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Novum Alpha - Daily Analysis 14 September 2021 (10-Minute Read)

Whether tis nobler in the mind to suffer the slings and arrows of outrageous market volatility, or to cut down asset purchases against a sea of troubles.

A terrific Tuesday to you as markets take a tepid step forward to recover. 

In brief (TL:DR)

  • U.S. stocks were mostly higher at the open on Monday, with the Dow Jones Industrial Average (+0.76%) and S&P 500 (+0.23%) up, while the tech-centric Nasdaq Composite (-0.07%) was marginally lower, with stocks steady ahead of key U.S. inflation data.
  • Asian stocks were flat on Tuesday ahead of U.S. inflation data that could color expectations about the U.S. Federal Reserve’s likely timeline for paring stimulus.
  • Benchmark U.S. 10-year Treasury yields held at 1.33% (yields rise when bond prices fall) as traders sat on the sidelines ahead of key U.S. inflation data. 
  • The dollar was steady.
  • Oil rose with October 2021 contracts for WTI Crude Oil (Nymex) (+0.62%) at US$70.89 as investors tracked a storm menacing the Gulf of Mexico just weeks after Hurricane Ida cut local production.
  • Gold was lower with December 2021 contracts for Gold (Comex) (-0.12%) at US$1,792.20.
  • Bitcoin (+0.245%) was at US$45,076 as sentiment remained cautious on concerns over a regulatory crackdown in South Korea with inflows continuing to lead outflows (inflows suggest that traders are looking to sell Bitcoin in expectation of lower prices). 

In today's issue...

  1. Singapore’s Real Estate Market Sizzles for Overseas Investors
  2. Southeast Asia will Reopen Come What May
  3. Crypto Crackdown Spreads to South Korea

Market Overview

To taper or not to taper, that is the question.
Whether tis nobler in the mind to suffer the slings and arrows of outrageous market volatility, or to cut down asset purchases against a sea of troubles. 
To taper, to sleep, aye, therein lies the rub, that makes central bankers of us all. 
Key inflation data out of the U.S. is sitting like a Nimitz-class carrier on the horizon that could determine whether the U.S. Federal Reserve decides that it will pare back its US$120 billion-a-month asset purchases according to the original plan or with an accelerated schedule and investors are mostly sitting on the sidelines ahead of the release of such data. 
In Asia, markets were a mixed bag ahead of U.S. inflation data with Tokyo's Nikkei 225 (+0.38%) and Seoul's Kospi Index (+0.90%) up, while Sydney’s ASX 200 (-0.13%) and Hong Kong's Hang Seng (-0.35%) were down in Tuesday's morning trading session. 

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1. Singapore's Real Estate Market Sizzles for Overseas Investors

  • Singapore provides a safe haven for overseas investors looking to park their funds and the property market is heating up 
  • Runaway real estate prices in Singapore may provide a policy headache for authorities who will be keen to ensure that locals are not priced out of the housing market 
On a particularly balmy Sunday morning, a pair of expatriates working in financial services sips their Belgian beers looking out into the bay, while nearby maskless joggers and cyclists ply the busy sidewalks facing the iconic Marina Bay Sands integrated resort.
Meanwhile, the coronavirus pandemic rages quietly in the background, with daily infections regularly hitting over 500 cases.
This is life in a coronavirus-resilient Singapore, a rare and bold move in the traditionally conservative and cautious city state.
But it may be precisely this pragmatic approach that is fueling a rally in Singapore’s already pricey real estate market. 
Lauded globally for its approach to the coronavirus and with the highest rate of vaccinations in the rich world, foreign investors are now descending on the tiny island no bigger than Manhattan, for a slice of paradise.
In March, one of the wealthiest Taiwanese families made headlines by snapping up all 20 units of an ultra-lux condo in Singapore’s central district for a cool US$217 million.
But it’s not just Singapore’s pandemic response that is drawing in real estate buyers.
The island’s strong and stable currency, rule of law, efficient courts and low taxes have always made it a magnet for overseas money.
Despite the Singapore government making it slightly more challenging for foreign workers to obtain visas, many of the richest overseas investors are still drawn to the country as the business hub abandons a zero-tolerance coronavirus strategy to live with the endemic.
With a vaccination rate of over 80%, Singapore’s tolerance of higher infections so long as the pandemic does not result in an overwhelming number of fatalities or bring the healthcare system to its knees, is in stark contrast to the approach of other cities like Sydney, Hong Kong and Tokyo.
Singapore has thus far announced quarantine-free travel with Germany and Brunei, as well as lifted quarantine requirements from China, Hong Kong and Taiwan.
And while Singapore’s borders may not be fully open, its real estate market certainly has been booming, with average property prices jumping 6.1% in the 12 months to March 2021, compared with the first half of 2020, according to data from Knight Frank.
By way of juxtaposition, rival Hong Kong’s property prices rose just 2.1% over the same period.
Chinese nationals, typically the most active overseas buyers of Singapore real estate have also increased, with the trend likely to be durable as Beijing calls for curbs on “excessive” income and focuses on the active redistribution of wealth.

