Randomly Noted

Anyone living in Singapore has known for a while that the economy is coming back. Restaurants and bars are full, shopping centres are humming, and it’s harder to find an available taxi.
We had confirmation of that Wednesday with the release of first quarter gross domestic product data showing growth of 32.1% from the previous quarter in annualized, adjusted terms, after a 2.8% contraction in the fourth quarter of last year.

That’s the fastest growth since the data series began in 1975, and much better than economists expected (and perhaps the government, too–it has revised up its 2010 growth forecast to 7.0% to 9.0%, from 4.5% to 6.5%).
The data are good news for the rest of Asia. Singapore is first off the mark in releasing GDP for the region. It, like many of its neighbours, is a trade-dependent economy, relying heavily on its tech and pharma industries. Things are coming off a low base, but it does indicate real demand is there for Asia’s goods, especially from within the region itself.
Such readings are likely to reassure governments as they ponder how much, and how fast, to roll back some of the fiscal largesse that has been in the system for some time.
But quick growth also spells potential headaches. The Singapore data were so strong, they led the Monetary Authority of Singapore into an unprecedented double-barreled policy tightening.
The MAS shifted up its targeted trading band for the Singapore dollar and at the same time said it is now aiming for a “modest and gradual appreciation” of the currency–its main policy lever–against a basket of currencies. It previously had a neutral policy stance.
Other central banks in Asia, including India and Malaysia, have been moving also to tighten policy, while China is among those acting to mop up liquidity in targeted steps.
Things could become more complicated from here. Authorities in Asia ex-Japan are starting to grow more nervous about the inflation outlook. In Singapore, officials lifted their consumer price index growth forecast for this year to 2.5% to 3.5%, from 2.0% to 3.0% earlier.
Continuing to support growth while counteracting the effects of very loose liquidity and jumping pre-emptively on inflation will prove tricky. Authorities may not want to act too aggressively to tighten policy, but act too late and there will be even greater problems to fix down the road.

There’s also the ongoing question of China. It has been growing nicely and demand from that country has shielded many others from the worst effects of the global economic slowdown. But even officials there are warning against being too optimistic on the growth outlook going forward.

Singapore is extraordinary for all the reasons you’ve read about: it’s clean, safe, well-off and HOT, with a micro-managing, essentially one-party governing establishment whose leader spoke up yesterday to say: Singapore’s economic growth will now be slower than before because its economy is maturing. “We must acknowledge that we are now more developed economically than we were 10 or 15 years ago, and we can no longer grow as rapidly as before,” said Lee Hsien Loong, the prime minister and son of modern Singapore’s founding father, Lee Kuan Yew. I felt a little melancholy when I read Lee’s remarks – partly because I still miss that amazing island, where we lived for three years until last June. But also: Singapore’s rise from a swampy cast-off of the British and Malays to the modern pride of Southeast Asia has been nothing short of extraordinary. What now for this less-than-45-year-old city-state? The outlook is far from bleak, even if Singapore’s economic development will lag behind its Asian neighbors and rivals.

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Singaporean sovereign wealth fund GIC lost more than 20% of its value in fiscal 2009 – or about 59 billion Singapore dollars according to one person familiar with the matter.

That’s not pretty, but not a disaster, either, given the horror show on global equity markets between their Oct. 2007 peak and the lows hit in March 2009. The run-up in stocks since then and GIC’s exit last week from Citigroup, which reaped S$2 billion-plus in profit, suggest the fund – like pretty much all others – is in for a better year. GIC calculates its annualized gains over the last 20 years at 5.7% – neither the best nor worst place to have put your money.

The financial crisis put the spotlight on SWFs, first as saviours of traditional banks – for GIC, read Citi and UBS – and then, when fear set in again, as another example of how finance had become a shadowy and untethered game played by elites.  Funds run or sponsored by Arab or East Asian states deploying bucket-loads of money to prop up the banks where the average westerner deposited his salary was either a grand exercise in back-scratching or, more nefariously, a takeover bid for the financial system.

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It’s time for Singapore to do something about Temasek’s leadership. Today’s announcement of the investment company’s annus horribilis underscores just how acute the problem is. Ho Ching, the CEO, is an intelligent, capable individual but she and her team haven’t run government-linked Temasek well, making a series of peculiar or ill-timed investment decisions in recent years. What to do? Hire a new boss. Oops! Temasek had Mr. Right, only to ditch him at the altar. The jilted groom aka CEO-designate was Chip Goodyear, a well-regarded former mining and banking industry executive who would have been Temasek’s first non-Singaporean boss. But Temasek’s pooh-bahs couldn’t make it work with the new kid on the block and a parting-of-ways occurred before Goodyear was due to officially ascend to the top job. Needless to say, it’s a rare world-class fund or firm that hires a high-profile executive – amid much hoopla, by the way; Goodyear’s hiring was a robustly publicized event – only to file for divorce within months. Granted, there are cases where an institution would be better off if its leaders had the guts to change their minds about major hires gone awry. But a few too many things have gone wrong at Temasek. Its investing stumbles – including dumping stakes in western banks at just the wrong time (before stocks began rising) – following a rather pricey, problematic and politically charged transaction in Thailand a few years ago and combined with the Goodyear split -they all add up to a need for a shake-up at the top of Singapore’s Temasek.

