The Associated Press reported that the Japanese side spent more than ¥8 trillion, over US$50 billion, to support the yen. Japan’s finance ministry said it had purchased yen in coordination with the US Treasury and would not hesitate to act again if necessary.

The first market reaction was visible in Japan. The Nikkei 225 fell 1.1 per cent on Monday. But the more important question is not what happened to Japanese shares in one day. It is whether repeated action to strengthen the yen can change the price of money around the world.

I believe the answer is yes. The direction you are thinking about, higher US yields, tighter credit and pressure on expensive equities and mortgages, is plausible. The sequence, however, is conditional. We need to separate a one-off currency operation from a durable change in where Japanese institutions choose to invest trillions of dollars.

First, who is actually buying the yen?

The Bank of Japan is responsible for monetary policy. Japan’s Ministry of Finance is responsible for deciding whether to intervene in the foreign-exchange market. The Bank of Japan may execute the trade as the ministry’s agent, but the policy decision and the financing sit with the ministry.

This matters because currency intervention and an interest-rate increase are different tools. To strengthen the yen directly, Japan sells foreign currency assets or uses foreign-currency liquidity and buys yen. To strengthen the yen through monetary policy, the Bank of Japan can raise Japanese interest rates or allow domestic bond yields to rise, making yen assets more attractive.

On 31 July, the Bank of Japan kept its overnight policy-rate target at around 1.0 per cent. The vote was 8–1, with one member preferring 1.25 per cent. In other words, the dramatic currency move came from intervention and coordination, not from a surprise Bank of Japan rate increase.

That also explains why the present move is unusual. The US and Japanese finance ministers’ joint framework says foreign-exchange intervention should be reserved for excessive volatility or disorderly movements, and should be disclosed transparently. The United States participating alongside Japan sends a much stronger signal than Japan acting alone.

The first route to US yields: official dollar assets

When Japan buys yen, it must deliver dollars or other foreign currency on the other side of the trade. Those dollars can come from cash deposits, Treasury bills, longer-dated securities, short-term financing or other reserve assets. Therefore, a US$50 billion intervention does not automatically mean Japan sold US$50 billion of 10-year Treasury notes that same day.

But if intervention is repeated, the funding question becomes more important. Japan’s official reserves are large, and US government securities are a natural part of that pool. Using more of those dollar resources can mean selling Treasury securities, allowing bills to mature without reinvesting, or reducing future purchases. Each route removes some demand from the US bond market.

Bond prices and yields move in opposite directions. If a major buyer sells bonds or buys fewer new bonds, another investor must absorb the supply. The clearing price may need to fall, which means the yield rises. The effect is especially relevant when the US government is already issuing a great deal of debt and long-term rates are sensitive to the term premium investors demand for holding it.

The scale of Japanese ownership is not trivial. A US Treasury survey measured Japanese investors’ US securities at US$2.883 trillion in June 2025, including US$1.169 trillion of Treasuries, US$1.024 trillion of US equities and US$250 billion of corporate debt. Those figures combine official and private holdings, but they show why a change in Japan’s behaviour matters globally.

Historical Federal Reserve research gives a sense of the mechanism, not a forecast for today. A 2012 Federal Reserve paper estimated that a US$100 billion monthly drop in foreign official Treasury inflows could lift five-year yields by roughly 40 to 60 basis points in the short run. After private investors responded to the higher yield, the estimated long-run effect was around 20 basis points.

We should not apply those numbers mechanically. The study used an earlier market, different fiscal conditions and a broad foreign-official shock, not Japanese intervention alone. Its useful lesson is that replacement buyers eventually appear, but usually only at a price.

The bigger route may be private Japanese money

Official intervention gets the headlines. Private portfolios may have the larger and more persistent effect. Japan is one of the world’s largest net creditors. The International Monetary Fund estimated Japan’s net foreign assets at about US$3.7 trillion in the third quarter of 2025. Banks, insurers, pension funds and households have accumulated foreign bonds and shares because overseas yields were much higher than those available at home.

