Complete Property Market Updates of Singapore

February 28, 2008

Aussie property still looking up?

Filed under: Australia, Developer News, Financing, Singapore Economy, USA, World Property — Propertymarketupdates @ 3:16 pm

THE US sub-prime mortgage problem may have put a dampener on property stocks worldwide, including Singapore. But there appears to be at least one bright spot on the planet, if ANZ Bank is to be believed.

Said the bank in a recent report on its outlook for the Australian property market: ‘Property returns have accelerated, underpinned by buoyant economic growth and tightening market fundamentals. Despite a meltdown in US sub-prime mortgages and a crisis in global credit markets, the economic outlook remains supportive.’

While it warns that rising interest rates and a ‘marked jump in risk aversion’ have raised the risks facing the property sector, it still thinks that by 2010 there will be a serious housing shortage.

‘A dramatic tightening of the housing market will force already soaring house prices and rents sharply higher. By 2010, we project a record housing shortage of nearly 200,000 homes which risks becoming an intractable imbalance as renters and first-home buyers become collateral damage in the Reserve Bank’s ongoing war on inflation,’ it said.

It also noted that in risk-adjusted terms, residential property has delivered ‘vastly superior’ returns in comparison to all other broad asset classes.

These will be sweet words to Singapore-linked Australian developers like AV Jennings, which is 42 per cent owned by SC Global, and Australand Property Group, the Australian property arm of local property giant CapitaLand. Others who will be heartened by such talk include smaller players like shipping tycoon CK Ow’s Stamford Land and Chua Thian Poh’s Ho Bee Investments, which is now trying to make inroads Down Under.

The ANZ report also pointed out that total returns over the year to last September were 20 per cent in offices, 15.5 per cent in retail, 13 per cent in industrial and 14.3 per cent in residential property.

‘Yields have continued to firm and tightening availability is forcing both rents and capital values higher. Solid investment returns have underpinned a rebound in construction activity which has jumped to record levels, bolstered by a remarkable 24 per cent increase in engineering construction, a 7.8 per cent lift in non-residential building and a surprise 4.8 per cent rise in residential activity,’ said its analyst Paul Braddick.

He thinks that the property sector will be underpinned by Australia’s buoyant economy, which in turn now depends more on Asia’s growth than America’s. ‘Asian growth has effectively decoupled from the US and the outlook for China in particular remains very strong,’ Mr Braddick says.

While some households are being adversely impacted by rising interest rates, Mr Braddick claims that rising debt servicing costs have been more than offset by solid income gains.

He said houses were no different from bananas in that when there is a shortage, prices are likely to rise. ‘However, unlike bananas, the necessary rebound in housing supply will be far more difficult to achieve and house prices are therefore unlikely to fall.’

According to ANZ, the tightness is being felt in all sectors of the property market and across the country.

Despite some recent developments, including a contract to build 600 homes in Auckland worth some NZ$300 million (S$337 million), AV Jennings shares have been near a 52-week low at around A$0.90 apiece. Australand’s shares have been thinly traded and languish at around A$2.30. Perhaps the ANZ report should bring some cheer to their shareholders.

Source : Business Times - 5 Feb 2008

Firms post strong gains so far, but all eyes are on bank results

Filed under: Financing, Singapore Economy, USA — Propertymarketupdates @ 2:03 pm

Keppel Corp leads at half-time with record full-year earnings of $1.13b

THE stock market may have had a torrid time of late, but the financial reporting season has so far brought little but big smiles for investors.

With the reporting season for companies with Dec 31 year-ends now at the halfway mark, Singapore has so far registered another sterling year of profits.

Among the 32 Singapore- listed early birds that had reported by 5pm last Friday, total profits were $4.07 billion, up a dazzling 68.3 per cent on the $2.42 billion for 2006.

Of those that reported full- year results, 31 were in the black. And 22 of them posted higher earnings.

