Baring to Schroders Avoid Singapore After Slump

Schroders Plc and Baring Asset Management Ltd. are avoiding Singapore stocks, the cheapest in Southeast Asia, as slower economic growth in the region and cuts to Federal Reserve stimulus drive capital outflows.
The fund managers expect property to lead declines in Singapore amid a real-estate slump and the prospect of higher interest rates. The Straits Times Index was the worst-performing developed market in 2013, dropping 9.5 percent since Fed Chairman Ben S. Bernanke said in May that bond purchases may be reduced on signs of sustainable U.S. recovery.
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Capital has been fleeing Southeast Asia as investors seek higher returns in North America. The market value of Singapore shares fell 5.6 percent to $567 billion this year as of Dec. 23 as 10-year U.S. bond yields climbed to a two-year high in September, making dividends from the city-state’s real-estate investment trusts less attractive. The Standard & Poor’s 500 Index rose to a record after the Fed announced on Dec. 18 it was cutting stimulus, citing optimism about the labor market.
“Property companies will do badly, particularly in Singapore where there’s a perceived housing bubble,” Lee King Fuei, a Singapore-based fund manager at Schroders, which oversees about $420 billion. “If higher bond yields cause property prices to fall, there’s an immediate impact on earnings. Cost pressure on banks will also increase as bond yields rise.”
The Singapore’s STI traded at 1.38 times book value as of Dec. 24, according to data compiled by Bloomberg. That compares with 2.49 for the Philippine’s PSEi Index, 2.37 for Indonesia's Jakarta Composite Index, 2.34 for the FTSE Bursa Malaysia KLCI Index, and 2.07 for the Stock Exchange of Thailand the data showed.
Quantitative Easing
The Federal Open Market Committe said after its Dec. 17-18 meeting it will cut its $85 billion in monthly purchases of Treasuries and mortgage-backed bonds, also known as quantitative easing, to $75 billion in January.
The central bank will reduce asset buying in $10 billion increments over the next seven policy meetings before ending the program in December 2014, according to the median forecast in a Bloomberg survey of economists on Dec. 19. The STI surged 94 percent from when the Fed lowered its benchmark interest rate in December 2008 to this year’s peak in May.
Real estate and financial companies account for 47 percent of the STI, according to data ompiled by Bloomberg. Singapore’s biggest property companies were among the worst performers in 2013, with City Developments Ltd. plunging 25 percent and CapitaLand Ltd. falling 18 percent. Jardine cycle & Carriage Ltd (JCNC), an automotive distributor that gets about 89 percent of sales from Indonesia, fell 27 percent to lead declines on the benchmark equity gauge.
Slower Growth
The International Monetary Fundlowered its growth target for Indonesia, Southeast Asia's biggest economy, to between 5 percent and 5.5 percent this year and next after 6.2 percent expansion in 2012. Singapore’s GDP is expected to grow 3.9 percent in 2014 after an estimated 3.8 percent rise this year, according to a quarterly survey released by the Monetary Authority of Singapore this month.
“Singapore’s neighbors have not been doing so well, particularly Indonesia, where many of the property buyers in the city come from,” said Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Ltd., which oversees about $60 billion. “The Singapore government has also been implementing tough property measures because they don’t want housing prices to go through the roof.”
Housing Bubble
Singapore home prices increased at the slowest pace in six quarters in the three months ended Sept. 30 after the government introduced new curbs to cool prices in Asia’s second-most expensive property market.
“There’s no driver to spur investor interest in Singapore,” Baring’s Do said. “The recent penny stock crash isn’t really helping the case for investing in Singapore.”
About $6.9 billion was wiped from the market value of three commodity companies over three days in October, prompting an investigation by the monetary authority and Singapore Exchange Ltd. The average value of shares traded daily on SGX in the three months through December fell to S$1 billion ($790 million), compared with S$1.24 billion a year ago, according to data compiled by Bloomberg.
Penny Stocks
Blumont Group Ltd., which invests in minerals and energy, soared more than 1,000 percent this year through the end of September to lead gains on the FTSE Straits Times All-Share Index. The stock plunged from an all-time closing high of S$2.45 on Sept. 30 to 7.8 Singapore cents on Dec. 24.
Asiasons Capital Ltd., the second-best performer, slumped 96 percent from its record close of S$2.83 on Oct. 1 through Dec. 24. LionGold Corp. tumbled 91 percent from its S$1.725 peak on Aug. 29 after deals to acquire gold assets fell through. The plunge in shares prompted the bourse to seek approval to establish circuit breakers to minimize market volatility.
The world economy is primed for its fastest expansion in four years, with the U.S. driving output gains, economists at Goldman Sachs Group Inc., Deutsche Bank AG and Morgan Stanley said this month. Global growth will accelerate at least 3.4 percent in 2014 from less than 3 percent this year as the euro area recovers from recession and China and other emerging market stabilize.
“Singapore would be one of the markets that would be favored in Southeast Asia,” said Haren Shah, Singapore-based chief strategist for Asia-Pacific at Citigroup Inc.’s wealth management division, which oversees $210 billion. “Singapore, along with the North Asian markets, is looking cheap and most likely will benefit as we see recovery in the global economy.”
The Straits Times Index is trading at 14.7 times estaimated earnings compared with 16 times for the MSCI World Index, according to data compiled by Bloomerg News.
Trade Falling
Even as the external environment is improving, Singapore is exporting less to the West, according to Alan Richardson, whose Samsung Asean Equity Fund outperformed 97 percent of peers tracked by Bloomberg during the past three years. The city-state gets about 22 percent of export revenue from the U.S. and Europe as of November, compared with 37 percent a decade ago, according to data from International Enterprise Singapore.
“Singapore being a very property- and banking-centric country means it hasn’t benefited from global economic recovery because of the government’s tightening policy on the property market,” Richardson said.