A stronger yen changes that calculation in two ways. First, an unhedged US investment loses value when translated back into yen. A US bond can pay its coupon and still produce a poor yen return if the dollar falls enough. Second, if Japanese government bond yields rise, domestic assets become more competitive. An investor no longer needs to travel as far abroad for income.

The IMF has warned that rising Japanese government bond yields could encourage a gradual reallocation toward domestic bonds. It noted that Japanese investors are among the largest holders of US Treasuries and euro-area sovereign debt, so repatriation could increase issuance costs abroad. The same report also cautioned that the largest Japanese institutions tend to change mandates gradually, not all at once.

This is why a durable Bank of Japan policy shift would matter more than a single day of intervention. If Japan repeatedly buys yen while Japanese rates and bond yields remain low, global investors may eventually test the authorities again. If intervention is followed by higher Japanese yields, the relative return on US assets changes and private repatriation becomes more likely.

The carry trade can turn a currency move into forced selling

For years, the yen has also served as a cheap funding currency. An investor could borrow yen at a low rate, convert the proceeds into dollars and buy a higher-yielding bond or a riskier asset. The return depended on the yield difference and on the yen not strengthening too much.

When the yen jumps, the liability becomes more expensive in dollar terms. A leveraged investor may receive a margin call or choose to close the trade. Closing it means selling the asset that was purchased, perhaps a Treasury, corporate bond, emerging-market security or equity, and buying yen to repay the loan. The buying of yen then strengthens it further.

This feedback loop is why a currency move can produce outsized volatility. It is similar to a property investor who used a cheap floating-rate loan to buy a higher-yielding asset. The investment may look comfortable while financing and exchange rates remain stable. If both move against the investor, the asset may have to be sold for liquidity rather than because its long-term value disappeared.

Why the US Treasury yield may rise, and why it may not

The defensible conclusion is that persistent yen strengthening could make Federal Reserve rate cuts less likely and, under an inflationary scenario, contribute to the case for higher rates. It would not independently force a rate increase. The Federal Reserve does not target a particular level for the dollar; it considers how exchange-rate movements affect US inflation, employment and economic activity.

There are three reasons for an upward move in yields: Japan may use or stop reinvesting official dollar assets; private Japanese institutions may bring capital home; and carry-trade positions may be unwound. All three reduce demand or create selling pressure in US fixed income.

The starting point is already demanding. The US Treasury’s official curve put the 10-year yield at 4.75 per cent and the 30-year yield at 5.28 per cent on 31 July. Less foreign demand at those levels could push the term premium higher.

But the yield direction is not guaranteed. A violent carry-trade unwind can also create a global risk-off event. Investors may sell equities and corporate bonds while buying Treasuries for safety, pushing Treasury yields down. Other private buyers may also step in when yields rise. Federal Reserve rate expectations, inflation, oil and US fiscal policy may overwhelm the currency channel.

This apparent contradiction is common in markets. Treasuries can be the asset being sold to raise cash at the start of a shock and the safe haven being bought once fear takes over. The timing and the part of the yield curve therefore matter as much as the final direction.

How higher yields reach the US credit market

A company’s borrowing cost is broadly the government-bond yield plus a credit spread. The Treasury yield is the base rate. The spread compensates investors for default risk, liquidity and uncertainty.

If Japan-related selling lifts Treasury yields while markets remain calm, the base rate rises. New corporate bonds, bank loans and refinancing become more expensive. If the yen move also causes risk aversion, credit spreads can widen at the same time. That is the uncomfortable double hit: a higher benchmark and a larger risk premium.

The most exposed businesses are not necessarily those with the weakest current earnings. They are the companies that must refinance soon, rely on floating-rate debt, have thin interest coverage or need constant access to capital. Highly leveraged acquisitions, commercial real estate, lower-rated issuers and companies funding large projects before they generate cash flow deserve particular attention.

