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Conclusion: Below we flag the potential for a drastic change in the direction of fiscal policy within Singapore. Further, expect the confluence of political consternation, social unrest, and accelerating inflation to weigh on Thai equities over the intermediate-term TREND.

Historic Change on the Way for Singapore?

On April 21, we published a report titled, “Read-Throughs From Singapore’s Upcoming Election”, which outlined the stakes for Singapore’s parliamentary election, currently taking place now through 8:00pm SGT tomorrow night. The largest takeaway was that Singapore is potentially looking at a major inflection point with regard to the direction of fiscal policy, and as such, we expected the ruling People’s Action  Party to continue to give in to more populist demands as they try to protect their party’s 52-year stranglehold on the Singaporean government.

Such measures have included spending $6.6B on cash handouts to citizens as a “growth dividend”, upgrading residential real estate, and increasing federal mandates for corporate pension fund contributions. Prime Minister Lee Hsien Loong has even gone as far as to officially apologize for Singapore’s exorbitant and often unavailable housing, promising additional attention to this issue if re-elected.

Judging by the tone on the streets of Singapore and the recent move in the equity market (suddenly broken from a TRADE & TREND perspective), re-election for Loong and his PAP counterparts is as questionable as it has seemingly been in decades. While that is not to say they won’t win with a majority of the ballots once again, we could see a measured reduction in their party’s current 87 parliamentary seats (out of 94 total) due to a record 82 challenges being mounted by opposing lawmakers including members of the growing Worker’s Party and the Singapore Democratic Party.

Elections in SE Asia: Consternation’s on the Ballot - 1

The strength in the opposition is being driven by a growing discontent among the Singaporean electorate stemming from rising consumer inflation, overcrowding, a general perception that jobs are increasingly harder to come by as a result of the government’s lax immigration policies, as well as a general distaste for what many describe as a “sense of complacency” out of the current government – well deserved complacency we might add.

Singapore’s GDP has grown 41x and its GDP per Capita has growth 45.7x since the PAP took over five-plus decades ago. Even still, there’s a growing sense among Singapore’s youth that the current party in office is out of tune with their interests. To their credit, Singapore’s GINI Coefficient, a measure of income inequality has actually risen over the last decade from 0.44 to 0.48, meaning that Singapore’s world-beating growth rates have yet to fully filter down though the social ranks. Unfortunately for the incumbent party, Singapore’s “rising tide” hasn’t lifted all boats; instead it’s buoyed the yachts of the world’s highest per capita share of millionaires.  As such, it doesn’t come as a conceptual surprise to see quotes like these from the Singaporean voters (Source: Bloomberg.com): 

  • “They keep telling us how they built Singapore… They are really very complacent.” - Alvin Lee, a 25-year-old economics and finance student at Singapore Institute of Management who plans to vote for the opposition.
  • “It’s very pressurizing living in Singapore... Everything is so expensive. The government says the economy is doing well but why am I not feeling it?” - housewife Low Bee Kian, 39, who has three children aged 10 to 16.
  • “The PAP has served us well over the many years but it’s gotten too high and mighty… I think it’s about time we had more opposition voices.” - Yeo Pei Ming, 56, a vegetable merchant and resident of Aljunied. 

With a record number of opposition candidates and a record number of eligible voters (2.21M) – many of whom have grown tired of the status quo – we could potentially see the a major political change take place this weekend in Singapore. Though it is unlikely the PAP will lose their majority in parliament, we could see electoral support for their party erode meaningfully enough to have a measured impact on the direction of fiscal policy in Singapore. Should this outcome occur, we would expect an acceleration in populist legislation (likely bullish for Singaporean consumer names and bearish for Singaporean property developers). We will continue to monitor for such changes, if any, real-time.

Social Unrest on the Horizon in Thailand?

Today, Thai Prime Minister Abhisit Vejjajiva dissolved parliament with the intention of paving the way for an election that may take place anytime within 45-60 days from now (July 26 – June 3). Vejjajiva and his ruling Democrat Party counterparts are looking to win their first popular mandate since 1992, after having been swept into power during the 2007 elections after the former prime minister Thaksin Shinawatra was overthrown in a military coup in 2006 and remains outside of the country avoiding a 2008 prison sentence for the abuse of power.

