beyond the budget: issues to contemplate in a ‘new- nlii ......singapore hdb bto singapore hdb...

Beyond the Budget:Issues to Contemplate In A ‘New-N li i ’ W ldNormalizing’ World

UOB Economic-Treasury Research

Disclaimer

This presentation was prepared for informational purposes only and shall not be copied or

y

February 2014

This presentation was prepared for informational purposes only and shall not be copied, orrelied upon by any other person for whatever purpose. The information provided herein isbased on publicly available information. Although believed to be reliable, UOB Group makesno representation as to the accuracy or completeness. This presentation must be viewed inconjunction with the oral presentation provided by UOB and/or its officially appointeddistributors/agents. Nothing in this presentation constitutes accounting, legal, regulatory, taxor other advice. The reader(s) of this document should consult his/their own professionaladvisors about the issues discussed herein This presentation is not intended as an offer or

Produced by UOB Economic-Treasury ResearchFebruary 2014 1

advisors about the issues discussed herein. This presentation is not intended as an offer orsolicitation with respect to the purchase or sale of any investment product and nothing hereinshould be construed as a recommendation to transact in any investment product. To invest,please refer to the prospectus (where applicable) for details.

US: Tapering Finally Here1 US: Tapering Finally Here1

Asia: Coping With Tapering Effect 2

3 Consumer Leverage

China: Shadow Banking & Local Government Debt4


A Better Global Economy in 2014 – US Leading The Way

US

Dec 2013 PMI showed better DM performance but latest Jan 2014 PMI is a concern

Taiwan

Europe

Japan

Korea

Indonesia

Hong Kong

Taiwan

China

India

Korea

42.0 44.0 46.0 48.0 50.0 52.0 54.0 56.0 58.0

Singapore

Jan'13 PMI Dec'13 PMI


Source: HSBC-Markit, Bloomberg

When Will US Short Interest Rates Rise?


Expecting Rate Hike Cycle To Start in 1Q 2015, But Depends On How Fed’s Forward Guidance Evolve Under Janet Yellen

Market-Implied Interest Rate Pricing Vs Historical Cycles

S IMF WEO O t 2013


Source: IMF WEO Oct 2013

It Is Nearly 6 Years Since The 2008 US Jobs Downturn Started, & 2014 Looks Like The Year US Overcomes the Jobs Loss

15lions

)

US Non-Farm Payrolls Cumulative Comparisons

2008 2001 1990

1975 – 19 months

1981 26 th

10

ativ

e C

hang

e (M

il 1981 1975 1981 – 26 months

1990 – 33 months

0

5

m P

ayro

lls C

umul

a

2001 – 49 months

2008 – 71 months and still counting!

-5

US

Tot

al N

on-F

arm counting!

The next downturn – >100 months? (i.e. >8years)

-100 6 12 18 24 30 36 42 48 54 60 66

U

Months from Start of Negative Payrolls

( y )

The time required to "breakeven" for the US jobs market to recover is getting longer and longer


Source: CEIC, UOB Treasury Research

is getting longer and longer

US: Tapering Finally Here1 US: Tapering Finally Here

Asia: Coping With Tapering Effect

1

2

3 Consumer Leverage



Concerns on interest rates led to the weakening of Asian currencies

Asian currencies’ performance against USD From 1 Jan 2013 To Date

4.33 2 2 8

5

10

%1 Jan 2013 to 8 May 2013

1 Jan 2013 to 14 Feb 2014

3.21.5 1.5 0.7 0.5

‐0.1 ‐0.5 ‐1.4 ‐2.0

2.8

‐0.1

‐3.5 ‐4.2

0.2

‐5

0

‐12.4

‐6.0‐7.9

‐11.8

‐8.5

‐14.8‐15

‐10

‐17.7

14.8

‐20THB MYR INR CNY IDR PHP HKD SGD TWD KRW JPY

S Bl b (D il D t )


Source: Bloomberg (Daily Data)

