This week, I cover news on India rice exports, UOB, and Chinese politics.
Macro in Asia
India restricts rice exports, fuelling fears of food inflation
India’s government decided it would ban shipments of non-basmati white rice, in an effort to stabilise food prices before a general election is due in 2024.
Why it’s happening
- Rice is a staple of the Indian diet and it’s inextricably linked to inflation in the local economy.
- Who doesn’t like a populist giveaway? By banning the export of rice, the Indian government can show people that it’s doing something about rice prices.
- That’s because rice retail prices in India are up over 3% within the space of a month as heavy monsoon rains caused damage to rice crops.
Why it matters
- India’s a big deal when it comes to its position in global rice markets. It’s the world biggest rice exporter and makes up 40% of the global rice trade.
- Thailand and Vietnam are other major rice exporters that countries will look to but it appears African buyers will be impacted the most by India’s export ban.
- Watch rice prices in the next few months as the ban starts to bite but it appears poorer countries will bear the brunt of the ban.
From energy security to food security, rice is seen as a “non-negotiable” staple for the majority of Asia’s populations.
Vietnam will try and fill some of the gap. Indeed its rice exports to China popped by 70% in the first four months of 2023 while those to Indonesia skyrocketed by 2,500% over the same strech.
Rice prices were surprisingly stable in 2022, while prices for other food staples soared on the back of the war in Ukraine. It seems like it’s rice’s turn to catch up with price increases.
UOB posts solid profit and raises its dividend 40%
One of Singapore’s largest banks – United Overseas Bank Ltd (SGX: U11) – beat earnings expectations for its Q2 2023 and H1 2023 earnings.
UOB reported core net profit of S$1.5 billion, a 35% year-on-year increase and raised its interim dividend per share (DPS) by over 40%.
Why’s it news?
- Investors have been eagerly awaiting Singapore bank earnings and UOB was the first of the “Big Three” to report.
- All eyes were on whether the bank’s profits from higher rates was softening given the likely end of the US Federal Reserve’s cycle of hiking interest rates.
- It turns out that profits have held up well for ASEAN-focused UOB and that allowed it to give shareholders a monster dividend hike of nearly 42%.
Why it matters?
- Singapore’s banks make up over 50% of the benchmark Straits Times Index (STI) in the city state.
- As a result, what happens to them impacts the broader market as a whole. UOB shares ended up the week over 4%.
- Watch out for DBS and OCBC earnings next week, when investors will get a better picture of the overall health of Singapore’s banking sector.
UOB has significant exposure to the growth story in Southeast Asia given its roots in various markets throughout ASEAN.
The dividend hike was probably lost amongst the news of better profits but UOB’s ability to hike its dividend per share by 42% and still keep its dividend payout ratio (the percentage of profits it pays out as dividends) highlights how much more income the bank is generating this year.
One area to watch, though, was fee income – the growth of which UOB management guided down.
Tim’s money tip of the week
Financial media and news are constantly trying to tell us that the next existential crisis is about to hit the world.
But if you look at the evidence of investing into stocks, if you stay seated and just “buy the market”, you will be rewarded over the long term.
More importantly, doing something rash – like thinking you can time the market of when to sell and then buy in again – will inevitably end up eroding your returns. That’s so true when you miss the best days in the stock market.
For example, if you had missed the best 15 single days of the S&P 500 Index from 1990-2021, your annualised return over that period would be 7.2%.
But if you had done literally nothing and just stayed invested over the whole time, your annualised return would be 10.8%.
What if you had missed the 25 best single days? Your annualised return would nearly halve – to just 5.6%.
Finally, remember that some of the best single days in the stock market come in the middle of bear markets. Food for long-term thought.
Story of the week
It seems we can’t go a week in Asia without another majoir political scandal.
This past week, it was China’s turn. Foreign Minister Qi Gang has been off the radar and not been seen in weeks.
Earlier this week he was officially replaced by his predecessor Wang Yi.
Rumours are circulating online that Qin Gang was caught having an affair with Phoenix News reporter Fu Xiaotian – who reportedly has a child that is his.
Regardless, it’s a big shock for many overseas diplomats who are now faced with dealing with Wang Yi once again.