Corporate credit costs soar
The broader pricing of business credit must not be forgotten amid talk of a US recession and the continuing global credit market turmoil of the past three quarters.
Traditionally, if an economy is entering into a recession the central bank tends to cut official interest rates to alleviate the effects of slowing growth, just as the US Federal Reserve has done in recent months. As a rule, during this time corporate credit charges tend to rise as banks seek to price business credit defensively by raising margins as the risks of defaults rise among their customers.
The US corporate bond market, as the largest market, is also an effective barometer of the price of corporate credit everywhere.
In the past two business cycles corporate credit margins have shot up, in keeping with the twin fears of a US recession and the ongoing aversion to corporate credit debt.
This blow-out in US corporate credit margins has forced up margins, not just in Australia, but also across the Asian economic region, despite the lack of any material exposure to the US sub-prime market.
Yields in Asian and other emerging markets have moved out in sympathy with the US. But in the context of prior years and cycles, volatility is still well within the realms of recent experiences. Both the Asian and Latin American markets have seen such volatile times before. And in this case (unlike times past) the volatility has its origins in
the peculiarly US experience of the mortgage-backed markets lessening to an extent the relevance of the US trends in spreads on their own markets.
In the face of such a savage jump in global margins, it is not hard to see the rationale behind the US Federal Reserve's (and the Bank of England's) policy response of cutting rates. Outright official rates have fallen by more than what has been implied by the margin increases.
A quick look at the outright falls in US corporate rates (right) tells the story. Despite the US credit crunch, outright rates for prime US credits have actually fallen, and are now at the same levels they were before the advent of the sub-prime crisis.
This is not the case in Australia or Asia where official interest rates continue to be either raised, or at least not cut. While rates in outright terms for prime credits have fallen in the US, in Australia it has been quite the reverse, with sharp 1-2 per cent rises in outright levels. It is a picture little different from other countries around the Asia-Pacific region that have experienced like blow-outs in corporate interest rates.
For central banks in this region inflation remains the prime problem. That said, and looking forward deep into 2008, it should be taken as given that the 150-odd-basis-point jump in Australian corporate yields will restrain growth prospects.
The question for Australia and the region is: how much will we slow?
It's a question we will try to answer next month.
The growing role of Singapore's mature workers
One of the methods increasingly used in many countries to cope with the global skills crisis is to keep mature-aged workers at the coalface far longer than has traditionally been the case.
And the trend has not left Singapore untouched. Singapore's Ministry of Manpower has introduced several initiatives to address its ageing population and the low workforce participation rate of Singaporeans aged 55-64, which currently stands at 53.7 per cent.
From 2012, employers will be required to offer re-employment to workers when they reach 62, but not in the same job or at the same rate of pay. They will then be able to work until age 65, and this age will eventually be raised to 67. The government has also introduced the Workfare Income Supplement (WIS) to provide older, low-wage workers with extra take-home pay and more Central Provident Fund (CPF) contributions.
Support is also being provided for companies in the re-employment and retention of older workers via the introduction of the Singapore Workforce Development Agency ADVANTAGE! scheme, which offers grants of up to S$400,000 to support company initiatives.
It can be used to fund efforts to recruit, retain and re-employ mature workers, including the development and/or implementation of re-employment systems.
Employers looking to recruit local workers on part-time or flexible arrangements also have the opportunity to tap in to the Flexi-Works! program, which aims to bring back to the workforce those aged 35 and above who have been economically inactive, such as housewives and mature workers.
The grant can be used to fund implementation of flexible work arrangements, such as job redesign, recruitment, training, equipment and absentee payroll.
Singapore guide to iGAAP launched
Financial Reporting Standards and iGAAP was the subject of a CPA Australia seminar presented by Deloitte audit partner and national professional practice director Shariq Barmaky in Singapore during March. Barmaky covered a broad range of topics, including recent revisions to several FRSs.
The seminar was held in conjunction with the launch of iGAAP, Financial Reporting Standards in Singapore written by Deloitte Singapore experts and published by CCH Asia. Barmaky says: 'The objective of this book is to introduce and explain the financial reporting requirements that apply to Singapore entities reporting under the Singapore FRSs. The first wave of changes to FRSs in 2005 brought about many new accounting concepts and requirements that significantly affected the way entities account for and report on the results and state of affairs of their operations.'
Further information
Reference: May 2008, volume 78:04
