Can Singapore remain Asia’s ‘safe haven’?

This is an audio transcript of the FT News Briefing podcast episode: ‘Can Singapore remain Asia’s “safe haven”?’

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Marc Filippino
Good morning from the Financial Times. Today is Tuesday, September 19th and this is your FT News Briefing. 

The Nasdaq and the New York Stock Exchange are battling it out for new listings. And central banks are sounding the alarm over hedge funds shorting US Treasuries. Plus, Singapore is trying to keep its title as Asia’s safe haven, and it might be tougher than you think. I’m Marc Filippino, and here’s the news you need to start your day.

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Instacart is expected to launch its initial public offering today, and it’s pricing its shares at $30, which is at the top of its range. The US online grocery delivery company is expected to raise about $660mn on the Nasdaq, and its debut will push Nasdaq further ahead of the New York Stock Exchange in the fight for new listings. It’s the closest battle between the exchanges in five years. The FT’s US markets editor Jennifer Hughes has more. 

Jennifer Hughes
Now, most companies would go and say, right, let’s go meet with New York Stock Exchange, with NYSE. Let’s go and meet Nasdaq. And the two will offer possibly a slightly different package. They’ll say how wonderful they are, how cool they are, how their services are the best ones so we can support you as a company as you grow. One person I talked to who’s advised companies on this described in the end it’s mostly coming down to whether you’d like a Bentley or a Tesla. They’re both really great cars, but some people gravitate to one more than the other. 

Marc Filippino
But why does this big competition even exist? 

Jennifer Hughes
I mean, listings are a sign of prestige for the exchanges to . . . source of fees as well, because they have the listing fees, the initial fees, and then there’s annual charges as well. So it’s a money spinner for them. It’s their raison d'être to have the coolest companies and be the biggest exchange and be the place that everyone wants to go to. 

Marc Filippino
That’s the FT’s US markets editor, Jennifer Hughes.

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Hedge funds are betting against the US Treasury market. And yesterday, the Bank for International Settlements became the third regulatory group to warn that this could cause a ruckus. The BIS is the umbrella group for central banks. Here to talk more about this is FT US capital markets correspondent Kate Duguid. Hey, Kate. 

Kate Duguid
Hey. 

Marc Filippino
So why exactly are hedge funds shorting US Treasuries? 

Kate Duguid
So it’s important to note that they’re short in one part of the Treasury market and they’re long in another part of the market. And so this is what’s called a basis trade. And what it does is hedge funds have built up a huge short position in futures and future contracts, so betting on the future price of Treasuries, while they’re also long in the cash part of the market. And the reason that they do that is not because they’re betting that interest rates will rise or that they’ll fall, but that because of higher volatility in the market at the moment, right. And what that does is it creates these weird, what they call, dislocations. So it means that things are mispriced. The price of a Treasury bond in the cash market may be slightly different from the price of a futures contract. And these hedge funds are looking to exploit those really small differences. 

Marc Filippino
And why do central banks care so much about this? I mean, why are they concerned? 

Kate Duguid
This particular trade has been at the centre of a bunch of market blow-ups. In 2019, the repo market crisis, when these overnight borrowing rates spiked, the basis trade was related to that. In March 2020, as the news of the spread of the Covid-19 pandemic was really hitting the markets, the basis trade was also at the centre of that market crisis as well, which is why central banks are worried about it. What happens is with this basis trade, hedge funds are super, super leveraged and in these moments of market stress, they tend to have to unwind those positions, what we call a dash for cash and send rates across the Treasury market in all sorts of directions. 

Marc Filippino
OK. And the Fed intervened during those situations that you mentioned. I guess my question is, Kate, given the central bank intervention, why are hedge funds even allowed to short US Treasuries? 

Kate Duguid
It’s a double-edged sword, right? Like this basis trade is one that’s caused problems in the past. But the flip side of it is that it is what is allowing us as a country to continue borrowing this much money, like, without hedge funds playing the role that they do in the market at this point in time, functioning would probably be quite a lot worse. 

Marc Filippino
Kate Duguid covers the US capital markets for the FT. Thanks, Kate. 

Kate Duguid
Thank you. 

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Marc Filippino
Tons of wealthy Chinese businesspeople have recently moved themselves and their money to Singapore. It’s grown as a neutral, safe haven for investment, even as geopolitical tensions between the US and China have ratcheted up. But that big influx of Chinese investment and migration could be threatening Singapore’s neutral status. The FT’s Mercedes Ruehl joins me to talk more about this. Hey, Mercedes. 

Mercedes Ruehl
Hi, Marc. How are you? 

Marc Filippino
I’m doing well. So what exactly is attracting these wealthy business people from China? 

Mercedes Ruehl
Singapore has always been a place where mainland Chinese come to live, to work, to play, to be tourists, so this is not unusual. It’s just that in the last decade, and especially given a regulatory crackdown and a crackdown on common prosperity in China — that is Xi Jinping, the president, has tried to more evenly distribute wealth, let’s put it that way — and a lot of wealthy Chinese professionals, family offices, business people feel like Singapore is a place where it’s a bit safer at the moment. And so you’ve seen this migration effect, big companies opening. Alibaba, Tencent, ByteDance, the owner of TikTok, all growing here. And with them you get an influx of Chinese professionals. At the same time, you’re also getting wealthy Chinese coming in. There are cultural similarities between Singapore and China and so it’s an easy place for them to move. 

Marc Filippino
Mercedes, does that mean that because of all this influence that’s coming from China, it kind of tips the scales and endangers the neutrality reputation that Singapore has become known for? 

Mercedes Ruehl
I think this is a question that’s being asked at the moment in Singapore. There’s obviously, I think, been a lot of interest from China and the US in the level of migration and the level of investment from China in Singapore. I don’t think it’s at a stage where you would say that China is actively influencing the Singapore government in any way. But I think there is a certain nervousness perhaps that China is watching this wealth in particular seep out of the mainland and into Singapore, and that there’s a sense they might, one, feel like they might want to claw some of that back. And two, to what extent that China might seek to influence Singapore in some way. This is not to say that Singapore necessarily is going to be influenced or that they’re not aware of what is going on and they’re not being treading very carefully. But I think it’s become a bit more of a question with so much migration going on. 

Marc Filippino
What does your reporting show about where Singapore sits, not only in south-east Asia, but, you know, within a global context? 

Mercedes Ruehl
The most compelling thing to me is the fact that this is such a small place, and yet it has such influence, particularly in this region. Singapore’s neutrality between the US and China, they do this incredibly well. You know, they, at the same time as they deepen things like its defence relationship with the US, they deepen the economic ties with China and also do defence, for instance, military drills with China as well. I think it’s always been an open question with Singapore is how they can continue to do this, particularly as US-China decoupling gets worse. But for the moment what’s incredible to watch is just how much they’re actually benefiting from this disorder. 

Marc Filippino
Mercedes Ruehl is the FT’s Singapore and south-east Asia correspondent. Thanks, Mercedes. 

Mercedes Ruehl
Thank you very much, Marc. 

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Marc Filippino
Before we go, millions of Americans will have to start making student loan payments next month after a three-year hiatus. Before the pandemic, the average borrower paid between $2-300 a month. If your payments are starting up again, we want to hear from you. How are you feeling about it and how is it gonna impact your financial situation? We have a link in the show notes where you can record your response. We may play it in an upcoming episode of the briefing.

You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news. 

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