Worldwide, central banks has started to cut interest rates. Main reason is that in Europe, the economic condition is not good. Firstly, european manufacturing is weak because they cannot compete against China, Second, Europe is suffering the same fate as USA where there is an oversupply of commercial real estate (and for them residential as well), construction has slowed. Two pillars of economy are down.
In Singapore, inflation has been tamed as well and MAS has announced no change of policy (which means no longer a gradual appreciation of the Sing Dollar). This means we will no longer see the strengthening of Sing Dollar.
How Should Singapore Investors Position
Firstly, I do not see any much strengthening of the Sing dollar moving forth. Putting my neck on the line, the USD/SGD will breach the 1.35 mark with US dollar starting to strengthen. The lowering of interest rates will benefit Malaysia as well and we could see the Sing Dollar/MYR going below 3.20. This is because Malaysia's borrowing cost will be reduced reflecting a stronger economy. Singapore is not a debt laden economy so global interest rates does not affect its financing cost much.
Lower Interest Rates Overseas will Benefit Those who buy Overseas Assets
In all, investors should think of rotating to foreign currency and buying assets overseas. Relatively, overseas assets have been giving better returns and with the potential strengthening story, holding Sing Dollar may not be good. I have been saying that REIT assets overseas are giving close to two times what Singapore REITs give and they are of better balance sheet strength; just look at LINK REIT of HK and Utdhampshire US REIT on SGX.
And now with interest rates lowering, the financing cost of overseas REITs will fall faster than that of local REITs. What happens is that overseas REIT will start to report much higher income and in turn dividends.
Personally, I believe United Hampshire US REIT will start to increase their dividends to about 4.4 US cents in future annual dividend. It is in the essential services sector and has quite a secure income inflow. It is a strong recommendation in my view and should be a stock in any Singapore dividend investor portfolio. Investment income for life have done a good analysis on it and I will not steal his thunder. Do read it up on here.
No SGD Currency Appreciation makes Local Property Less Attractive
Singapore property wise, with the lack of currency appreciation and increasing taxes on properties in Singapore, to foreign investors, owning a Singapore property may not be attractive at all. Expect prices not to go as high as previous times.
In short, Singapore investors should look towards owning foreign currency denominated assets. Firstly, their returns are better and secondly, they face the benefit of a currency upside.
Walk the Talk
With my outlook of 2025, I am no longer holding much Sing Dollar, until USD/SGD reaches 1.38, I will be holding my money in US dollar. The added benefit is that the US dollar deposits here are 3-4 %, higher than T bills. If one opens a multi currency account, keep money in USD and then place USD Fixed deposit. More interest is earned. There is an arbitage opportunity now to earn more yield overseas with an added benefit of currency appreciation.
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