Happy Saturday, y'all. It's a ridiculously nice day over this side of the pond - 18 degrees, light breeze off the water, fine and sunny - so I'm going to go out and enjoy the sunshine with a cup of
coffee and the
Chronicle. But first, there's a lot of interesting stuff going on in this thread right now - let's take a look at some of it.
Capital gain tax is dependent on residency? Meaning I'm Singaporean residing in Singapore, no capital gain tax for me; regardless of which global exchange I trade on.
Withholding tax is largely dependant on fund domicile? Mainly Ire/Lux fund should sort that out much.
Yep, exactly right.
I agree with Limster - you're thinking way too hard about all this. Just save yourself a lot of hassle and buy IWDA. Add a small slug of EIMI if you want EM exposure.
Poking around the Internets, I discovered this piece of research which looked into seasonality across several countries, including SG. As I understand it, their central argument is that the seasonal effect is real and can be seen occurring after prolonged holidays (such as school holidays). This explains the Sep effect in northern hemisphere stock exchanges. In SG, the after school hols effect is seen in Aug and Sep (ie after the Jun hols).
Looking at their data, it seems that the best time to buy is Aug/Sep, and the best time to sell is Dec/Jan. Or at least, that's what my limited understanding of stats tells me. Perhaps someone with a better understanding of such matters can help interpret the data.
So this is fascinating! I'm not 100% sure I agree with their findings, either - that table of returns on page 26 doesn't find significant effects after the summer holidays in Australia, New Zealand, Chile, or South Africa (and there's a significant
positive effect after the summer holidays in Argentina and Brazil). If I were reviewing this paper I'd have called them out for not investigating that (lack of a) northern/southern hemisphere distinction instead of going after peripheral findings in France and the US southern states.
That said, though, that's still very useful information, and it's the first time I've seen useful seasonal data for Singapore, so thanks for digging it up. I still think it advocates a May rebalance, though: if the strongest months for stocks are December, January, April and May, then it makes sense to take profit on your stocks after the months of the year that are usually strongest.
If I'm being honest, though, this is a bit of a sideshow. The point is that you should rebalance occasionally instead of just leaving all your cash parked in stocks and forgetting about it - picking a month and setting a reminder is the easiest, most memorable way to make sure you remember to do that. It's all about setting simple, mechanical rules.
I don't understand how a weak SGD would result in upward pressure on i/r. Isn't ours pegged to the FFR?
P.S., the dudes at JPM were right, when the SGD was sliding along with every other EM currency, our SIBOR hit new highs.
Highsulphur nailed it (and I'm going to bet he knows more about SGD rate markets than I do; my exposure to SGD rates when I traded was mostly limited to funding my not-exactly-huge overnight cash positions).
The interest rate in Singapore isn't directly pegged to US interest rates. Though I know I sometimes say that it is, that's a bit of a handwave - the link is not direct. The most liquid interest-rate market in Singapore is the Swap Offer Rate (SOR), which is the SGD interest rate backed out from the USDSGD FX forwards market and the USD interest rate market.
If the FX forwards market stays constant, then SGD SOR will track USD LIBOR; but if USDSGD strengthens, and people start buying USDSGD through the forwards, then that pushes the SGD forward points higher and therefore (because of the way the FX forward markets work) the implied SGD interest rate drifts higher.
And SIBOR tends to track SOR, so that's why SIBOR started fixing higher as well.
Yes, this is weird.
Could someone help wrap my head around the functionalities of the various interest rates?
From what I know, according to Bloomberg, there are a few fundamental rates that is core to the economy:
1) Federal Funds Rate ('FFR')
2) Federal Reserve Target Rate ('FRTR')
FFTR, I think?
3) Interbank Offered Rate ('IBOR')
Yep, though generally you hear this in the context of "LIBOR" (London Interbank Offered Rate).
If I've understood correctly, the FFR determines the rate at which large banks adhere to when they borrow (overnight), from the funds deposited by other banks in the Fed, to meet their Reserve Ratio or whatsoever.
On the other hand, the IBOR also determines the rate at which banks borrow from each other to, likewise, meet their Reserve Ratio or whatsoever.
If that's the case, the only difference in which interest rate to apply is dependent on whether the Bank borrows from the Fed's funds or from the other Banks directly.
So, why can't a Bank choose the route that offers a lower rate, as opposed to the other, when borrowing from the other bank, which makes the other one obsolete? i.e. borrow from Fed's funds if the FFR is 0.5 and the IBOR is 1.5
Not quite. There are some other differences between Fed Funds and LIBOR (I'm going to use USD LIBOR as my example here).
Firstly, and this is the big one: Fed Funds is an overnight rate. LIBOR is generally not overnight - the most commonly quoted LIBOR rate is for 3 months. Those are different points on the yield curve, so they might (should, in fact) have different rates on them.
A side-effect of this is that the LIBOR term lending markets have basically evaporated since 2008. Before then, everyone thought "oh sure, I can lend 3-month unsecured cash to Megabank London, no worries". After Lehman, everyone thinks "oh man, what if Megabank isn't there in three months' time to give me my money back?! I want some collateral in case they blow up!" - so banks now prefer to lend in secured markets like the repo market. Interbank unsecured lending volumes - the market that LIBOR is based on -
have dropped by nearly 90% since 2008.
Secondly, though: LIBOR is not a particularly good interest rate benchmark anyway! It wasn't a particularly good benchmark in the past, because it was a completely made-up number - the question the Libor panel banks get asked is "At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?". You'll notice that there's no mention of "what rates have you actually traded at" - this is part of why
Tom Hayes was able to rig the hell out of LIBOR fixings, because he said "oh mate I need a low fixing today" and his mates said "OK we'll shave a quarter tick off our fixings, nobody's gonna know right?"
And thirdly, the Fed Funds rate is set in New York lending markets; LIBOR is set in London markets (well, sort of, the "London lending market" is a bit blurry these days). The upshot of this is that the Fed can intervene in the Fed Funds market, adding and removing liquidity to affect the Fed Funds rate; but the Fed can't do much about the LIBOR market, because it's notionally offshore.
This meant a lot more back in the sixties when the eurodollar market first emerged; these days, though,
the panel banks for USD LIBOR come from London, Paris, Utrecht, Tokyo, you name it; basically anywhere except New York. Also one thing that's always puzzled me - why is Norinchukin on the LIBOR panel? Are they really that big in dollar lending markets? Rate experts, anyone know?
Final couple of quick questions,
a) Does the Fed Reserve Target Rate refer to the required Reserve Ratio set by the Fed?
b) Whenever people says "Interest Rate is going to hike in September", they refer to the FFR, am I right?
a) Nah, the FFTR is the Fed's target for the Fed Funds rate; they conduct open market operations to add or withdraw liquidity from the Fed Funds market, with the aim of making sure the actual Fed Funds rate hits its target.
b) Yep. There was a bit of debate in the past about whether the Fed would move to a different target rate (like the repo rate or something), but they seem to be sticking with Fed Funds for now.
Juz curious.. trend of sti wil be largely dependent on these few heavyweights.. does it mean i can just buy these heavyweights instead of sti?
Not really. Firstly, the heavyweights are generally the banks - so if we get into an environment that's bad for bank stocks (like a flat yield curve environment), you're going to underperform the STI.
Secondly, though: why would you want to? You can buy the whole STI in one hit; why would you pay three or four clips of brokerage to buy single stocks instead?
Very informative and a big thanks to you and the rest for providing your inputs. A few questions of my own below:
