At the time of writing this report, I was struck by the front page news on 6 September 2008 about the ‘bloodletting in Asia bourses’. A particular statement sent chills to my spinal cord and it reads: “The New York Times reported that China’s central bank was looking to shore up its capital base because of its US$1 trillion (S$1.4 trillion) exposure to US treasury bonds and debts issued by troubled mortgage giants Fannie Mae and Freddie Mac.” My question is: if China spent US$1 trillion, how much did Singapore government spend on the same thing?”

There are other telltale signs that point to a highly precarious situation. One is the upping of stake in Merrill Lynch by Singapore’s Temasek Holdings.

It was reported on 28 August that Temasek Holdings has received the approval from the US Federal Trade Commission to increase its stake in the 94-year old embattled banking giant, Merrill Lynch. The fact that Temasek is still able to buy into the third largest bank in the US means that it is still bleeding and needs urgent capital infusion. Whether what the Singapore sovereign wealth fund did is right or wrong, the current crisis is fast reaching an epic proportion.

The other telltale sign is the downgrading of world’s growth forecast by the International Monetary Fund (IMF) for this year to 3.9%, down from 4.1%. The IMF has further warned that the world economy will degrade further in the second half of this year, being particularly pessimistic about the EU zone economies.

The IMF has cut its forecast for euro zone growth this year to 1.4% from the 1.7% predicted and estimated next year's growth at 0.9%, down from 1.2%.

So, let us all keep our fingers crossed while we await the event unfold.

Another US bank collapsed in the midst of the credit crisis and more US households are falling behind on mortgage repayments. Locally in Singapore, more people fear losing their jobs and the stock market blood–letting has just begun. Property developers are getting the double whammy of increased unsold inventories and the embattled company share prices. Compassionately, the government has rolled out more measures to ensure that the truly needy have a place to live. All the indicators are pointing towards more uncertainties in the real estate market in the near term.

Despite the US$100 billion in tax rebates given by the US government as part of the economic rescue plan, Americans are not spending like they should. US retail sales have been dipping this year. Reportedly, about 80% of the rescue package has been saved for tougher times ahead. The implications are clear – when the US is saving (when it should be spending), the exporting economies all around the world will suffer, including Singapore.

A panel of 50 US economists polled in early August 2008 predicted that the sluggish US economy will push the jobless rate to 6% in December and to 6.1% by the end of next year.

In August, the US continued to be beset by more bad news including the following:

Sub-prime losses incurred by banks worldwide have crossed the US$500 billion mark with the announcement by UBS AG of a US$6 billion in write-downs.

With that, losses incurred by banks have reached the half-way mark of the US$1 trillion. It is now anybody’s guess as to whether the losses could reach US$2 trillion as more revelations are being made by banks affected by the crisis.

Banks and brokers have raised US$353 billion of capital to cope with the massive write-downs but the current economic slum might frustrate them further.

Actually, what was hard to believe was the fact that sub-prime loans only made up of less than 10% in the US. Right now, the percentage of other mortgages in arrears, such as alternative-A mortgages has quadrupled to 12% in April from a year earlier. Unlike sub-prime mortgage loans, Alt-A loans refers to loans with high loan-to-value ratio.

The vast majority of housing loans belonged to prime loans which make up of about 50% of the mortgages. However, delinquencies among prime loans, which account for most of the US$12 trillion market, doubled to 2.7% during the same period. In fact, it will be a scarier news if prime mortgages are also in trouble.

On 29 August 2008, Georgia regulators closed down an Alpharetta-based Integrity Bank, which has become the tenth US bank to be ravaged by the on-going credit crisis and had to be taken over by another bank, i.e. Regions Bank of Birmingham, Alabama.

The Federal Deposit Insurance Corp (FDIC) estimated the impact of Integrity on the US$45.2 billion insurance fund to be between US$250 million and US$350 million.

Integrity Bank ran into trouble in an all-too-familiar circumstance. It pursued aggressive loan growth in the metropolitan Atlanta real estate market and was badly hit by falling real estate prices. The Bank’s inadequate risk management and poor lending practices led to significant loan losses and erosion of its capital.

So far, a total of 117 banks are on the FDIC’s watch list. US banking regulators are prepared for more banks to collapse in this year and next as there are no signs to suggest that the current credit crisis may be near its end.

Singapore’s economy was said to be in a ‘stretched-U’ slowdown, which means slow growth and no quick rebound in sight. Unlike a V-shape slowdown where the economy fell sharply and rebound quickly, a U-shape slowdown is protracted, which means that the current economic sluggishness will continue into 2009.

Singapore is at the verge of a technical recession as its GDP has fallen 6% in adjusted annualized terms in the second quarter when compared with the previous quarter. Another negative GDP in the third quarter will mean the island city is in a technical recession.

The MTI is not ruling out such a scenario as an unexpected turn in any of the industry or sector can bring about another quarter of negative growth. As it is, the negative growth in the second quarter was a result of a sharp fall in biomedical manufacturing as the pharmaceutical companies here switched to products with lower value in the quarter. Manufacturing has slumped 21.9% in July 2008 compared to a year ago.

Exactly when Singapore will get out of the bind depends on the state of global credit and asset markets in the next one to one-and-a-half years. The most decisive factor is how the United States will pick itself up from the current financial turmoil.

• [A3.1] Market capitalisation fell to 20-month low in Singapore

The present economic uncertainties have led to Singapore stocks shedding $237.8 billion or 28% of market capitalisation from its peak of $847.5 billion in October 2007.

The fall in market values in August 2008 from a month ago coincided with the second quarter (Q2) reporting season. Some 30% of the companies disappointed in their earnings and this is a large jump from the 14% in Q1.

According to analysts from the Citigroup, the current bear market is probably only two-thirds through and may drag on until early 2009. It added that the present bear market may last as long as the 2000/01 dot.com bust which was 91 weeks, or the 1997/1998 Asian financial crisis, which lasted 82 weeks.

• [A3.2] Jobless rates in Singapore set to rise

The latest data from the Singapore Manpower Ministry shows that unemployment rate increased for two straight quarters. The rate stands at 2.3% in Q2 2008, up from 1.7% in Q1 2008.

It seems that only the construction sector is still bringing in more jobs. In fact, most of the 70,600 jobs created in Q2 have been contributed by the construction sector. Even that, the job growth in Q2 was lower than the 73,200 gained in Q1.

• [A3.3] HDB rental flats to go to the truly needy

In a sign to show that the Singapore government is really concerned about probable massive layoffs in the near term, it has reiterated its resolve to ensure that rental flats are allocated to the truly needy.

The government is adamant that they will make the necessary checks to ensure that only the poor and less-fortunate will be granted flats to rent.

• [A3.4] Major property developers reporting smaller profits in Q2

The current slowdown in the property market is reflected in the lower earnings of major developers, e.g. CapitaLand, CDL, Keppel Land etc.

CapitaLand’s Q2 profit fell to $515.2 million which is a tumbling of 43.5%. City Developments’ Q2 net profit dropped to $165.2 million, which is a 15.1% slide; while Keppel Land’s Q2 profit was $52.7 million, a worrying 16.4% drop.

Likewise, Wing Tai's fourth-quarter net profit fell 60% to $96.3 million, dragging down full-year net profit 40% to $229.4 million. The listed firm found its revenue more than halved in the fourth quarter to $107.3 million, and in the full year, to $428.2 million. It is not going to launch its keenly-watched Ardmore Park and Anderson 18 anytime soon.

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