At the SMU Sim Kee Boon Institute for Financial Economics' annual conference on financial economics last week, Distinguished Fellow at the SMU Centre for Asset Securitisation and Management in Asia Professor Susan Wachter presented her research paper entitled Real Estate Prices in Beijing, 1644 to 1840, and was asked if real estate would continue to show no significant price increase in real terms in the near future. To this, she replied, "No, there has been a regime change." Real estate prices will trend up over the long term because of the constraint of resources, be it of land or materials, she said. But the biggest restrictions will be those imposed by regulations. The conference also dealt with the usefulness of indexes, the different ways an index can be constructed, the pros and cons of different methods of index construction, the reliability of indexes, and development in the big data environment, among other things.
The Sim Kee Boon Institute for Financial Economics at SMU (SKBI) will be launching a new real estate price index in the near future. The index would take factors such as unit level and area into account, in order to better reflect the trend of local private homes. SKBI held an index research academic forum on Tuesday. SKBI Director and Professor of Economics and Finance, Yu Jun, shared that the new index would consider a variety of factors which include: purchase from developers or resale units, free-hold or 99 year-lease, unit floor and size, creating the world’s first such computation.
On whether the buy and hold investment strategy prevails as the best strategy for investing in the stock market, Associate Dean (Specialised Masters Programmes) of the SMU Lee Kong Chian School of Business and Professor of Finance (Education) Benedict Koh noted that such a strategy is a passive one because transactions are kept to a minimum. "To reduce volatility, investors should buy and hold a diversified portfolio of stocks spread across different industries," he says. Value investors such as Benjamin Graham and his most famous disciple Warren Buffett believe strongly in such an approach. Also, on the “no risk, no gain” strategy, Prof Koh noted that long-term government bonds returned 5.24 per cent a year but had significantly lower volatility (a factor correlated to riskier assets) compared to equities. "This saying describes the trade-off relationship between expected return and risk. It is important to differentiate between expected return and realised return as the trade-off may not hold between realised return and risk for specific trading periods," he added.
[Singapore, 22 April 2013] – Singapore consumers are expecting inflation to continue to fall amid global declines and continued uncertainty around the weak global economic outlook, according to the latest findings of the SKBI-MasterCard Singapore Index of Inflation Expectations (SInDEx).
The SInDEx, which was jointly developed by Singapore Management University’s Sim Kee Boon Institute for Financial Economics (SKBI) and MasterCard, is derived from an online survey of around 400 randomly selected individuals from Singapore households.
The online survey helps researchers understand the behaviour and sentiments of decision makers in Singapore households. This is the seventh wave of the quarterly survey conducted under the collaboration since the indices were officially launched in January 2012. SInDEx was developed by Dr. Aurobindo Ghosh and Professor Jun Yu from SMU SKBI, in collaboration with MasterCard.
In the latest survey conducted in March 2013, consumers shared their views on perceived values of economic variables over the next one to five years.
Comparing the two waves of research conducted in December 2012 and March 2013, consumers expect inflation to decline in the next 12 months. Their perception of the One-year-Ahead headline inflation (CPI-All Items) recorded a significant dip from 4.37% in December to 4.12% in March. This is the lowest it has been since its inception in September 2011. At the same time, the forward looking SInDEx1, a composite weighted index of One-year-Ahead inflation expectations decreased to 4.26% (from 4.4% in December).
The long term Five-year-Ahead overall (or CPI-All Items) Inflation expectations is at 5.2%, dropping marginally from 5.21% in December, reaching the lowest level since March 2012. The Five-year-Ahead Singapore Core Inflation rate (excluding accommodation and private transportation) also decreased slightly to 4.82% from 4.84% in the December wave, following a downward trend.
The composite Five-year-Ahead Singapore Index of Inflation Expectations (SInDEx5) in March 2013 fell marginally to 4.96% from 4.97% in the survey conducted in December 2012.
Dr. Aurobindo Ghosh, co-creator of SInDEx, and Programme Director of SMU SKBI said, “The unprecedented and concerted global expansionary monetary policy and open market operations by central banks in the aftermath of the Global Financial Crisis (GFC), and record low interest rates in the G3 Economies (U.S., euro zone and more recently Japan) have not caused unhinged inflation expectations in a small open economy like Singapore, according to the SInDEx Survey. One of the possible reasons for this seems to be that imported inflation has moderated.”