Racking up the largest profit number, in absolute terms, was Keppel Corp. The company’s earnings for the 12 months ended Dec 31 last year rose 50.6 per cent to $1.13 billion, thanks mainly to booming business at its oil rig and shipbuilding unit.

Keppel’s record gain calmed jittery investors concerned over whether it might face foreign-exchange losses similar to those that rocked other offshore and marine companies like SembCorp Marine (SembMarine) last year.

SembMarine, now mired in a lawsuit with BNP Paribas over forex losses, will report full-year results on Feb 22.

The sharp spikes in crude oil prices last year also helped propel the full-year net earnings of Keppel associate, Singapore Petroleum Company, to a record of $508.3 million.

On the property front, many real estate investment trusts have unveiled strong full-year profit scorecards.

One of the top performers in that category is CapitaMall Trust, whose net income available for distribution for last year came to $211.2 million, up 25 per cent from the $169.4 million posted in the same period a year earlier.

One of the poorest performers was Evergro Properties - a member of the Keppel group - which reported a 97.4 per cent plunge in full-year net profit for last year on the back of lower divestment gains.

Several big-cap counters - including StarHub, ComfortDelGro, City Developments, Great Eastern Holdings and SembCorp Industries - are due to report their results this month.

However, it is the traditional top earners - DBS Group Holdings, United Overseas Bank (UOB) and OCBC Bank - that are likely to come under the most scrutiny, with analysts not ruling out more write-downs on assets linked to United States sub-prime mortgages.

‘What is currently of utmost concern are the results of the local banks, as great uncertainty and anxiety rule in the wake of the big casualties surfacing from the sub-prime fiasco affecting the top banks and brokerages in the world,’ said Mr Najeeb Jarhom, the senior vice-president of research at AmFraser Securities.

Another concern is how the net interest margins of local banks will be affected by the falling Singapore interbank offered rate (Sibor) - the rate at which banks lend to one another.

‘A falling Sibor environment is likely to post a threat to the net interest margins of Singapore banks, as all three of them are net interbank lenders,’ said Kim Eng analyst Pauline Lee.

Economists expect the Sibor to go even lower by midyear, due partly to the US cutting its key interest rate.

Phillip Securities Research investment analyst Brandon Ng has declared OCBC his top pick. OCBC is a conservative bank and made the largest provisions in the last quarter to cover the fallout from risky debt, compared with UOB and DBS, he said.

Deutsche Bank analyst Michael Chang feels Singapore banks offer cheap valuations for their rapidly improving fundamentals.

‘We recommend an overweight position,’ he noted.

Source : Straits Times - 4 Feb 2008

February 27, 2008

Even fortresses like CapitaLand can show signs of stress

Filed under: Developer News, Financing, USA — Propertymarketupdates @ 11:44 pm

INVESTORS scurry for cover in the strongest fortresses they can find when a storm breaks - such as the ferocious one currently raging in global financial markets.

But even the strongest citadel will show signs of wear and tear amid the panic that has been unleashed in recent weeks - just look at CapitaLand.

With a market value of $16 billion, the real estate giant must surely qualify as an ideal ‘fortress’ for property bulls to take cover in until calm is restored on global bourses.

And while the counter managed to stay relatively unscathed as the shares of other developers crumbled under the strain of the United States sub-prime mess and a vicious selldown, its strong walls showed signs of stress last week.

In the big frenzy that started on Jan 21, a Monday, when regional bourses were hit by widespread panic-selling, CapitaLand plunged to $5.10 at one point - its lowest levels in 19 months.

However, the relief rally sparked by the US Federal Reserve’s emergency interest rate cut of 0.75 percentage point last week enabled it to recover to a high of $6.55 on Tuesday.

But investors are now wondering if that is the best CapitaLand can manage in the near term. A further Fed cut of 0.5 percentage point on Wednesday failed to give CapitaLand a lift even though its bottom line should get a boost from the falling costs of funds.

Yesterday, the stock fell to a low of $5.58 before closing 10 cents lower at $5.80, as investors were spooked by news that it was raising $1.3 billion via a 10-year convertible bond issue.