Singapore’s Temasek Holdings says its designated new CEO, Charles “Chip” Goodyear, won’t take the reins on Oct. 1 as expected. Colleague Costas Paris reports Goodyear – in the heir-apparent role to the investment fund’s current boss, Ho Ching – ruffled feathers by seeking high-level management changes and proposing strategies viewed as too risky. I don’t know if  Goodyear was the ideal boss for the big Singaporean fund. How many bosses – or parents, for that matter – are ideal? Surely Goodyear, with many years of experience running and helping steer some very big companies, was well-equipped to do, at the very least, a good good job as Temasek’s CEO. And if he wanted to bring in some trusted lieutenants while ushering out some of the old guard, that would be time-honored practice. Of course, if Goodyear was trying to put Temasek’s money into risky investments, that wouldn’t sit well with Singapore establishment types. But given the investment fund’s recent lousy track record – including foolish bets on dysfunctional Western banks – it’s hard to imagine what Goodyear’s portfolio management missteps could have been that warranted an abrupt parting of ways. And so Chip Goodyear emerges from his short Singapore sojourn in good shape – he’ll probably have a nice monetary exit package and will find a job in industry or banking from whence he came. Temasek, however, looks silly and shabby for hiring the wrong guy, or hiring the right guy and failing to realize it did. Who’s to blame? The board, headed by Chairman S Dhanabalan,  and Ho Ching herself, for hiring the “wrong” guy. In a way, this episode speaks to Singapore’s broader dilemma. Since its expulsion from Malaysia in 1965 modern Singapore’s evolution has been nothing short of a miracle. And yet the confidence and, sometimes, competence of its contemporary leaders – political and business – seems sometimes to lag behind the needs and expectations of the Singaporean people. Singaporeans won’t look kindly on Temasek’s failure to manage its historic transition to leadership by a foreign professional, coming as it does after bloody investment losses. Look for a growing skepticism and restiveness among the island-state’s otherwise complacent populace.

Burned by foolish bets on Western financial institutions, sovereign wealth funds are looking elsewhere for new opportunities. The latest example: Singapore’s Temasek Holdings will reduce its exposure to countries within the Organization for Economic Co-operation and Development to 20% of its portfolio from 30%. This from Ho Ching, Temasek’s departing chief executive officer and wife of Singapore Prime Minister Lee Hsien Loong. Shying away from the OECD’s Western members, Temasek will put money into Latin America, Russia and Africa, where its collective exposure will be 10%. Asia (not including Singapore) will stay at 40% and Singapore at 30%, AFP reports. My two cents: build up Latin America big-time, especially Brazil, where durable political stability, rich natural resources, and a robustly rising standard of living provide remarkable investing opportunities – although it may already be too late (pricey) in some sectors. Avoid Russia – any potential gains are offset by vast political risk. Africa’s interesting: Temasek’s incoming boss, Chip Goodyear, has heaps of mining and resources experience from prior corporate gigs. Political risk is subsiding in a few intriguing sub-Saharan African countries. An interesting time to play there, especially with Singapore’s ally, China, entrenched across the continent.

The horse-trading over Bank of America’s $9 billion stake in China Construction Bank has begun in earnest. Today, Temasek Holdings, a plausible buyer, signaled that CCB looks a bit pricey – surely a ploy by the Singapore sovereign wealth fund to make a stake in the Chinese bank a bit more affordable. Check out the DJN story by Nisha Gopalan: “BofA Approached Temasek To Buy CCB Stake-Sources.” After rising more than 10% in recent days, CCB shares slid 6.3% today in Hong Kong.  The WSJ reports China’s sovereign wealth fund, China Investment Corp. (CIC), is unlikely to take some of Bank of America’s 16.7% stake in CCB – if only to avoid the perception that China’s government is helping bail out a troubled U.S. bank. by buying CCB shares well above where BofA acquired them. Indeed, the main reason BofA wants to flip its CCB shares at the earliest possible moment is to meet Washington, D.C.’s capital sufficiency criteria.  Have a look at the WSJ piece: =WSJ UPDATE:Buyers Sought For Part Of BofA’s CCB Stake-Sources.”

Have a look at the image of ships stacked up in the port of Singapore:http://www.foreignpolicy.com/images/090507_singapore.jpgDJN Colleague Ramesh Chakrapani sent it over. It nicely illustrates the state of the freight shipping industry circa 1H 2009: very little action, lots of idle ships. Kudos to vesseltracker.com for using Google Earth cleverly.

Singapore “styles itself as Asia’s Switzerland,” writes DJN colleague Costas Paris. This is a problem, at the moment, as Western governments target money laundering and tax evasion around the world. Check out Costas’s story on DJN, as it’s the best look yet at what’s at stake for the southeast Asia city-state, whose economic future is at a sensitive crossroads. The global crisis has hit its exports hard as western consumption dries up, and its stature as a financial center has been imperiled by the credit crunch and implosion of the banking industry. Continue reading…