This currency pair drew our attention by the fact that Switzerland and Singapore have many things in common, as sometimes Singapore is reasonably referred to as “Asian Switzerland.”
At present, the Swiss franc is one of the strongest currencies worldwide. The Swiss franc is not far from all-time highs against both the US dollar and the euro. Also, the Swiss franc trades fairly high against the Singapore dollar, around SGD 1.36. Having no intention whatsoever to deny that the economic environment in Switzerland is better than in the United States and the Eurozone, I would like to emphasize that to a large extent the Swiss franc’s strength stems from its status of a save heaven currency.
However, monetary policies that the world’s leading economies have been pursuing, specifically the ECB’s purchase of eurozone government bonds, the “unsterilized” foreign currency intervention of the Bank of Japan, and growing QE2 expectations in the US and other issues have raised a number of questions.
By the way, from March 2009 through June 2010 even the Swiss central bank performed large-scale currency interventions in order to weaken the Swiss franc against the euro and keep the EUR/CHF pair above 1.50. Against this backdrop gold and silver look more reliable investment vehicles. And the idea itself of seeking safe haven in any currency, even so strong as the Swiss franc, looks quite doubtful.
As night comes after daylight, the economic recession will inevitably turn into a recovery. And then the competitive ability of a national economy in the world will be an important factor. Taking a look at the main macroeconomic indicators (Table 1), even now the situation in Singapore is at least not worse than in Switzerland.
Although Singapore’s absolute GDP figure by the purchasing power parity (PPP) is far below Switzerland’s, but with GDP per capita the PPP picture is quite the opposite. Joblessness in Singapore is far lower than in Switzerland, albeit unemployment in Switzerland is quite low. Inflation in Singapore, unfortunately, runs faster than it should. However, this factor, in my opinion, is a positive for SGD in the near term. With inflation running at such a pace, monetary authorities will not take any actions to artificially weaken the national currency, precisely via interventions.
Table 1. Primary macroeconomic indicators
GDP (PPP), USD bn
GDP per capita (PPP), USD
Sources: national statistical agencies
Even looking at the pace of GDP growth in recent years (Table 2), Singapore’s advantages are undeniable. Apart from the incredibly high pace of economic growth this year, which even China can dream of, we’d like to pay attention to 2009, quite a hard year for the global economy. Singapore’s GDP dropped less than Switzerland’s. This underscores the Singapore economy has a solid cushion and is highly flexible.
Table 2. GDP growth
1Q 2010, YOY
2Q 2010, YOY
Sources: national statistical agencies
Given the fact that the population of both Switzerland and Singapore is relatively small (7.6 and 5.0 mn, respectively), it is quite problematic for them to view domestic consumption as the only driving force of their economic growth. This is why they attach much importance to global trade (Table 3). And in terms of global trade, Singapore again holds a leadership position both in absolute terms of export volumes and in terms of the size of a trade surplus.
Table 3. Global trade
Exports, USD bn
Imports, USD bn
Trade balance, USD bn
When analyzing the geographical breakdown of export supplies, it seems much more balanced in Singapore rather than in Switzerland (Table 4).
Table 4. Geographical breakdown of export supplies
European Union (27) 61.0%
Hong Kong 10.4%
European Union (27) 10.4%
Hong Kong 2.9%
Judging from the point of view of export competitiveness in the global trade environment, Singapore looks impressive. And although in most cases Switzerland outpaces Singapore in terms of export volumes in its key industries, the number of industries which make part of 15 leading export sectors in the world is bigger in Singapore (Table 5). Thus, in this case the Singapore economy proves to be more diversified, which enhances the overall economic sustainability. The table below includes only those sectors are part of the world’s Top 15 export industries.
Table 5. The world’s top export industries
Computer & Information Services
EDP and Office Equipment
Integrated Circuits & Electronic Components
Other Business Services
Royalties & Licence Fees
As for the outlook for the next several years, Singapore looks much more compelling. Singapore will benefit much more than Switzerland from Asian economic growth.
Specifically, Singapore is strategically well-positioned at the intersection of ancient trade routes connecting China, South East Asia, India and the Middle East, which will enable the country to develop its transportation services.
Increasing wealth of the Asian population will be conducive to growth of profits generated from the tourism industry since Singapore is an ideal transition point for trips to both Europe and Asia. The decision adopted by the Singapore government to allow casino gambling is also supposed to provide an additional impetus to the country’s popularity as a travel destination.
High net-worth individuals could be attracted by private banking and wealth management services offered in Singapore. It should be stressed that growth in this particular sector would to a greater extent be driven by Switzerland. Swiss banks perfectly understand this, which is evidenced by their rapid expansion in Singapore.
Given all the aforementioned factors, I believe the Singapore dollar will reach parity with the Swiss franc in the first half of the next decade.
Disclosure: Author long non-US gold and silver ETFs