Tips for Using a Delivery Service Successfully

So, you need to select and use a delivery service? It's not an uncommon thing these days. But for those not used to dealing with transport companies it can be a minefield. These tips may be of help.

As a recipient
It might be the case that you need to arrange a delivery service to get something to you. An example of that might be in a case where you’ve purchased something at a retail outlet and they don’t arrange deliveries, or maybe you’ve purchased something from a private individual that’s too heavy for your car.
When you’re looking for a service, price will be a big factor of course, but also check out:
• When can they do the job - and get guarantees because some promises about dates might be easily made but then rather harder to keep.
• Their reputation - use the Internet, review sites and just ask around if they’re based in your local area.
• Insurance cover - things can and do sometimes go wrong for a delivery service. If your goods are damaged, destroyed, stolen or lost whilst in their care - who is going to pay?
• Access and to-the-spot drops - if your property is up a driveway, narrow lane, steep hill or similar, make sure your delivery service will be prepared (or perhaps in some cases able) to get their vehicle to the front door. An added issue here is if you’ll need the item carried into your property to a specific room or upstairs, make sure the company can oblige. Some might operate very rigidly on a ‘no further than the front door’ basis.

As a sender
Many of the above points will apply if you’re responsible for getting something to someone else.
However, there are a few other things you might wish to consider:
• What is the company’s reputation for damages, losses, thefts and claims? Remember that you may be responsible if the goods don’t reach the consignee or they’re received damaged.
• Make sure they take care in obtaining the signatures of recipients. Missing signatures will mean the person at the point of destination can legitimately claim they’ve not received the items and that will result in some interesting debates between you and the carriers about who’s responsible.
• Do they also work for your competitors? Some companies need to guard the names and addresses of their regular clients for fear of poaching. Can you trust your company to keep your cargo entirely confidential?
• What care do they take over the selection of their drivers? It’s worth remembering that however hard you stress that you’re contracting out a job, your customers may judge your company and its professionalism based upon the service they see. Rude, offensive or unhelpful drivers might reflect very badly on your organization even if you’ve had no control over their recruitment or the company using them.
So, a few minutes spent looking closely at a delivery service before using it might be time well spent.