Asia in Better External Positions to Manage Liquidity Outflow

Asian Foreign Reserves

33124,000

US$bn

1193

403 327 317 262 259 171 135 113 84145 203 90 49 90 27 75 28 25 24 110

1,000

2,000

3,0002012 1998

0China Japan Taiwan Korea Hong Kong India Singapore Thailand Malaysia Indonesia Philiippines

Asian Foreign Reserves As % of GDP

120.693.8 85.188.3

80100120140% of GDP

2012 1998

46.8 44.5 40.3 33.6 28.3 20.0 14.4 12.8

52.932.8

25.4 34.314.2 15.0 13.6 5.2 6.3

24.7

‐20406080

Hong Kong Singapore Taiwan Thailand Malaysia China Philiippines Korea Japan India Indonesia


Source: IMF, UOB Economic-Treasury Research

1 US: Tapering Finally Here



3 Consumer Leverage


5 Currency & Interest Rate Trends


Streamlining of Bank Capital Components


Streamlining of Bank Capital Components

Basel II Basel III

Tier 3 Capital1

Min 5-yr

Lower Tier 2 Capital

ore

than

Tie

r 1C

apita

l

Max

50%

T1

subordinated debt, no incentive to redeem, coupon deferral abilityNo maturity, fully discretionary non-cum

Tier 2 Capital

Additi lUpper Tier 2

Capital

Hybrid / 8

Not

mo

5% T

1M discretionary non-cum

dividends, no incentives to redeem, loss absorption on going concern basis

Additional Tier 1 Capital

yInnovative Tier 1

CapitalNon-innovative

Capital8%

RW

A

otal

Cap

ital

1M

ax 1

Ordinary equity plus retained earnings and other disclosed reserves, capped

t i it

Common Equity Capital

Common Equity CapitalM

in 5

0% T

o

Min

50%

Tie

r 1 amount on minority interests, apply regulatory deductions against it

p

(net of deductions)


M

Household Debt Rose Quicker Than Income Levels For Some Countries

Household Debt vs GDP per capita

90

110Household Debt (% of GDP)

Thailand Malaysia Spain

UK

USUSUK

Spain

50

70

Singapore

Hong KongHong Kong

Thailand

Malaysia Singapore

Spain

10

30

2012

2007Indonesia

China

Indonesia

China

-10

10

0 10,000 20,000 30,000 40,000 50,000 60,000

S IMF E it UOB E i T R h E ti t

Nominal GDP per capita (US$) Indonesia

Note: With the exception of Singapore, Malaysia, and Thailand, the data for other countries are from respective household loans.


Source: IMF, Euromonitor, UOB Economic-Treasury Research Estimates

Unlike The West, Asia Has Higher Savings to Cushion Debt

Gross Savings vs GDP per capita

40

45

50Singapore

China

SingaporeChina

Gross Savings/Nominal GDP

25

30

35

HKMalaysiaThailand

Indonesia

MalaysiaHK

ThailandIndonesia

5

10

15

20

US

Spain

UK

US

IndonesiaSpain

UK

0

5

0 10,000 20,000 30,000 40,000 50,000 60,000

2005 2012

S IMF UOB E i T R h E ti t Nominal GDP per capita (US$)


Source: IMF, UOB Economic-Treasury Research Estimates Nominal GDP per capita (US$)

Available Residential Properties

Type of PropertyNumber Per Cent

2000 2005 2010 2012 2000 2005 2010 2012All Types (Private) 193,028 229,356 258,243 277,620 19.3 20.8 21.3 22.0

Detached Houses 10,004 9,894 10,350 10,567 1.0 0.9 0.9 0.8

Semi-Detached Houses 20,139 20,785 21,185 21,370 2.0 1.9 1.7 1.7

Terrace Houses 35,884 37,267 38,208 38,451 3.6 3.4 3.2 3.0, , , ,

Apartments 56,429 60,431 66,638 71,256 5.6 5.5 5.5 5.6

Condominium Units 70,572 100,979 121,862 135,976 7.0 9.2 10.0 10.8

Executive Condominium 6,788* 9,527 10,430 10,430 0.7 0.9 0.9 0.8

HDB 802,600 864,600 943,900 974,300^ 80.1 78.4 77.8 77.2^HDB 802,600 864,600 943,900 974,300 80.1 78.4 77.8 77.2

Total 1,002,416 1,103,483 1,212,573 1,262,350 100 100 100 100

Source: Singapore Department of Statistics, UOB Economic-Treasury Research’s Estimate

* Data as of 2001^ UOB Economic-Treasury Research’s Estimatey


Demand & Supply of HDB Flats

HDB’s Supply vs Number of New Households

Demand > SupplyDemand > Supply

Source: Singapore Department of Statistics, CEIC, HDB, UOB Economic-Treasury Research’s Estimate* B d ti 80% f i l ill h HDB fl t

Produced by UOB Economic-Treasury ResearchJanuary 2014 16

* Based on assumption 80% of new marriage couples will purchase HDB flats

HDB Upgraders Sitting On Significant Gains

Mature Town/Estate Non-Mature Town/Estate

550,000

600,000

375 000

400,000

425,000

450,000

4-Room resale prices in Whampoa has risen by

Dec 2012: $561,500Mar 2013: $432,000

4-Room resale prices in Jurong West has risen b 132% i 2003

450,000

500,000

300,000

325,000

350,000

375,000Whampoa has risen by 116% since 2003

by 132% since 2003

300 000

350,000

400,000

225,000

250,000

275,000

300,000

BTO Launch Jan 2013Whampoa Dew4-Room FlatPrice: $385,000

BTO Launch May 2013Spring Haven4-Room Flat

250,000

300,000

Mar-03 Nov-04 Jul-06 Mar-08 Nov-09 Jul-11 Mar-13175,000

200,000

Mar-03 Nov-04 Jul-06 Mar-08 Nov-09 Jul-11 Mar-13

4 Room FlatPrice: $260,000


Whampoa 4-Room Flat Resale Price Jurong West 4-Room Flat Resale Price

Source: CEIC, HDB, UOB Economic-Treasury Research

Affordability Comparison (2012)Rule-of-Thumb for affordability in global city-states is 4x for overall system, and 7-8x for private residential

Description Singapore HDB BTO

Singapore HDB Resale

Singapore Condominium

Hong KongClass B**

Malaysia KL Condominium

Price per sqm S$3,583 S$5,453 S$11,976 HK$99,079 RM5,120

Average House Size (sqm) 90* 90* 110 56 120

Assumed House Cost S$322,500 S$490,774 S$1,317,360 HK$5,548,424 RM614,386

Average Monthly Household Income S$6,712*** S$9,515*** S$14,137*** HK$40,600 RM8,000

House Price vs Income Ratio 4.0 4.3 7.8 11.4 6.4Ratio

Description ChinaNational

ChinaBeijing

ChinaTianjin

ChinaShanghai

Taiwan Taipei City

Price per sqm RMB5,430 RMB16,553 RMB8,010 RMB13,870 NT$93,000

Average House Size (sqm) 90 90 90 90 124Average House Size (sqm) 90 90 90 90 124

Assumed House Cost RMB488,700 RMB1,489,770 RMB720,900 RMB1,248,300 NT$11,532,000

Average Monthly Household Income RMB5,476 RMB7,253 RMB5,491 RMB7,459 NT$73,360

House Price vs Income 7 4 17 1 10 9 13 9 13 1Ratio 7.4 17.1 10.9 13.9 13.1

Source: Singapore Department of Statistics, UOB Economic-Treasury Research

Assume 2 working adults in a household where household income data is not available.*Ave 4-room HDB

**Ave private residences in HK, Kowloon and New Territories


p ,***Singapore -- Based on national median income, average national income and median resident household income for those living in condos and pte flats/houses respectively

Average & Median Income Of Households

Average & Median Monthly Household Income From Work

YMedian Household Income ($) Average Household Income ($)

YearResident Households Employed Households Resident Households Employed Households