This begs a question. Surely, in the current climate when the availability of credit is drying up globally, raising such a big sum should be a feather in CapitaLand’s cap.

The conversion price of $8.614 - which works out to a hefty 48.5 per cent premium over yesterday’s close - is not the same as giving away the family silver.

But some market observers believe the selldown could be due to fund managers switching out of CapitaLand into the bonds that pay a coupon rate of 3.125 per cent per annum.

Said a dealer: ‘In times like these, preservation of capital is king. If you believe that CapitaLand has more downside, you can cap your loss by selling the shares and buying the bonds. And since it is a convertible bond, you get to enjoy any upside if it subsequently rebounds above $8.60.’

So using the fortress analogy, fund managers are simply taking shelter in the strongest part of CapitaLand’s edifice, as storm clouds continue to gather and the global financial system encounters further stress from the sub-prime fallout.

Even the usually ebullient property analysts are not getting excited over developers’ prospects. Morgan Stanley analyst Melissa Bon noted in a report on Jan 25 that the attractive valuations for property counters may be an illusion.

Even though the sector is now trading at a 28 per cent discount to its net asset value, compared with a 15 per cent premium a year ago, she ’sees potential downside risks if there are further delays to residential launches’.

CLSA is also cautious, saying in a recent report that ‘2008 will see a year of more sustainable price growth though the pace of increase is likely to slow’.

Source : Straits Times - 2 Feb 2008

December 31, 2007

Money News

Filed under: Financing, Market Watch, Regulators, USA — Propertymarketupdates @ 11:44 pm

1 PROPERTY BOOM

THE property sector waited 10 long years for a proper recovery. This year, new all-time highs were set in so many categories, so often, that people lost count.

The year saw the sale of the most expensive apartment in Orchard Residences (both in absolute cost and per square foot terms), the priciest collective sale (Westwood Apartments in Orchard Boulevard) and the most expensive HDB flat and coffee shop (in Marine Parade and Jurong respectively).

The early boom in luxury properties filtered down to suburban condos and HDB flats. Latest figures show that nearly every single HDB flat sold these days goes at a price above market valuation.

The exuberance of the first six months has given way to a more cautious outlook since the Government stepped in to calibrate the market’s rise.

The removal of the deferred payment scheme, introduction of guidelines on transparency of transacted prices and the release of more land have all served to take the froth off what the Global Property Monitor has termed the world’s hottest property market in 2007.

Market watchers are already tipping 2008 to be a great year for mid-to-low priced homes, but the euphoria that marked most of 2007 will be hard to replicate for many years to come.

2 U.S. SUB-PRIME CRISIS

AT THE start of this year, no one really understood, or cared to understand, the obscure ’sub-prime’ mortgage market.

Now, the chiefs of some of the world’s largest banks - Citigroup, Merrill Lynch and UBS - have lost their jobs because of it.

And banks have been forced to write down a staggering US$50 billion (S$72.6 billion) in losses, with experts estimating another US$200 billion to come.

Economists have been fretting for some time now over when and how the next global financial crisis will occur, and signs of the current implosion emerged in the summer of this year.

Sub-prime lenders had been loaning billions of dollars at low rates to home buyers with dodgy credit histories in the United States and elsewhere.

Banks then repackaged these mortgages with sounder loans into complex securities called collateralised debt obligations (CDOs), selling them to other investors in the financial markets.

As property prices stopped rising and promotional low rates expired, these loans turned sour and CDOs backed by them became worthless.

No one knows how deep the troubles go, and experts warn that the world is only seeing the start of a full-fledged financial crisis.

3 SOVEREIGN WEATH FUNDS

GLOBAL consultancy McKinsey recently hailed them as one of the world’s new ‘power brokers’.

And indeed, the world’s sovereign wealth funds (SWFs) - investment companies and funds owned by governments - have in recent weeks been flexing their financial muscle on Wall Street.

