Welcome to the latest edition of top stock highlights where we feature interesting bits of news around the world.
Singapore Savings Bonds (SSB)
With interest rates on the rise, Singapore Savings Bonds, or SSBs, continue to witness strong demand.
The 10-year average return for the recent August issue hit a record-high of 3%.
According to data from the central bank, the Monetary Authority of Singapore, investors applied for S$2.45 billion worth of SSB in July.
This was a big jump from the S$1.32 billion that investors applied for in the previous month.
The surge signifies the growing demand for SSBs as their returns head higher in tandem with global interest rates.
This tranche of bonds will be issued on 1 August and will mature on 1 August 2032.
GIC’s financial results
The Government Investment Corporation of Singapore, or GIC, has just released its fiscal 2021/2022 (FY2022) annual report.
GIC is a sovereign fund manager and is one of three entities managing Singapore’s reserves, with the other two being the MAS and Temasek Holdings.
GIC’s report card follows up on Temasek Holdings’ recently-released annual review for the same period.
The sovereign wealth fund’s 20-year annualised real return came in at 4.2%, slightly below the 4.3% it reported a year ago.
Private equity within GIC’s portfolio takes up 17% for FY2022, up from 15%, while real estate’s proportion increased to 10% from 8% a year ago.
Real estate and infrastructure offer protection against inflation while private equity returns can also keep pace with elevated inflation.
GIC has stated that it is more interested in blockchain, the technology underpinning cryptocurrencies, rather than the currencies themselves.
Interestingly, it is one of the early investors in Coinbase Global (NASDAQ: COIN), a cryptocurrency exchange platform.
Looking ahead, the sovereign fund manager feels that the environment is becoming tougher for investors and that high inflation will also hurt economic stability.
Other headwinds that the firm sees include supply chain disruptions and a drop-off in fiscal stimulus, both of which could lead to a drastic slowdown in economic activity.
In the longer term, high debt levels, increasing protectionism and China’s demographic shift count as headwinds, along with geopolitical risks arising from the Russia-Ukraine war.
Core inflation and the US Federal Reserve
Singapore’s core inflation continues its upward climb, hitting 4.4% in June.
This is close to a 14-year high and is a significant jump from the core inflation of 3.6% seen in May.
Overall inflation, which includes the effects of accommodation and private transport, rose to 6.7%, higher than the 5.6% recorded in the prior month.
Almost all sectors saw higher year on year prices, with electricity and gas and private transport leading the way with a 20% and 21.9% year on year jump in prices in June.
MAS expects core inflation to increase between 4% to 4.5% in the current quarter before easing to around 3.5% to 4% by year-end.
MAS, along with the Ministry of Trade and Industry (MTI), warn that inflation could end up higher than projected due to increases in global commodity prices and a rise in domestic wages.
Speaking of inflation, the US Federal Reserve has continued to hike interest rates to counter the effects of rising prices in the US.
Just this week, it raised interest rates by another 0.75 percentage points, lifting the policy rate to a range between 2.25% and 2.5%.
The central bank is targeting to bring inflation down to the 2% level but is acutely aware of the hardships that high inflation can bring to the man in the street.
Jerome Powell, the Federal Reserve chief, has not ruled out another “unusually large” hike if inflation is not brought under control.
The central bank will be carefully studying the inflation data in the coming months to determine if they need to proceed with such a move.
Investors should note that sharp interest rate increases stand the chance of tipping the economy into a recession as companies and individuals hold back from borrowing.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.