2000 3,638 4,000 4,988 5,456

2005 3,860 4,345 5,447 6,052

2010 5,000 5,704 7,214 8,0580 0 5,000 5, 0 , 8,058

2012 6,000 6,712 8,637 9,515

Average Monthly Household Income From Work Among Employed Households By Deciles

Deciles 2006 ($) 2008 ($) 2010 ($) 2012 ($)( ) ( ) ( ) ( )

Total 6,280 7,752 8,058 9,515

51-60th 5,477 6,753 7,090 8,196

61-70th 6,535 8,107 8,450 9,806

71-80th 8,046 9,849 10,142 11,973

81-90th 10,203 12,916 12,887 15,038

91-100th 18,170 22,797 23,345 29,012

Source: Singapore Department of Statistics, UOB Economic-Treasury Research


Source: Singapore Department of Statistics, UOB Economic Treasury Research

Demand In Singapore Likely To Remain Firm

AssumptionsAssumptions

Affordability Ratio Remains Low Due To Low Interest Rates & Income Growth

1000

1100

45

50

AssumptionsUnit Size: 1,200 sq ftPrice: $1,120 psfUnit Cost: $1,344,000Interest Rate: 1.50%Household Income: $14,137/monthPeriod: 25 years repaymentD bt S i i 24 3%

AssumptionsUnit Size: 1,450 sq ftPrice: $929 psfUnit Cost: $1,347,000Interest Rate: 5.60%Household Income: $8,340/month

800

900

35

40

Debt Servicing: 24.3%Period: 25 years repaymentDebt Servicing: 47.8%

5.00%

6.00%

600

700

25

30

4-Quarter Rolling Average

3.00%

500Mar-95 Mar-97 Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13

20

Median Price of Condominium ($psf) Affordablity: Mortgage Payment as % of Monthly Income (RHS)

S URA CEIC Si St ti ti UOB E i T R h E ti t


Source: URA, CEIC, Singapore Statistics, UOB Economic-Treasury Research Estimates




Consumer Leverage3

4 China: Shadow Banking & Local Government Debt


Shadow Banking: What Do We Know?

A typicalA typical “shadow bank” transaction flow e.g. ICBC distributing China Credit Trust products...

S “Q i bl L di i Chi ” NYT 1 J l 2013


Source: “Questionable Lending in China”, NYT 1 July 2013 http://www.nytimes.com/interactive/2013/07/02/business/Questionable-Lending-in-China.html?ref=global

Growing Credit Intermediation by Non-Banks• Banking sector still the primary provider of credit, accounting for 55% of

“net new financing” in 2013.• However, share of fresh credit from non-bank channels (“shadow

banking”) has increased since 2010.g )

Produced by UOB Economic-Treasury ResearchFebruary 2014 23Source: UOB IR, PBOC

Source: UOB IR, PBOC

Estimated Size of China Shadow Banking Varies• Some divergence in analysts’ estimates, due to different interpretation

d d bl ti hi hli ht i diand some double-counting – highlights issues surrounding transparency (quite common for emerging markets).

• But all in broad agreement that China’s shadow banking is sizeable, i CNY35t CNY50t t d 2013 (62% 86% f GDP)ranging CNY35trn–CNY50trn at end-2013 (62%–86% of GDP).


Source: UOB IR compilation; Note: China’s nominal GDP for 2013 was CNY55trn (USD9.3trn).

Source: UOB IR, Various; Note: China’s nominal GDP for 2013 was CNY55trn (USD9.3trn).

Shadow Banking: What Do We Know?

S ( ) ( )As at End-Sept 2013 (RMB bn)

Finance Company

As at End 2010 (RMB bn)

FinancialLeasing

Trust

Guarantor

Small Lender

Finance Company

Financial Leasing Underground

10,1312,500

Trust

WMPSmall

Lender

FinanceCompany

Leasing

Underground

3,040

2 800

2,500

WMPBank

Security Firms 9,920

7,5716,540

B k

GuarantorSecurity

Firms

2.800

3,1703,827

WMPEntrusted Loans

BankAcceptance Entrusted Loans

BankAcceptance

S UOB IR JPM N t Oth i iti fi h t & d d l di


Source: UOB IR, JPM Note: Others comprise securities firms, pawn shops, guarantors &underground lending.