Abu Dhabi Investment Company bought 4.9 per cent of Citigroup for US$7.5 billion and the China Investment Corporation has spent US$8 billion on sizeable stakes in Morgan Stanley and Blackstone Group.

The Government of Singapore Investment Corporation bought up to 9 per cent of UBS for S$14 billion and Temasek Holdings has invested up to US$5 billion in Merrill Lynch.

With Asian governments steadily running surpluses and chalking up reserves, and oil money pouring into Middle Eastern states, some estimate the total size of SWFs will reach US$12-15 trillion by the next decade.

This sort of power is making policymakers in the developed world nervous, and there have been calls for the World Bank and the International Monetary Fund to develop a set of guidelines for the world’s SWFs.

The outcome will be closely watched, not least by Singapore, which is home to two of the world’s ‘Super Seven’ SWFs and has been a prime beneficiary of free and open investment rules thus far.

4 FOREX LOSSES

IN A year that ought to have seen rig builder SembCorp Marine celebrate record high oil prices, the company hit the headlines for all the wrong reasons.

It shocked the corporate sector in October when it revealed that finance director Wee Sing Guan - a 33-year veteran of the company and described as ‘quiet and unassuming’ - was responsible for losses of $439 million following a series of disastrous foreign exchange trades.

The scandal underlined the dangers of companies dabbling in currency trading in a year that saw the US dollar tumble to record lows against major currencies like the euro.

SembCorp Marine was not alone. A week after its announcement, shipbuilder Labroy Marine said it had racked up $209 million in forex losses and was bought by Dubai Drydocks World for US$1.63 billion.

Source : Straits Times - 29 Dec 2007

US Nov new home sales plunge to 12-year low

Filed under: USA — Propertymarketupdates @ 11:41 pm

Sales of new homes in the US plunged last month to their lowest level in more than 12 years, a grim testament to the problems plaguing the housing sector.

The Commerce Department yesterday reported that new home sales tumbled by 9 per cent in November from October to a seasonally adjusted annual rate of 647,000. That was the worst showing since April 1995, when the pace of sales was 621,000.

The sales pace for November was much weaker than economists were expecting. They were predicting sales in the weakest sector of the economy to drop by around 1.8 per cent, to a pace of 715,000.

The median sales price of a new home dipped to US$239,100 in November. That is 0.4 per cent lower than a year ago.

The median price is where half sell for more and half for less.

By region, sales fell in all parts of the US, except for the West, where they rose.

New home sales dropped by 19.3 per cent in the Northeast. They plunged by 27.6 per cent in the Midwest and they fell by 6.4 per cent in the South. However, sales increased by 4 per cent in the West.

Over the last 12 months, new home sales nationwide have tumbled by 34.4 per cent, the biggest annual slide since early 1991, and stark evidence of the painful collapse in the once high-flying housing market.

That market has been suffering through a severe slump following five years of record-breaking activity from 2001 through 2005. Sales turned weak as did home prices. The boom-to-bust situation has increased dangers to the economy as a whole and has been especially hard on some homeowners.

Foreclosures have soared to record highs and probably will keep rising. A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the worth of their home. Other home buyers were clobbered as low introductory rates on their mortgages jumped to much higher rates which they could not afford.

With credit now harder to get to finance a home purchase, the problems in housing have grown worse. Unsold homes have piled up.

The problems are expected to persist well into next year. — AP

Source : Business Times - 29 Dec 2007

September 29, 2007

Defaults on sub-prime loans ’stabilising’

Filed under: USA — Propertymarketupdates @ 12:05 am

THE default rate for strife-hit United States sub-prime mortgages is stabilising, a US housing official said yesterday at a housing conference in Singapore.

Defaults on these loans, issued to homebuyers with low income or a poor credit history, triggered global shock waves recently and sparked intense scrutiny of Singapore banks’ exposure to them.

