Hong Kong-listed Wheelock and Company recently made an offer of $2.10 per share to take its Singapore subsidiary Wheelock Properties (Singapore) private. The offer represented a 20-percent premium to the closing price of $1.74 on 20 July.
Not surprisingly, the privatisation offer amidst current negative sentiments came in below the fair value on the street. Nonetheless, the move also signaled the depressed valuations for the local property sector, prompting investors to relook at other property stocks again.
Many years ago, the Singapore and Hong Kong government had previously introduced a series of cooling measures to curb soaring property prices. Interestingly, the measures seem to mirror one another.
On 5 July, the Singapore government took the market by surprise when it suddenly announced new measures to cool the local property market. In a knee-jerk reaction, local property stocks plunged in response to the news. Amidst the gloom, the privatisation bid for Wheelock Properties finally brought some needed calm to the market.
In principle, most Singaporeans can afford a roof over their heads with our public housing scheme. The new cooling measures – targeted at purchases for second private residential properties – are meant to keep demand in the private property market healthy.
Singaporeans today are wealthier and more locals are able to afford private properties for investment or speculation. Over the years, prices of private properties have incessantly outpaced public housing properties, risking the build-up of a housing bubble. If the government does not intervene early, property prices would go into free fall when the bubble pops and our financial market would be severely impacted.
Our counterpart in Hong Kong had also recently announced six new housing policies. While some Hong Kong property stocks came under pressure, there were others that managed to rise against the broader sell-off.
Taking signal from the privatisation offer made for Wheelock Properties (Singapore), Hong Kong-listed subsidiary The Wharf (Holdings) could be the next privatisation target for the Wheelock parent group.
Not long ago, The Wharf (Holdings) split from its commercial property business, spinning it off as the The Wharf Property. The Wharf Property derives its income from rent it collects from its investment properties and analysts valued the business at a valuation that is higher than the original entity. Since the holding company, The Wharf (Holdings), is also in the business of property developments, it makes sense for the Wheelock parent group to privatise it as well.
Recently, the Chinese Renminbi depreciated significantly against the US Dollar. US President Trump chided the Federal Reserve for raising interest rates causing the US Dollar to strengthen. In reality, a basket of other major currencies like the Japanese Yen, Great Britain Pound and Euro Dollar, are also depreciating against the US Dollar. Clearly, Trump is taking issue with the strength of the US Dollar as it affects the competitiveness of US goods.
While in theory, a weaker currency promotes export competitiveness since goods are cheaper, is it always a good thing? In 1997 to 1998, international short sellers attacked Asian currencies, debilitating their depreciation. The crisis led to political upheavals, most notably culminating in the resignation of Indonesian President Suharto who had been in power for 30 years. In Malaysia, the crisis also led to a conflict between the then Prime Minister Mahathir and Deputy Prime Minister Anwar Ibrahim on whether the Malaysian government should intervene with capital controls.
Back then, many Asian currencies collapsed which ultimately threw their economies into turmoil. The media dubbed the incident as the “Asian Financial Crisis”, highlighting the risks of massive depreciation in currencies. Today, we are seeing similar risks happening in new emerging economies like Argentina and Brazil.
At the start of July, US-China trade war broke out when the US officially slapped 25 percent tariffs on US$34 billion worth of Chinese goods that drew China’s tit-for-tat retaliation. The US escalated tensions by threatening to impose further tariffs of 10 percent on additional US$200 billion worth of Chinese goods. In the meantime, the Chinese Renminbi fell sharply against the US Dollar, depreciating eight percent since April 2018.
Indeed, the Chinese Renminbi’s depreciation could be a result engineered by the Chinese government to weather the impact of trade war. By devaluing the currency by 10 percent, it would negate the impact of further tariffs of 10 percent levied on its goods. In essence, US-China trade war has evolved into a currency war now.
US Treasury Secretary Steve Mnuchin announced that the US will be monitoring the Renminbi’s weakness and review whether the currency has been manipulated. In reality, such investigations are often influenced by the prevailing political dynamics and the Chinese Reminbi’s recent devaluation may give Trump the excuse to slap China with tariffs on US$500 billion worth of Chinese goods – its entire export value to the US.
Many Chinese citizens and investors are shifting to foreign assets to hedge against the weakness of the Chinese Renminbi. This creates a domino effect, as capital increasingly flows out of the Chinese economy, causing the Chinese and Hong Kong stock market to tumble.
Recently, some market watchers touted that bears have taken over the Singapore and Hong Kong stock market. However, despite the recent sell-down, there are still a number of Hang Seng component stocks that bucked the downtrend to rise to record territories, including CLP Holdings, Hong Kong and China Gas, and Link Real Estate Fund. Outside of the Hang Seng Index, HK Electric Investments also managed to make new highs.
Meanwhile, performance of local consumer-related stocks like Breaktalk, Dairy Farm International and Sheng Siong Group also performed rather well hence investors should not be overly concerned. Apart from that, with the FIFA World Cup over, punters and speculators should return to the stock market as well as the casinos. As such, investors should also pay attention to gaming stocks.
A while ago, Trump imposed sanctions on Iran, restricting the export of Iranian oil which caused oil prices to surge. Following which, Trump requested OPEC de-facto leader Saudi Arabia to fill in the supply gap. While Saudi Arabia initially agreed, there was no meaningful increase in its production output. This led to speculation that the Trump administration would consider tapping on US Strategic Petroleum Reserve in face of higher oil prices. In the meantime, rumours have it that Trump would grant exceptions to some allies as they gradually reduce their dependency on Iranian oil.
The move on Iran revealed that Trump tends to be flexible enough to leave some room for negotiations. As sanctions on Iran come into effect, oil prices will begin to see a return of volatility, with the initiative in Trump’s hands. If the US is to tap on its Strategic Oil Reserve and allow more countries to be exempted from Iran oil ban, oil prices could come down dramatically.