Credit tightening can also reach the economy before defaults rise. Banks may reduce loan growth, bond investors may demand stronger covenants and new issues may be postponed. Investment slows, hiring becomes more cautious and weaker borrowers lose flexibility.

Mortgages do not sit outside the bond market

US fixed mortgage rates are closely connected to longer-term Treasury yields and mortgage-backed securities. A lender that fixes a rate for 30 years must price the risk that market rates, prepayments and funding costs will change.

Federal Reserve research on foreign capital flows found that strong foreign demand for Treasuries and agency securities helped lower yields not only on safe government assets but also on mortgages and corporate bonds. The reverse channel is straightforward: if foreign demand retreats and long-term yields rise, mortgage rates generally face upward pressure.

The mortgage rate does not move point-for-point with the 10-year Treasury. Its spread can widen when bond volatility increases because homeowners have the option to refinance when rates fall but can keep the loan when rates rise. Greater uncertainty makes that option more expensive to investors. So a yen-driven bond-market shock could lift the Treasury benchmark and the mortgage spread together.

Higher mortgage rates reduce affordability even if home prices do not change. They can slow transactions, discourage refinancing and leave existing owners locked into older low-rate loans. Residential construction and mortgage-related consumption may then weaken.

What it means for the US stock market

Expensive growth shares

Higher long-term yields reduce the present value of profits expected far into the future. This tends to hurt companies trading at high valuations, especially where today’s cash flow is small relative to what investors expect many years from now. Artificial-intelligence and other long-duration growth themes can therefore be sensitive even when their business outlook has not changed overnight.

Leveraged and refinancing-dependent companies

Higher interest expense reduces profit and cash available for dividends, buybacks and investment. The equity of a heavily indebted company absorbs the effect after bondholders and lenders have been paid, so relatively small changes in enterprise value can create larger changes in the share price.

Banks and insurers

Financial companies are mixed. A steeper yield curve can improve lending margins, but sharp bond losses, wider credit spreads and weaker borrowers can damage capital and asset quality. The speed of the move is often more important than the level.

Japanese exporters and US multinationals

A stronger yen reduces the yen value of profits earned overseas by Japanese exporters and makes Japanese products more expensive abroad. US exporters can become more competitive in Japan. For a US multinational, yen revenue converts into more dollars, although the benefit depends on hedging and local costs.

The broad index

If Treasury yields rise without a recession scare, valuation pressure may dominate. If intervention triggers a disorderly deleveraging event, equities and credit may fall together while high-quality Treasuries later rally. The same yen move can therefore produce different bond-equity correlations at different stages.

Four scenarios worth distinguishing

1. A successful one-off signal

US-Japan coordination convinces traders not to push the yen weaker. Intervention stops, Japanese rates are unchanged and private portfolios do not materially move. The effect on US yields is likely modest and temporary.

2. Repeated intervention funded from reserves

Japan must repeatedly deliver dollars. Treasury bills mature without reinvestment or securities are sold. US yields and bond volatility face upward pressure, although replacement buyers limit the eventual move.

3. A durable Japanese rate and repatriation shift

The Bank of Japan raises rates or Japanese government bond yields stay high while the yen strengthens. Japanese institutions find domestic bonds more attractive and reduce foreign allocations over time. This is the scenario with the largest persistent effect on global bond yields, credit costs and equity valuations.

4. A disorderly risk-off unwind

Leveraged carry trades close quickly. Risk assets and corporate credit fall, market liquidity worsens and Treasuries are initially sold for cash. If recession fears take over, safe-haven demand and expectations of easier Federal Reserve policy may later pull Treasury yields down.