Assistant secretary of policy development and research at the US Housing and Urban Development Department, Dr Darlene Williams, indicated that she did not expect last week’s half-point US interest rate cut to affect the number of defaults significantly.

Speaking to reporters at the inaugural Asia-Pacific Housing Forum, she said: ‘The hope is that the Fed rate cut would send the signal that the government is concerned and willing to continue to analyse the situation so that the market can relax.’

‘We believe we still have a market that is correcting, but we don’t expect any drastic changes to the rate of defaults.’

Dr Williams said sub-prime loans form only a small percentage of the US mortgage market and only 20 per cent of such mortgages are at risk of default.

‘Our economic fundamentals are strong. The loan defaults are half of what they were in the 1980s and interest rates are low compared with the double-digit rates of 20 years ago,’ she said.

Sub-prime loans play a role in helping people own homes, she said. ‘Sub-prime mortgages democratise credit, so we don’t want to throw that option away.’

The three-day housing forum is organised by Habitat for Humanity and the Singapore Institute of Planners.

At the same event, Singapore National Development Minister Mah Bow Tan shared the Republic’s successful experience of housing its citizens at affordable prices.

Source : Straits Times - 25 Sep 2007

September 28, 2007

Sub-prime’s impact on S’pore ‘hard to gauge’

Filed under: Singapore Economy, USA — Propertymarketupdates @ 11:51 pm

MAS is monitoring the situation and stands ready to inject funds if needed, says Iswaran.

IT is ‘quite a difficult task’ at present to quantify how much the US sub-prime crisis will impact Singapore, Minister of State for Trade and Industry S Iswaran said in Parliament yesterday.

However, the risks have ‘increased’, and Singapore’s central bank is monitoring the situation and stands ready to inject funds if needed, he said.

Mr Iswaran also said that the government’s economic growth forecast for 2007 remains unchanged at 7-8 per cent, despite the recent global market turbulence.

‘The growth in the region and the diversity of our export markets will provide us with some buffer, but we are not immune to a slowdown in the major industrial economies,’ Mr Iswaran said. ‘At this stage, although the risks have increased, it is not clear that there has been a significant spillover into the real economy.’

Second Finance Minister Tharman Shanmugaratnam added that the Monetary Authority of Singapore (MAS) will inject liquidity into the market only if there is a ’systemic crunch’ - such as when normal borrowing and lending between the banks is not taking place. ‘This has not been the case so far,’ he said.

MAS is also working with the Singapore Exchange (SGX) to monitor its members and to ensure that there are sufficient resources in its clearing funds to meet outstanding obligations, Mr Iswaran said.

Separately, Minister for National Development Mah Bow Tan said that there is ‘no sign of a negative impact’ from the sub-prime crisis on the property market here.

‘The property market is driven by economic fundamentals and confidence,’ said Mr Mah. ‘Our economic growth is still healthy.’

The property market in Singapore is currently enjoying a boom. Home prices rose some 7.9 per cent in the second quarter of the year - the biggest quarter-on-quarter gain in about seven years.

All three ministers were responding to questions from their counterparts in Parliament about the impact of the US sub-prime crisis on Singapore.

Source : Business Times - 18 Sep 2007

Economy on track despite US sub-prime woes

Filed under: Property Trends, USA — Propertymarketupdates @ 11:48 pm

THE Singapore economy is still on track to meet the official 7 to 8 per cent growth forecast even as world financial markets grapple with a credit crunch sparked by a United States housing crisis.

Ministers told Parliament yesterday that financial and property markets here are still in good health and that there is plenty of cash in the system.

But they said the risk of the money market woes spilling over to the real economy has risen, adding that the central bank is ready to intervene if necessary.

‘It’s too early to assess how the sub-prime mortgage problem in the US housing market will affect credit and other financial markets,’ said Minister of State for Trade and Industry S. Iswaran. ‘At this stage, although the risks have increased, it’s not clear that there has been a significant spillover to the real economy.’

In recent weeks, rising numbers of defaults of US home loans to risky or sub-prime borrowers have triggered a tightening of liquidity in money markets.

