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Conclusion: We expect recent concessions to help return the PAP to power with a sweeping majority. Moreover, we expect further sheltering of the Singaporean consumer/voter in the form of additional tightening via currency revaluation. Given, we remain bullish on the Singapore dollar for the intermediate-term TREND.

 

Position: Bullish on the Singapore Dollar for the intermediate-term TREND and long-term TAIL.

Yesterday, it was announced that Singapore will hold general elections on May 7, which came as a slight surprise to us, given that they could, in theory, be held anytime before February 2012. Less surprising, however, is Prime Minister Lee Hsien Loong and President S.R. Nathan’s decision to dissolve parliament in an effort take advantage of Singapore’s robust 1Q11 economic growth rate(s) to subtly influence an increasingly less content voter base to re-elect their party to power.

This may turn out to be a shrewd move, given the consensus view of “uncertainty” surrounding the global economy. From our vantage point, however, there’s nothing uncertain about it – the dominant macro theme we’ve maintained since just before the beginning of the year is that “growth is slowing as inflation accelerates”. Our quantitative models have Singaporean GDP growth slowing in 2Q11 and the trend in Singaporean CPI accelerating into the early summer.

To a large extent, Singaporean officials agree with these forecasts; the central bank’s 2011 CPI estimate was recently revised up to the upper end of the 3%-4% range and the somewhat hasty call to hold the election in the next few weeks tells us that they think growth is setup to slow from here as well. At the bare minimum, they don’t have a near-term acceleration in their GDP forecast; if they did, they would’ve likely scheduled the election for a later date.

To protect their party’s current 46-year stranglehold of the city-state’s officialdom, the People’s Action Party (PAP) is doing what it can to “buy votes” in the form of cash handouts (see: February’s “Growth Dividend”) and accommodative rhetoric (see: recent immigration concessions). All in, 87 parliamentary seats will be contested in the upcoming vote; 82 are currently held by PAP lawmakers. Moreover, the party won the 2006 election with 67% of the vote – down from 75% in 2001. Any further erosion in their margin of victory could potentially force the PAP to favor more populist legislation, on the margin.

Regarding the key election issue of immigration specifically, the PAP has recently hinted that it would slow the intake of immigrants, which, on the margin, is bearish for Singapore’s long-term growth potential, given that tax incentives aimed at highly-educated foreigners have helped Singapore grow its population by nearly 20% in the last five years alone. On the flip side, disgruntled natives have made their complaints about crowded public transportation, increased competition for labor, and less prime housing availability as loud as ever in recent months. Accelerating consumer prices is also something the government will have to continue to address, likely through tighter monetary policy.

Net-net, we expect recent concessions to help return the PAP to power with a sweeping majority. Moreover, we expect further sheltering of the Singaporean consumer/voter in the form of additional tightening via currency revaluation. Given, we remain bullish on the Singapore dollar for the intermediate-term TREND – particularly against the USD, which is currently hinting at a crash in the coming months. Stay tuned.

Darius Dale

Analyst

Read-Throughs from Singapore's Upcoming Election - 2