“Furthermore, the survey respondents seemed to feel that local structural factors like increasing wages from a tight labor market and possibly other pass-through costs including higher COE premiums have not significantly increased the overall prices. With One-year-Ahead headline inflation expectations at its lowest level since we started collecting data for SInDEx in the third quarter of 2011, there are strong signs of anchoring of medium term inflation expectations in Singaporean households,” Dr. Ghosh added.
Dr. Yuwa Hedrick-Wong, global economic advisor, MasterCard said, “Inflation expectation remains high in spite of the slight decline in the latest survey findings. This highlights persistent worries over the global economic outlook, especially in light of the continuing euro zone crisis. While Asia continues to be the best performing region in the global economy to date, global economic conditions are still fragile and unstable, which have direct impacts on a small and open economy like Singapore.”
Methodology
Two indices were created, SInDEx1 and SInDEx5, to measure the 1-year inflation expectations and the 5-year inflation expectations. The data for the SKBI-MasterCard Survey was collected online from about 400 consumers. The sampling was done using a quota sample over gender, age and residency status to ensure representativeness of the sample. Employees in some sectors like journalism, marketing were excluded as that might have an effect on their responses to questions on consumption behaviour and expectations.
About Sim Kee Boon Institute for Financial Economics
Established in July 2008, the Sim Kee Boon Institute for Financial Economics (SKBI) at the Singapore Management University promotes the study of Financial Economics and Financial Econometrics in areas of strategic relevance to Singapore's economy and the economies of the region. A significant addition to Singapore's efforts to be a financial hub in Asia, SKBI is a leading institute for academic research with strong industry application and practical dimension in the area of Financial Economics.
The Institute has four major research centres for quantitative financial analysis and offers training programmes for professionals in the financial industry. Its work is conducted in close collaboration with leading scholars in financial economics and financial econometrics from around the world as well as leading international organisations and experts from industry. skbi.smu.edu.sg
About MasterCard
MasterCard (NYSE: MA), www.mastercard.com, is a technology company in the global payments industry. We operate the world’s fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. MasterCard’s products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone. Follow us on Twitter @MasterCardNews, join the discussion on the Cashless Conversations Blog and subscribe for the latest news.
SMU Survey: 2013’s inflation expected to drop to 4.12%
Singapore consumers expect inflation to continue to fall in the year ahead amid a persistently fragile global economic environment, according to a quarterly study by SMU and MasterCard. Programme Director of the Sim Kee Boon Institute for Financial Economics at SMU (SKBI) and co-creator of the survey, Dr Aurobindo Ghosh, said, “Survey respondents seemed to feel that local structural factors like increasing wages from a tight labour market and possibly other pass-through costs including higher COE premiums have not significantly increased the overall prices.”
At a public lecture organised by SMU, Nobel Laureate Professor Thomas Sargent said that while the QE3, launched by the Federal Reserve, might trigger the risk of an economic bubble, it would not necessarily be a bad thing as this could push US property prices upwards and relieve the pressure on mortgages. Prof Sargent specialises in the fields of macroeconomics, monetary economics and time series econometrics, and his research has been instrumental in addressing recent economic crises. He also commented that while many macroeconomists tried to find a predictable and logical model covering all possibilities, it was hard for them to achieve meaningful results due to the complexity of human behaviour.
Singapore consumers continue to expect inflation to edge downwards, said the latest SKBI-MasterCard Singapore Index of Inflation Expectations report – produced by the Sim Kee Boon Institute for Financial Economics at SMU (SKBI) and sponsored by MasterCard. Responses from a representative sample of 400 local consumers polled online in March produced a composite index showing that the general public expects inflation of 4.26 per cent for the year ahead, down from 4.4 per cent in December last year. Consumer expectations of headline inflation fell to 4.12 per cent – the lowest expected level since the survey's launch in September 2011 – from 4.37 per cent a quarter earlier. Core inflation, which strips out accommodation and private road transport costs, is also expected to fall to 4.32 per cent, from expectations of 4.44 per cent in December, said the report. SKBI Programme Director and co-creator of the survey, Aurobindo Ghosh said, "Given that the medium-term expectations are fairly anchored, we will not see huge fluctuations in average inflation expectations but possibly an increase due to increased uncertainty in the global financial system."
Singapore's inflation rate hit an eight-month high in February because of the Lunar New Year festivities. Analysts expect inflation to be lower in March, mainly due to lower COE prices following new government measures. According to the Singapore Index of Inflation Expectations (SInDEx) prepared by MasterCard and the Sim Kee Boon Institute for Financial Economics (SKBI) at SMU, Singapore could see inflation fall to 4.12% this year.
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