China’s State Council “Document 107” (107号文）

Shadow Banking: What Do We Know? China s State Council Document 107 ( 07号文）

• Media reports* noted document’s release on regulation of shadow banking

• This is the highest profile guidelines on shadow banking ...

M l t d l ti lik l t b l d l t• More related regulations are likely to be released later ...

• Affirmed shadow banking’s positive contribution but concerns about insufficient/ineffective regulation...

• Concerns about banks’ off-balance sheet activities and trust companies’ “credit type” business

• Not full blown crackdown, but to improve regulations, transparency of the sector

• Document 107 did not provide size of “shadow banking”

• PBoC will be responsible for collating statistics on the sector, various social financing

• Financial Stability Board estimates at 26% of GDP in 2010 (or ~RMB13.5tn)

• Based on total social financing data, we estimate the size at RMB34tn as of Nov 2013, +27% from RMB27tn at end-2012.


*e.g. “中国影子银行监管新规雷霆出台” 6 Jan 2014, Reuters http://link.reuters.com/qus75v

All in: What Do We Know?


Hypothetical Banking Recap Seems Manageable• Recapitalisation bill for China banking sector would mean additional

d bt f th t i f 20% 30% f GDPdebt for the government, ranging from 20%–30% of GDP.• Assumptions:

– Increase in problematic assets to emerge over a period of time.– Impairment to emanate from various on-balance-sheet assets & shadow exposures.– Zero recovery rate. Case Study - China banking crisis (1990s)

• At the end of 1998, China’s 4 large state-owned commercial banks, accounting for 68% f b ki t t

Banking-sector recapitalisation bill68% of banking system assets, were deemed insolvent. Banking system’s NPL ratio was estimated at 20% in 2002.

• The government undertook significant measures to restructure and bail out the

g pProblematic exposures (% of assets + shadow)

(% of GDP) 8% 10% 12% 14% 16%1 year 21 28 34 41 47

2 years 15 22 29 35 42erio

d

banks. By end of 2005, commercial banks’ NPL ratio dropped to below 10%. The cost of a potential clean up of the banking system was estimated to have reached CNY4.8trn (47% of 2002 GDP).

2 years 15 22 29 35 42

3 years 10 16 23 30 36

4 years 4 11 17 24 31

Memo: At end-June 2013 Recap Target:

Cris

is p

e

• In this case, the government has demonstrated its willingness and capability to funnel massive fiscal reserves to avert a crisis. If history is any guide, the country will not slip into a full-blown crisis as long as the government is willing to foot the bill

Tier 1 CAR: 9.9% Tier 1 CAR: 10.0%PPOP/Assets: 2.2%

Banking assets: CNY144.2trn% of shadow assets: 30%

RWAs CNY71.5trnGDP: CNY56.9trn

Produced by UOB Economic-Treasury ResearchFebruary 2014 28Source: UOB IR, Fitch

government is willing to foot the bill.

Source: IMFSource: UOB IR est, CBRC

Disclaimers

This presentation was prepared for informational purposes only and shall not be copied, or relied upon by any other person for whatever purpose. Thisbe copied, or relied upon by any other person for whatever purpose. This presentation must be viewed in conjunction with the oral presentation provided by UOB and/or its officially appointed distributors/agents. Nothing in this presentation constitutes accounting, legal, regulatory, tax or other advice. The reader(s) of this document should consult his/their own professional advisors about the issues discussed herein. This presentation is not intended as an offer or solicitation with respect to the purchase or sale of any investment product and nothing herein should be construed as a recommendation toproduct and nothing herein should be construed as a recommendation to transact in any investment product. To invest, please refer to the prospectus (where applicable) for details.


beyond the budget: issues to contemplate in a ‘new- nlii ......singapore hdb bto singapore hdb...

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