What I would watch next

• Whether the dollar stays below the former intervention zone or climbs back toward ¥160–¥164.
• Japan’s monthly intervention disclosures and whether reserve composition changes.
• The Bank of Japan’s policy rate and Japanese government bond yields, not just official comments about the currency.
• Japanese weekly and monthly purchases of foreign bonds, which can reveal private repatriation.
• US Treasury auction demand, especially indirect-bidder participation and the concession required to sell long-duration debt.
• The 10-year Treasury yield, corporate credit spreads and the mortgage spread. A rise in all three would confirm that financial conditions are tightening broadly.
• Signs of forced deleveraging: higher volatility, wider funding spreads and abrupt selling across unrelated risk assets.

The conclusion

Japan cannot permanently determine the yen with intervention alone. Currency markets are much larger than any single operation. Lasting strength usually requires fundamentals to cooperate: Japanese rates, US rates, inflation, fiscal credibility and investors’ willingness to keep funding the carry trade.

But intervention can still matter. It can break momentum, force leveraged positions to close and signal that policymakers are prepared to change the price at which global capital moves. When the United States joins Japan, the signal becomes stronger.

If Japan continues to support the yen and Japanese investors gradually prefer assets at home, the most likely transmission is higher global term premia. US Treasury yields would face upward pressure; corporate borrowers could pay a higher base rate and a wider spread; mortgage rates could remain elevated; and expensive or leveraged equities would become harder to justify.

That is the risk worth taking seriously. It is not that Japan can sell one block of Treasuries and dictate the entire US market. It is that the world’s largest creditor nations may no longer be willing to provide the same amount of cheap capital at yesterday’s price.

Yours sincerely,

Daryl

The post When Japan buys the yen: why US bonds, mortgages and stocks may feel it appeared first on Daryl Lum's Blog.

The simple explanation was that oil went up and technology shares went down.

That explanation is not wrong. It is simply incomplete.

Oil affects far more than petrol stations. It influences freight, air travel, production costs, household spending, inflation expectations and interest rates. At the same time, Tesla and Alphabet had company-specific problems that had little to do with oil. The market was dealing with a macroeconomic shock and an earnings reassessment together.

This distinction matters. If we treat every market fall as one story, we may end up buying or selling the wrong thing for the wrong reason.

The US$100 headline

Brent did trade above US$100. It briefly touched US$102 on 23 July after attacks on two Saudi oil tankers in the Red Sea increased concern about the security of crude shipments from the Middle East.

However, oil did not stay there. By 31 July, Brent had settled at US$87.93 after moving between US$72 and US$102 during the month.

This is the first lesson. A dramatic price level may be useful for a headline, but it is a poor substitute for understanding the mechanism. The important question is not whether oil crossed US$100 for a few hours. The important questions are why it moved, how long it stays elevated and which businesses can absorb the cost.

It is similar to seeing one condominium transaction at a record price and assuming that every unit in the development is suddenly worth the same amount. The transaction matters, but so do the floor, facing, condition, financing and whether another buyer is prepared to pay that price.

How the shock moves from oil to equities

A supply disruption first adds a risk premium to oil. Refiners, airlines, shipping companies, manufacturers and logistics operators then pay more for fuel or for products linked to fuel. Some companies pass the increase to customers. Others absorb it through lower margins.

The pass-through can happen quickly. The US Energy Information Administration has estimated that a fully passed-through US$1 change in crude oil corresponds to about 2.4 US cents per gallon at the pump, with roughly half of the change usually reaching consumers within two weeks and about 80 per cent within four weeks.

The effect is wider than fuel. EIA also notes that higher oil prices raise freight costs, which can affect the delivered price of food and other goods. A family that spends more on transport and groceries has less to spend elsewhere. A company that pays more for shipping or electricity may have less profit unless it can raise prices.

An oil shock can reach equities through inflation, interest rates, margins and consumer spending. The path depends on the duration of the shock and each company’s financial position.

Inflation and bond yields are the bridge

The bond market is the bridge between an oil shock and the valuation of a technology company.

