Asia Tea Time - Cup 44 ☕
Wishing everyone a Happy Chinese New Year and a Prosperous Year of the Dragon! This week I talk the Red Sea Crisis, the S&P 500 Index hitting an all-time high, and baby-making in Singapore.
Macro in Asia
Singapore imports from Europe impacted by Red Sea Crisis
The attacks on international commercial ships in the Red Sea have caused “some delays” to Singapore’s imports from Europe, according to a Singapore government minister.
Why it’s happening
- Remember the whole Israel-Hamas war? Well, some Houthi rebels based out of Yemen, and backed by Iran, have been attacking international commercial container ships passing through the Red Sea.
- The fact that it’s happening in a key shipping lane makes it kind of a big deal – the Red Sea leads to the Suez Canal, which is the key shipping route between Europe and Asia.
Why it matters
- Since about 17,000 ships pass through the Suez Canal each year, a load of these are now choosing to go round the southern tip of South Africa to avoid the attacks.
- That massive inconvenience also adds millions of dollars in additional costs to each ship’s journey – making moving things more pricey everywhere.
What’s next?
- Watch closely how the crisis continues to play out and whether it escalates further. If it does, higher inflation could be in store.
Tim’s Take
The Red Sea Crisis is an issue that has flown under the radar of markets because, let’s be honest, it hasn’t really impacted the average person on the street in a big way…yet.
Rerouting and going round the Cape of Good Hope – in South Africa – takes an average of 34 days.
Around 12% of global trade (worth a combined US$1 trillion) flows through the Suez Canal, a not insignificant amount.
Shipping rates have also skyrocketed, with the cost of sending a container ship from North Asia to the East Coast of the US soaring by 137% since October.
Higher inflation has been cited as a key risk by inter-government agencies if the crisis escalates further and shipping disruptions continue.
The good news, for those of us in Asia, is that the impact of rising prices is likely to be limited somewhat as Asia is the export powerhouse to the rest of the world.
That fact was highlighted by the Singapore-based NTUC FairPrice Group, which says that only a small fraction of its everyday items on sale – at its range of supermarkets – come from Europe or the Middle East.
For intra-Asian trade, the supply chain continues to function smoothly.
But rising prices globally could have an impact on general risk sentiment for investors so it’s certainly something to watch carefully in the coming months.
Tim's Money Tip of the Week
Talking of all-time highs in stocks last week turned out to be prescient. That’s because the S&P 500 Index – the key stock market benchmark in the US – just hit its own all-time high on Friday.
Looking back at history gives us a good reminder that investing in the broader market is very different from investing in individual stocks.
Even after all-time highs are hit in the market, further gains are more than likely. Last year, the S&P 500 Index gained nearly 25%.
Of the 14 other instances (since 1970) when the index recorded gains of 20% or more, 11 of them ended the next year higher.
It’s a stark reminder that just because a new all-time high in the market has been set, it doesn’t mean it’s the “top”. That’s because stock markets, over time, tend to move up and to the right.
So, when markets do fall – which they inevitably will – your plan of investing should stay the same, just as it should when markets are rising like they are now.
One of the biggest mistakes any investor can make, especially when planning for long-term wealth accumulation, is to stay out of the market because of a misconceived belief that it’s “expensive”.
Story of the Week
As Singapore geared up for Chinese New Year Celebrations, Prime Minister Lee Hsien-Loong – in his traditional CNY message – urged young Singaporean couples to have babies in the Year of the Dragon.
While Singapore gives generous grants to Singaporeans to have more children, such as “baby bonuses, this hasn’t stopped the birth rate falling to a record low of just 1.05 children per woman in the city state in 2022.
Yet the prohibitive expense of raising children in Singapore is one of the main reasons stopping couples from having more children – something policymakers will no doubt want to address in the coming years.