Selling A Business - Getting the Deal Closed After a Contract Change

A last minute change in the terms of a business sale can often cause it to blow up. That is costly and unfortunately far too common. This article discusses how to deal with it.
The next line could be, "Will it Derail Your Sale?" We have seen it go both ways, unfortunately. If a deal does blow up, everybody loses. The seller has spent six months of divided focus and many of the normal business development activities have been put on the back burner. His or her business will simply not be as strong if the business sale process is not completed.
Normally a buyer that has made it to this point is the one that recognizes the most strategic value and has indicated their willingness to pay for that value. The second, third, and fourth place buyers, if they even have been uncovered, are generally far short of the winning bidder. We have had some very specialized companies that were great fits for only one buyer and the next best bid was less than 50% of the leader's offer. That is not a very attractive backup plan, should the best buyer go away.
The buyer is also damaged by an eleventh hour deal blow up. They have devoted senior level people to analyzing, negotiating, preparing for the integration of the two companies, etc. It often involves several hundred thousand dollars of opportunity costs. If the target company was the answer to a gap in the buyer's product set, they will no longer be able to recognize the anticipated benefits unless they now build it themselves or go acquire the next best target company. Both of these approaches are expensive and time consuming.
Let's get back to the root of the problem. What would cause a buyer to make an eleventh hour change? Our experience has shown that in 80% or more of the cases, it has been the buyer's corporate counsel or outside counsel. They have discovered a deal component that when memorialized in a definitive purchase agreement is either not legal or violates the corporate "risk versus reward covenant."
This is where it gets emotional. It is done "after we had a deal.' We coach our sellers up front and warn them that this can happen. The way we position it is that as a simple matter of logistics, the buyer's legal team has very limited detailed involvement prior to crafting the definitive purchase agreement. In the heat of negotiations, however, the M&A guys have often agreed to something that will not pass the protectors of the mother ship (corporate counsel). When the particular deal term moves the Risk/Reward needle into the red zone, the corporate counsel over rules the M&A guys. An example of this would be an earn out that was open ended and not capped - simply unacceptable on Wall Street.
Another manifestation of the eleventh hour change is the buyer's business development team is tasked with bring the deal along to a point with final approval reserved for the president or the board. Sometimes the M&A team simply commits to something that gets rejected in the final approval process. Unfortunately, sometimes this is real and sometimes it is a popular negotiating ploy called deferring to the higher authority. It can be very tricky determining which is real and which is negotiating.
O.K. So we have established that more often than not, the seller will encounter the dreaded eleventh hour deal change. How should he or she respond?
First Rule - be prepared and know that it is part of the normal process. Do not put it into the category of this is the evil empire looking to beat up the little guy.
Second Rule - Do not destroy your personal good will with the buyer. Often times, the owner has huge value to the buyer in terms of post acquisition product integration and education on their market. If this last minute deal change turns you into Mr. Hyde at the negotiating table, the buyer's Risk/Reward needle could be moved into the red zone. If they view you as someone that could damage company morale or who will be high maintenance or worse, will be litigious, they will walk away from the deal at this point.
Rule Three - If you feel you are about to explode in front of the buyers, ask for a 15 minute break, go into another room and unload on your advisors. Get it out of your system, calm down, and go back into problem solving mode.
Rule Four - Let your advisors do your bidding. Recognize that this is an emotionally charged area for you and it is essential for you to preserve your relationship with your future employer. Let your M&A advisor or your attorney be the bull dog, not you.
Rule Five - Respond in kind at the appropriate economic level. Do not look for a pound of flesh to compensate you for your sense of moral indignation. In corporate America it's not going to happen. Work with your advisors to identify the extent of the economic value you have lost due to the change. Ask for concessions in return that match the economics of the buyer's change.
Rule Six - Keep your eye on the prize. In this very emotional time, you must prepare yourself to be an economic being. If your next best buyer is $2 million below your current buyer's offer, do not put the deal in jeopardy by violating Rules One through Five for a change with maximum impact of $20,000. Put your ego on the shelf, step back, keep your moral indignation in check and preserve your good will. Remain fluid and creative while allowing your advisors to take on the role of the bad guy. Get your deal signed, enjoy your new substantial bank balance, and prosper as a prized member of your new company.