Since global money markets are interconnected, this has caused a wider aversion to debt financing as investors prefer to hold on to cash in these uncertain times.

If this uncertainty drags on, borrowing costs may rise sufficiently to curtail investment and consumption, especially in the US and Europe.

For export-oriented Singapore, a slowdown in its two biggest export markets would inevitably take some wind out of the local economy, said Mr Iswaran.

Second Finance Minister Tharman Shanmugaratnam, who is also Education Minister, said financial institutions here have been prompt in disclosing their small exposure to US sub-prime mortgages.

He added that the benchmark interest rates at which banks lend money to each other are at pre-crisis levels. ‘That’s a good indication that the market has been stable and liquidity has been ample.’

Mr Tharman said Singapore’s central bank, the Monetary Authority of Singapore, has not had to ‘do anything extraordinary’. But it is ready to inject liquidity if there is a systemic shortage where ‘normal borrowing and lending between banks is not taking place’.

National Development Minister Mah Bow Tan said the local property market has so far been unaffected by the US sub-prime woes. ‘New developments are still unfolding every day.’

Source : Straits Times - 18 Sep 2007

September 18, 2007

Plunge in August auction sales partly due to US sub-prime woes

Filed under: USA — Propertymarketupdates @ 5:01 pm

SALES of properties on auction here plummeted last month, in one of the first
signs that the global credit crunch may be taking a toll on Singapore’s property
market.

Only $10.79 million of properties were sold under the hammer in the month, less
than one-fifth of what was fetched in each of June and July, said property firm
Colliers International, one of the biggest auctioneers here.

Since March, the value of properties sold via auction each month has ranged from
$33 million to $108 million. But this plunged last month, said Colliers, which
released a report on auction sales yesterday.

In previous years, August has traditionally been a slow month for property sales
due to the Hungry Ghost Festival.

But superstitious buyers were not the reason auction sales turned in an
exceptionally poor showing in this year’s hungry ghost month, which stretched
from Aug 13 to Monday.

Colliers said the nosedive in sales was mainly due to the recent stock market
volatility caused by United States sub-prime mortgage worries, new government
policies, and higher asking prices by sellers.

‘Given the good property market performance, many sellers have raised their
expectations and upped their asking prices, especially for properties with en
bloc potential,’ said Ms Grace Ng, Colliers’ auctioneer and deputy managing
director.

She added that these properties have also become less appealing, thanks to the
newly announced rules governing collective sales, which will make it more
difficult for developments to sell en bloc.

In addition, the ’stock market turmoil amid the US sub-prime woes’ has also
contributed to the ’slowdown in the market, as buyers take a cautious stand’, Ms
Ng said.

Only 10 properties were sold via auction in this year’s hungry ghost month, less
than one-tenth of the 131 that were put up for sale in the period.

The properties that were sold fetched $9.56 million in all - a tiny fraction of
the $133.86 million achieved in last year’s double hungry ghost month and ‘one
of the lowest seen in the past 10 years’, Colliers added.

Although the hungry ghost month typically sees fewer property sales due to
superstitious buyers and sellers, the firm said this is unlikely to be the
reason for the plunge in auction sales of property.

Indeed, the number of properties put up for auction by their owners in the
period surged to 88, the highest level in at least a decade.

On the other hand, the number of repossessed properties - traditionally the main
source of supply for auction sales - fell to 43, down from 239 last year and the
lowest level since 1998. This was largely due to the buoyant economy and
climbing property prices, said Colliers.

All this shows that auction sales in the hungry ghost month were being moved
more by market conditions than superstitious beliefs, the firm added.

But Ms Ng was quick to point out that the firm is still receiving plenty of
inquiries about auction properties from potential buyers.

‘The inquiries are still there, but people are thinking twice before jumping
in,’ she said. ‘They may be taking a step back and reassessing the prices.’

