Singapore is more vulnerable to global financial shifts than most Southeast Asian countries. Source Wikimedia
Surrounded by torrid regional stock markets, Singapore’s corporate bond market is expected to remain stable, with firms set to issue billions of dollars in bonds this year.
Trading on Chinese stock markets was shut down after less than 30 minutes on January 7, as circuit breakers stopped activity after a 7-per-cent slump in the benchmark index. Observers expect instability to continue in equity markets but they say bonds are likely to hold up.
“Equities of course take a more negative view and tend to be more volatile than the bond side. Bonds are more protected therefore, especially the safer quality bonds,” said Rajeev De Mello, head of Asian fixed income at Schroders. “In a way, there’s a safe haven flow, which benefits bonds and so they tend to do well. So I would expect higher-rated bonds, government bonds, to do fairly well in an environment of uncertainty.”
Last year, Singapore dollar corporate bond issuance was stable despite the global instability, with some 160 deals worth almost S$23 billion done, similar to the S$23.5 billion raised in 2014. In contrast, about S$340 million was raised through initial public offerings on the Singapore Exchange last year.
Market watchers noted the Singapore bond market had attracted more foreign issuers, as they made up more than one third of Singapore dollar corporate bond issuance last year, compared to a quarter in the year before.
“Foreign issuers are starting to take notice of the Sing dollar bond market, starting to see that it’s relevant and functional, and it continues to deepen. It’s not the end game as yet, but it has come very far and foreign issuers have noticed that,” Clifford Lee, head of fixed income at DBS Bank, said.
“At the same time, foreign issuers in traditional markets they tap continue to be volatile, so they continue to want to diversify into broader markets, to spread out their funding sources, and Singapore is increasingly seen as a viable source, so that’s good for us.”
Going forward, observers said some uncertainty remained over the pace at which the US Federal Reserve would raise interest rates. But they expected institutions to stick with their bonds investments.
Vasu Menon, vice president of wealth management in Singapore at OCBC, said: “Although the Fed is pushing up interest rates, interest rates are going to stay low by historical standards. Rate hikes are probably going to be fairly gradual and that means the search for yield will continue.
“I don’t think investors will give up the search for yield and so far, that has brought investors mainly to the bond markets. And where we see the opportunity in the bond markets is in the high yield space.”
The Monetary Authority of Singapore said the city-state’s total outstanding corporate debt was valued at more than S$300 billion.
Trade associations have called for workers’ Central Provident Fund monies to be used to help revive Singapore’s struggling stock market.
“Currently, our CPF money is pooled with our other reserves and managed by GIC. Unlike other jurisdictions where their pension funds have provided strong support for their stock market, Singapore rides against the wave by specifically stating as a policy that the funds managed by GIC are to be invested abroad,” the Singapore Business Federation announced on January 6.
The SBF said the administration “should consider separating the CPF component and managing it differently as how pension funds are managed. This will free these funds from the GIC investment restrictions and will likely result in some investments in the Singapore market. These investments will send strong signals on our market to other investment professionals”.