of the global financial crisis, and others are not far behind.
Even the Singapore dollar has not been spared, falling 5 per cent against the greenback in the past two months.
So it is not surprising to find traders describing such market conditions as resembling a war, and adjusting their investment portfolio accordingly. Like the fleeing Chinese refugees 72 years ago, they have switched part of their savings to gold, the only asset whose value has withstood the ravages of war through the ages. That move pushed the metal's price to well above US$1,000 an ounce last Friday.
Against this backdrop of fear, more are asking if there is further downside to the benchmark Straits Times Index (STI), which fell to a four-month intraday low of 1,567.22 yesterday before rebounding to close 2.2 per cent higher at 1,630.69.
But a more pertinent question is whether it is relevant to look at STI's support levels any more. After all, given Singapore's open economy, the STI is unlikely to stage any meaningful rebound, even if it falls to the Sars crisis low of 1,213 hit on March 10, 2003, unless the United States and Europe sort out their problems first.
=> Not even after paying ministers billions of dollars?
While there were widespread concerns over the rapid manner in which global industrial production has plummeted and exports have collapsed, the big issue for many investors is the lack of progress in restoring beleaguered global lenders such as Citigroup back to health in order to get them to lend again.
At the heart of these banking problems is the rotting US housing market, where falling home prices show no signs of hitting the bottom.
As OCBC Bank chief executive David Conner observed, this has created a big headache for US lenders because defaulting home owners can merely hand in their keys and stop payments without fearing repercussions such as their banks bankrupting them to get their money back.
The rapidly increasing number of American home owners unable or unwilling to make timely mortgage payments explains why bank assets have become more and more toxic, despite repeated bailouts by the US government.
On top of this, the US government may also be using the wrong prescription - comprising a mixture of additional capital and partial loss protection on troubled assets - to bolster Citigroup and Bank of America.
Take JPMorgan Chase, which wrung a similar guarantee from the US government against future losses when it took over Bear Stearns nearly a year ago.
That could not save its investment bank from incurring a US$2.4 billion loss in the fourth quarter due to the soured assets it acquired from the purchase.
So whether beleaguered lenders like Citigroup become nationalised or not, the bottom line is that there will be no recovery in sight unless US housing prices stop falling.
Until this occurs, traders are better off nibbling at local champions that will emerge unscathed from the crisis.
Only those with a strong business franchise and an excellent operating cash flow need to be considered. A few names come to mind: Singapore Airlines, Singapore Technologies Engineering and SingTel.
=> Ah, the motive for this Leeport suddenly becums clear.
[email protected]
NEWS ANALYSIS
</TR><!-- headline one : start --><TR>No recovery until US fixes housing crisis
</TR><!-- headline one : end --><TR>Traders better off looking at local champions able to withstand crisis </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Goh Eng Yeow, Markets Correspondent
</TD></TR><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->THE global financial market turmoil is starting to resemble scenes from the 2007 semi-documentary Nanking.
Like the refugees who fled blindly into enemy fire as the invading Japanese army approached Nanjing in 1937, investors find themselves getting scorched switching from asset to asset as markets come under attack.
But staying put in cash is not a safe option either.
Confidence in the US dollar has plummeted on worries that the American government will have to issue up to US$2.7 trillion (S$4.1 trillion) in fresh debt to stimulate the ailing economy and bail out its tottering banking system.
And the euro has come under heavy attack on mounting concerns that the eurozone might be wrecked by Eastern Europe's inability to service its US$1.7 trillion debt. Countries such as Hungary and Latvia are reeling from the impact of the global financial crisis, and others are not far behind.
Even the Singapore dollar has not been spared, falling 5 per cent against the greenback in the past two months.
So it is not surprising to find traders describing such market conditions as resembling a war, and adjusting their investment portfolio accordingly. Like the fleeing Chinese refugees 72 years ago, they have switched part of their savings to gold, the only asset whose value has withstood the ravages of war through the ages. That move pushed the metal's price to well above US$1,000 an ounce last Friday.
Against this backdrop of fear, more are asking if there is further downside to the benchmark Straits Times Index (STI), which fell to a four-month intraday low of 1,567.22 yesterday before rebounding to close 2.2 per cent higher at 1,630.69.
But a more pertinent question is whether it is relevant to look at STI's support levels any more. After all, given Singapore's open economy, the STI is unlikely to stage any meaningful rebound, even if it falls to the Sars crisis low of 1,213 hit on March 10, 2003, unless the United States and Europe sort out their problems first.
=> Not even after paying ministers billions of dollars?
While there were widespread concerns over the rapid manner in which global industrial production has plummeted and exports have collapsed, the big issue for many investors is the lack of progress in restoring beleaguered global lenders such as Citigroup back to health in order to get them to lend again.
At the heart of these banking problems is the rotting US housing market, where falling home prices show no signs of hitting the bottom.
As OCBC Bank chief executive David Conner observed, this has created a big headache for US lenders because defaulting home owners can merely hand in their keys and stop payments without fearing repercussions such as their banks bankrupting them to get their money back.
The rapidly increasing number of American home owners unable or unwilling to make timely mortgage payments explains why bank assets have become more and more toxic, despite repeated bailouts by the US government.
On top of this, the US government may also be using the wrong prescription - comprising a mixture of additional capital and partial loss protection on troubled assets - to bolster Citigroup and Bank of America.
Take JPMorgan Chase, which wrung a similar guarantee from the US government against future losses when it took over Bear Stearns nearly a year ago.
That could not save its investment bank from incurring a US$2.4 billion loss in the fourth quarter due to the soured assets it acquired from the purchase.
So whether beleaguered lenders like Citigroup become nationalised or not, the bottom line is that there will be no recovery in sight unless US housing prices stop falling.
Until this occurs, traders are better off nibbling at local champions that will emerge unscathed from the crisis.
Only those with a strong business franchise and an excellent operating cash flow need to be considered. A few names come to mind: Singapore Airlines, Singapore Technologies Engineering and SingTel.
=> Ah, the motive for this Leeport suddenly becums clear.
[email protected]
