Sunday 21 September 2008

Chua Hak Bin - Citigroup


‘We’ve seen the fallout from the credit crunch in quite dramatic fashion and it is by no means over.
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Guanyu said...

CHUA HAK BIN

Recession on the cards for Singapore

Dr Chua Hak Bin, director of Singapore research, Citigroup

‘We’ve seen the fallout from the credit crunch in quite dramatic fashion and it is by no means over.

The crisis really started to hit home after it took down the larger brokers. With markets questioning whether the broker-dealer model is essentially broken, it could be self-fulfilling. A confidence crisis could lead to another shock and that itself could make the model slowly unworkable.

The effects of the crisis are beginning to filter down to the man in the street here. With the sell-down of the market, there is a bit of a contagion effect as everyone is asking, ‘Who’s next?’

Clearly a fear factor is going into high gear because if giants like Freddie Mac, Fannie Mae and Lehman Brothers can go broke, and add to that AIG, the biggest insurance company in the world, then it looks like no name can be ruled out altogether.

The outlook for Singapore is already deteriorating, and we think a recession is on the cards. The question is whether the average person will have the confidence to invest in long-term commitments given the uncertainty in the system.

There is a very real danger of a breakdown in trust in the financial system. I hope it doesn’t come to that and it will be important for the Monetary Authority of Singapore (MAS) to do something about it.

A culmination of the global credit crunch and the hike in commodity prices in recent months had made policy decisions a lot harder. But with the oil shock dissipating somewhat, policymakers now have more response options.

I think the Government and the MAS will have to respond as in previous recessions. Part of the adjustment may come next month when the MAS will probably loosen exchange rate policy and shift to a neutral bias, or even re-centre the exchange rate band. The Government may also have to come up with a Budget that will ease the pressure on the lower-income segment.

My guess is that this contraction will be over by the early part of next year. Looking at previous downturns and bear market cycles, the average bear market lasted about 21 weeks. We are currently in week 49 of the sub-prime crisis. So it is possible to imagine this bear in the equity markets will end by the second quarter of next year.’