Colliers also noted that while auction sales may have plunged in the hungry
ghost month, other segments of the property market appeared to still be going
strong.

For instance, the total number of homes sold in the period is ’still at a very
healthy level’, although it has been falling since May, the firm said.

Source : Straits Times - 12 Sept 2007

More market panic ahead as banks ‘fess up’ on sub-prime

Filed under: Financing, USA — Propertymarketupdates @ 4:53 pm

- Confidence in banks exceptionally low, says JP Morgan Asia

Be prepared for more market panic as major banks continue to ‘fess up’ to their
holdings of US sub-prime mortgage securities over the next several months, said
Ivan Leung, JP Morgan Asia chief investment strategist.

The world’s financial markets are in turmoil as worries over exposure to the US
sub-prime mortgage debt has led to a freeze in the credit market with global
central banks having to step in to provide liquidity.

Around the world, banks are under intense pressure as investors and analysts
cast a spotlight on their exposure to sub-prime, or high-risk, property loans in
the US through their investments in collateralised debt obligations, known as
CDOs.

There is little information on the amount of CDOs held by banks, which has led
to ‘exceptional low’ confidence in the banks, said Mr Leung in an interview last
week. In the past month, European and Asian banks including DBS Group Holdings
and United Overseas Bank have revealed their CDO holdings.

‘(US banks) originate it, they package it, they sell it - but it doesn’t
necessarily mean they hold on to it,’ Mr Leung said.

He said that, often, US banks do hold on to some of these CDOs in structured
investment vehicles - off their balance sheets - so there is no transparency on
their holdings. He described this as scary.

‘European banks, and to a lesser extent - so far as we have seen - Asian banks,
were purchasers of these products,’ Mr Leung said.

‘So the crisis in confidence is not so much that there could be a 80 billion or
even a 200 billion dollar loss of sub-prime; the confidence issue is that we
don’t know exactly who is holding all this debt,’ he said.

And we don’t really know the prices of all this debt, and how much of it will be
subject to default, he said.

‘The confessions, you see them once in a while; that’s why we think this is an
issue, because over the next three to six months, some banks will begin to
confess that they have some on their balance sheet, and some off-balance sheet,
but clearly right now, nobody really has a true picture of what’s going on.
‘It’s the worst of all situations - nobody knows.’

Mr Leung expects the markets to veer between confidence and ‘blind panic’ each
time there is another disclosure.

Bank shares skidded on Aug 24 after DBS and three of Asia’s biggest banks
revealed bigger-than-expected exposure to the US sub-prime mortgage crisis.

DBS said that it had US$1.6 billion (S$2.43 billion) in holdings of CDOs - more
than the S$1.3 billion disclosed on Aug 7.

An additional 1.5 million sub-prime borrowers may fall behind on their mortgage
payments as introductory interest rates on those loans rise this year and next,
US Federal Deposit Insurance Corp chairman Sheila Bair said last week.

Among the 2.5 million sub-prime mortgages with interest rates that are expected
to be reset this year and next, ‘1.5 million will be in financial distress’, Ms
Bair said.

Getting any kind of centralised data collection will be very challenging, she
said.

JP Morgan estimates that US$600 billion worth of adjustable rate mortgages will
be reset over the next 12 months.

But, following the adage that there are always opportunities when risks are
high, Mr Leung said that one way for investors to take advantage of the current
extreme volatility in the markets is to buy ‘plain vanilla’ short-term
structured notes with capital protection.

The notes are designed to give a high payout even if the stock markets move only
slightly higher, he said. ‘When volatility is as high as it is right now, we can
go for simple structures,’ Mr Leung said.

The notes that JP Morgan is offering are meant for investors who share the view
that the US mortgage crisis will not lead to a recession. Lower growth, yes, and
therefore moderately bullish stock markets still.

Mr Leung said that JP Morgan was positive on undervalued markets such as
Thailand and South Korea and favours Singapore and China companies which have
superior corporate and economic fundamentals.

Source : Business Times - 10 Sept 2007

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