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2. Southeast Asia will Reopen Come What May

  • Southeast Asian economies are struggling with continued lockdowns and threatening to undermine their reputation as a manufacturing base outside of China 
  • Low vaccination rates are making it challenging for cash-strapped economies to reopen, but governments now have little choice in the matter 
As Singapore adopts a post-pandemic approach to the coronavirus, other countries in Southeast Asia which are not as well vaccinated as the prosperous city state have been forced to reopen regardless.
With economies across Southeast Asia grappling with the debilitating effects of the pandemic, many cash-strapped governments are realizing that they can no longer afford the crippling restrictions needed to quash the coronavirus.
From the factory floors in Vietnam and Malaysia to the gleaming office towers of metro Manila and Singapore, authorities are pushing forward with plans to reopen, attempting some form of balance between trying to contain the virus and keeping people and money moving.
While Europe and the U.S. have already moved down the reopening path, thanks to vaccinations, Southeast Asia has been a laggard, because of the far lower rate of inoculation, which has helped to exacerbate supply chain issues.
Many factories that feed into other manufacturing facilities in Japan, China or South Korea, originate in places like Vietnam and Malaysia.
Toyota Motor (+1.03%) is already warning that it may be forced to slash production, while clothier Abercrombie & Fitch (+0.82%) has suggested that the situation is “out of control.”
Both shoes and clothing are widely manufactured in Southeast Asia, with companies like Nike (-2.49%) relying heavily on the region for production.
But the pandemic has put the kybosh on production ahead of peak U.S. and European shopping season, with the daily death rate from the coronavirus in many Southeast Asian countries regularly surpassing the global average.
Nonetheless, Vietnam expects that its economy will grow by 6% this year, while Singapore is forecasting growth as high as 7%.  
As one of the most economically dynamic regions in the world, there is growing pressure to prevent the pandemic from turning the region into a point of weakness in the global supply chain, which would not bode well for people or businesses.



3. Crypto Crackdown Spreads to South Korea

  • South Korean authorities tighten regulation of local cryptocurrency exchanges 
  • Move comes amidst a wave of regulatory action against cryptocurrencies and their stakeholders globally 
As one of the world’s most tolerant and open cryptocurrency countries, South Korea’s regulatory crackdown on the industry stings in so many ways.
For years, the so-called “kimchi premium” helped fuel the fortunes of the legions of South Korean cryptocurrency traders, who happily sold Bitcoin to their Chinese neighbors for premiums as high as 20% at one point.
But now the threat of US$2.6 billion worth of losses looms for South Korea’s vibrant cryptocurrency exchanges, in a regulatory overhaul in one of the world’s biggest digital asset markets.
South Korea’s financial regulator, the Financial Services Commission, has set a September 24 deadline for foreign and local cryptocurrency exchanges to register as legal trading platforms, part of an effort to tighten oversight of the country’s hitherto loosely regulated sector.
With more stringent KYC and AML requirements, most of South Korea’s smaller cryptocurrency exchanges are struggling to meet the new conditions, with almost two thirds of South Korea’s estimated 60 cryptocurrency exchanges likely to be shut down.
Although dominated by the big four exchanges in South Korea – Upbit, Bithumb, Korbit and Coinone, which account for over 90% of the country’s cryptocurrency trading volume, the recent regulatory crackdown affects local South Korean won-based digital tokens that are prevalent on smaller exchanges.
According to industry data, these so-called “kimchi coins” make up some 90% of South Korean cryptocurrency trading, drawing into sharp focus the market’s highly speculative nature, but also highlighting the risks for retail investors who can no longer cash out these tokens after the September deadline.
While South Korea’s Financial Services Commission has advised cryptocurrency exchanges that will fail to meet regulatory conditions to inform their users of any possible closure by the end of this week, investors face the real danger that they may end up losing everything.
To be licensed as legal trading platforms, South Korean cryptocurrency exchanges must partner with local banks to open real-name bank accounts for customers, but local banks have so far balked at the prospect, over fears of being exposed to money laundering and other financial crimes.
There is little incentive for South Korean banks to work with all but the very biggest South Korean exchanges as well, as the administrative and compliance cost for these crypto-adjacent bank accounts would far outweigh their deposit amounts or the fees generated from them.
Regulators are hopeful that the crackdown will dampen the cryptocurrency frenzy in South Korea, with many South Korean youth facing high unemployment, limited job prospects despite holding college degrees, and soaring housing cost.
For many young South Koreans, cryptocurrencies provide an avenue for escapism, with riches beyond the dreams of avarice should they pick the right digital asset to bet on.

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Sep 14, 2021

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