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Thread: Surging asset prices could trigger 'big shock' worldwide

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    Default Surging asset prices could trigger 'big shock' worldwide

    June 30, 2007

    Surging asset prices could trigger 'big shock' worldwide

    Risk managers and traders are worried about the increased risks, MAS survey shows

    By Grace Ng, FINANCE REPORTER


    PRICES of assets including equities and property have become so 'frothy' in a global financial system awash with money that many analysts are bracing themselves for a 'big shock'.

    The warning came in a recent survey by the Monetary Authority of Singapore (MAS), which found that many risk managers and traders are getting twitchy despite the global stock market and property boom.

    Trade and Industry Minister Lim Hng Kiang told 400 bankers at the Association of Banks in Singapore's (ABS') annual dinner last night that some market players even 'speculated this shock could happen before the end of 2008'.

    Mr Lim, who is also MAS deputy chairman, said the survey sounded an alarm of 'a heightened level of risk in the macroeconomic and financial environment'. 'Most respondents believed that asset prices were frothy and that a big shock could happen.'

    Survey respondents - many of whom are based in Singapore - also pointed to 'shock events' such as a terrorist attack or geopolitical instability that could disrupt markets.

    They raised the danger of 'speculative liquidity', or floods of cash in search of investments, that has led to historically unprecedented asset prices. They pointed to new players such as hedge funds and private equity outfits, who hold sway in financial markets. Respondents spoke of these players as being 'highly leveraged' and holding 'large speculative positions'.

    They also 'expressed concern about the systemic risks' posed by these funds, Mr Lim said.

    Even as Singapore's financial sector looks set to enjoy yet another sterling year, banks must not be 'lulled into a false sense of security by the external environment's bullishness and resilience to shocks', he warned.

    He cautioned banks not to let their guard down or get 'overconfident with (their) knowledge and analyses' of the risks out there. 'As bankers, you will be familiar with the saying that bad loans are made in good times. This serves as a reminder that vigilance is our constant responsibility.'.

    Mr Wee Ee Cheong, chief executive (CEO) of United Overseas Bank (UOB), echoed Mr Lim's comments in his address as outgoing ABS chairman. Mr Wee, who was sick, had his speech delivered on his behalf by UOB senior executive vice-president Terence Ong.

    'While many factors are beyond our control, we must continue to be vigilant (and) to invest,' he said.

    Bankers at the dinner held at the Meritus Mandarin hotel told The Straits Times that they concurred with the MAS survey findings but said they did not foresee a meltdown.

    ABN Amro Singapore CEO David Wong noted that Asia had 'learnt its lessons well' from the 1997 financial crisis and is now 'significantly stronger' and more resilient to shocks.

    Ms Chng Sok Hui, DBS Bank's head of group risk management, said the bank has robust processes to monitor global imbalances, which may last many more years. 'It is difficult to predict when and whether they will correct,' she added.

    Mr Mateos Atamyan of Bank Julius Baer (Singapore) commented that Singapore's financial sector 'can absorb many more shocks and excesses' compared with 10 years ago, but a 'risk and challenge' to its growth is a shortage of human resources, especially well-trained financial advisers.

    Mr Lim also highlighted another concern closer to home for banks - 'reputation risk'. He pointed to the recent public outcry over transparency and fairness of bank practices such as multiple home loan board rates and promotional fixed deposit rates.

    While these issues have limited impact on a bank's short-term profits, they 'can affect the longer-term reputation and consumer confidence'.

    Mr Lim urged banks to be proactive and address customer concerns early. It was a message picked up by incoming ABS chairman David Conner, the CEO of OCBC Bank. 'Consumers, both companies and individuals, are increasingly vocal in clamouring for higher service standards and more value,' said Mr Conner, who unveiled plans to educate consumers.

    These will include debt management seminars for individuals with an annual income of $20,000 to $30,000, to whom the banks will offer unsecured credit in the coming months.

    [email protected]


    Sounding alert

    # Survey respondents raised the danger of 'speculative liquidity', or floods of cash in search of investments, that has led to historically unprecedented asset prices.

    # They also pointed to new players such as hedge funds and private equity outfits, who hold sway in financial markets.

    Respondents spoke of these players as being 'highly leveraged' and holding 'large speculative positions'.

    They also 'expressed concern about the systemic risks' posed by these funds.

  2. #2
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    Default Re: Surging asset prices could trigger 'big shock' worldwide

    Weekend, June 30, 2007

    Threat of a big shock: MAS poll

    Risk managers concern unexpected event may cause market disruption

    HEDIRMAN SUPIAN
    [email protected]


    DESPITE the rosy environment and feel-good sentiment all round, a "big shock" could happen globally before the end of next year, according to a survey conducted by the Monetary Authority Singapore (MAS).

    Sharing the findings of the survey, conducted between April and June, Trade Minister Lim Hng Kiang said most of the risk managers and traders polled think that "asset prices are frothy" and that there was a "heightened level of risk" in the macro-economic and financial environment.

    "In this age of increased connectivity and correlation of markets, respondents felt that a shock event such as a terrorist attack, pandemic or geopolitical instability could cause market disruptions," said Mr Lim, who was speaking at the Association of Banks in Singapore's (ABS) 34th Annual Dinner on Friday night.

    "Most respondents believed that asset prices were frothy and that a big shock could happen," said Mr Lim, referring to the property and stock markets,

    "Some speculated that this could happen before the end of 2008."

    The respondents also drew attention to the current liquidity in the financial markets and observed that speculative liquidity was circulating in the financial system, he added.

    According to Mr Lim, who is also the MAS' deputy chairman, "this has led to historically unprecedented pricing and terms".

    "In the current low interest rate environment, many yield-hungry investors have become hedge providers for institutions. Respondents expressed concern about the systemic risks such providers posed and their default risk in a severe market correction," he said.

    But thankfully, he added, financial institutions are aware of the heightened risks.

    "With acceptance comes preparedness for the risks that may materialise in future," he added in his speech to bankers at the annual gathering, which saw the change of chairmanship, as United Overseas Bank chief executive officer Wee Ee Cheong passed over the baton to Oversea-Chinese Banking Corporation CEO David Conner.

    And in a reference to the recent brouhaha over the transparency of home loan rates, the minister also warned banks not to dismiss consumer complaints, especially in the age of the Internet.

    "You have read the newspaper articles in recent months concerning public unhappiness and questions about the transparency and fairness of practices concerning multiple home loan board rates and promotional fixed deposit rates. You might have asked yourself why these issues should concern you as they may not pose any significant impact on the financial standings of your banks."

    But the Internet, he noted, has "empowered" unhappy consumers to post their grouses online quickly and to a wide audience.

    "Banks should pay attention to consumer feedback for early warnings of potentially larger issues and proactively take steps to address emerging customer concerns early," he urged.

    From June 15, banks had to follow stricter disclosure guidelines on their board rates.

    For instance, they had to state upfront that the board rate offered to one customer may vary from what is offered to others on different loan packages; and to explain the financial indicators these rates are benchmarked against.

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