Now, Shinawatra’s Puea Thai party is “back with a vengeance” and they fully intend to use their widespread popularity – particularly among Thai’s poorer voters – to regain control of the Thai parliament by winning the popular vote as they have done in the previous four elections. If the upcoming election is as emotionally charged and politically polarizing as the 2007 election (which we fully expect), we should continue to see major consternation hang over Thai assets. Since peaking on April 21, Thailand’s SET Index is down in a straight line and is now quantitatively broken from a TRADE perspective. A breakdown through the TREND line would be an ominous leading indicator for the short-term stability of the Thai political economy.

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The bear case here would be a return to the style of violent and deadly protests we saw grip the streets of Bangkok roughly one year ago. Careful analysis of the situation reveals that protests of this magnitude (nearly 100 deaths) are actually a probable scenario and that they could potentially exceed last year’s riots in both scope and breadth of violence. The results of recent polls conducted by both of the main opposition parties have each expecting to win a majority of the 500 open seats in the Thai House of Representatives. Even Vejjajiva’s own campaign coordinator concludes that “it’s a very tight race”, saying recently, “One time we are down; one time we are up. We can’t tell.”

The largest takeaway from this polling gridlock is twofold: 1) the Thai electorate is torn and supporters of the Puea Thai (red-shirts) are indeed mobilized; and 2) supporters of either party will be both heartbroken and outraged by what is likely to be a close defeat. Should the Democrats (yellow-shirts) manage to win, we expect the red-shirts to once again take to the streets in protest. On the flip side, should the red-shirts win, we are likely to see a second coup – either military or judicial – as both the armed forces and political elite of Thailand continue to strongly back the current ruling coalition. Such an occurrence is highly likely to result in a second round of protests as red-shirts take to the streets in outrage.

The net result of it all is that we fully expect social instability to increase dramatically within Thailand in the coming months as a result of this election. As a result, we do expect the politicized consternation to hang over the Thai equity market, which augments our current bearish thesis on Thai equities – a thesis supported by slowing economic growth and accelerating inflation.

Perhaps the most tell-tale sign that we’re right on both accounts is the fact that Vejjajiva dissolved parliament a full seven months ahead of schedule, citing a desire to “move the country forward”. On the contrary, we think this is a “CYA” move in an attempt to get ahead of higher rates of inflation on the horizon, which may incrementally sway Thailand’s pooer voters into the arms of the populist Puea Thai party. He’s repeatedly affirmed his official policy priority, which is to “help put money in people’s pockets so that they can cope with rising prices”.

Vejjajiva has certainly put his money where his mouth his and has taken to “buying votes” in the process, recently increasing the minimum wage and pledging a further +25% increase over two years, increasing civil-servant salaries, implementing price controls, extending food and fuel subsidies, offering low-interest loans to taxi drivers, offering low-income energy cost exemptions, and extending social-security coverage for undocumented workers.

While these populist measures are likely to help buy him a number of votes in the upcoming election, we believe the net result of these measures is higher rates of inflation through an increase in aggregate demand by adding cash to the economy. In addition, the anticipated removal of State subsidies on diesel is predicted by the Bank of Thailand to add +100bps to the YoY growth rate of Headline CPI and +50bps to the YoY growth rate of Core CPI (currently at 15 and 30-month highs, respectively). It’ll be interesting to see whether or not the government chooses to continue to subsidize fuel and energy costs by allowing the oil fund to swing into deficit come July. Regardless of whether or not the subsidy is removed, we still foresee Thai inflation up and to the right, and remain positively disposed to the baht on expectations of tighter monetary policy. The direction of fiscal policy (populist), keeps us from being outright bullish on the currency.

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All told, we continue to flag the potential for a drastic change in the direction of fiscal policy within Singapore. Further, expect the confluence of political consternation, social unrest, and accelerating inflation to weigh on Thai equities over the intermediate-term TREND.

Darius Dale

Analyst