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Kim Iskyan: Consider Seeking Safety in US Treasuries Amidst Dipping Singapore Inflation

Singapore’s inflation fell for 14th month straight but should not be a huge concern to investors. Consumer prices fell 0.6 percent from a year earlier but core inflation rose 0.3 percent. Led by higher food and service cost, core inflation excluding private transportation and accommodation costs increased.

This has shown that the slump in inflation is caused by lower house rentals and a fall in prices of COE rather than “bread and butter”.

coe prices 1
coe prices 1

Source: Prices of COE, SGCharts

Prices of COE fell largely led by Category B from $60,001 in December 2015 (round 1) to the current $50,089 in the latest bid. The fall in prices of COE has little to do with the economic conditions in Singapore but an increase in quota by the Land Transport Authority (LTA).

Source: Private Residential Key Indicators of 4Q15, URA
Source: Private Residential Key Indicators of 4Q15, URA

Source: Private Residential Key Indicators of 4Q15, URA

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The decreased outlook for residential real estate properties continues as more supply streams into the market and demand for rental properties lowers. It is expected for the rent of Singapore Residential properties to fall by 10 percent in 2016.

Source: Supply by Date of Completion, URA
Source: Supply by Date of Completion, URA

Source: Supply by Date of Completion, URA

In 2016, the main bulk of supply for residential properties will be completed and enter the market.

Graph of SIBOR
Graph of SIBOR

Stocks in the tourism sectors including hotel REITs should be avoided given the strong headwinds in the Singapore hospitality industry. The rise in core inflation has showed that the labour constraint is hurting the industry and has driven up costs.

Source: Singapore Tourist Arrivals, Trading Economics
Source: Singapore Tourist Arrivals, Trading Economics

Source: Singapore Tourist Arrivals, Trading Economics

In addition, lower tourist arrival rate is expected as SGD remains stronger than the currency of its ASEAN counterparts and China which forms the majority of the visitors.

Investors’ Takeaway: Consider Safety in US Treasuries

US treasuries yield
US treasuries yield


Singapore investors can look at US Treasuries in view of the current volatility in the equities market and hedge against the ongoing inflation. Interest rates given by the bank is still low at slightly above 1 percent for fixed deposits despite the increasing Singapore Interbank Borrowing Rate (SIBOR).