The latest available US inflation report was already complicated. The Bureau of Labor Statistics reported that the consumer price index fell 0.4 per cent in June but was still 3.5 per cent higher than a year earlier. Energy prices fell 5.7 per cent during June, yet remained 15.7 per cent higher year-on-year. Core inflation was 2.6 per cent.

That is why investors should be careful with a single monthly figure. Energy can pull headline inflation down one month and push it up the next. If oil remains high, central banks may have less room to reduce rates. Bond investors may also demand a higher yield to compensate for inflation risk.

By 31 July, the US 10-year Treasury yield had risen to 4.71 per cent from 3.97 per cent before the war with Iran. A higher yield matters because every share is ultimately a claim on future cash flows. The further those cash flows are in the future, the more their present value falls when the discount rate rises.

This is why expensive growth shares are often described as long-duration assets. Investors may be willing to pay a high price when capital is cheap and distant profits are valued generously. They become less willing when safe bonds offer a better return and the future is discounted more heavily.

Tesla and Alphabet did not fall only because of oil

Tesla fell 14.5 per cent on 23 July. Alphabet fell 7.1 per cent. The oil shock made the market less forgiving, but both companies also gave investors reasons to reassess their own cash flows.

Tesla’s Q2 2026 filing showed strong revenue growth but much weaker operating profitability, higher research spending and negative free cash flow. Think of it as having high revenue but very thin margins. Alphabet beat revenue and profit expectations, yet investors focused on how much it planned to spend on artificial intelligence infrastructure. Its quarterly investment almost doubled from a year earlier to nearly US$45 billion.

I wrote recently that investing too heavily in artificial intelligence may be a costly mistake. The concern is not that artificial intelligence has no value. The concern is that investors may pay today for profits that are uncertain, distant and expensive to produce. I would reiterate that I believe that artificial intelligence is going to be one of, if not, the most transformative technological innovation in our lifetime. But then that does not mean that we would pay any price for a piece of a company at trying to be at the forefront of it. Imagine this, a Tesla car is a good vehicle. However, that does not mean that we should be willing to pay any price for it. There is always a fair price to pay for something. At this point in time, I believe that many stocks are overpriced. Many in the market are not paying fair prices.

The end of July also showed why we should not speak about Big Tech as though every company is the same. Amazon rose 15.3 per cent after strong profit and cloud growth suggested that its spending was producing results. Microsoft also received a positive response. Apple fell 7.4 per cent after its revenue-growth forecast disappointed.

The market was not rejecting all technology spending. It was distinguishing between spending that appeared to generate present-day profit and spending whose payoff remained harder to see.

The sector winners and losers are not automatic

Energy producers and service companies

Higher oil prices can increase revenue and cash flow for producers, especially when their production costs do not rise as quickly. Oilfield-service companies may also benefit if producers spend more. However, a temporary price spike is not the same as a durable earnings cycle. A producer with hedges, debt, political risk or high costs may not benefit as much as the headline suggests.

Airlines, shipping and logistics

These businesses consume large amounts of fuel. American Airlines fell 8.4 per cent and Southwest Airlines fell 6.2 per cent on 23 July even after reporting better-than-expected results. Yet the outcome depends on fuel hedging, ticket prices, freight rates and the strength of demand. A company that can pass on the cost is in a very different position from one that cannot.

Consumer businesses

When households spend more on transport, utilities and food, discretionary spending can weaken. Restaurants, retailers, travel companies and other consumer-facing businesses may feel the effect. The most vulnerable are usually those with weak pricing power and already-thin margins.

Growth shares and REITs

Growth shares can suffer when bond yields rise because more of their valuation depends on future profits. REITs and other income assets can also face pressure because their distributions are compared with safer bond yields, while refinancing becomes more expensive. The quality of the assets, debt maturity and rental growth still matter.

Banks

Banks may initially benefit when interest rates stay higher, but this is not a free lunch. Slower economic activity can reduce loan demand and increase credit losses. Once again, the first-order effect and the eventual effect may be different.

What this means for a Singapore investor

A Singapore investor does not need to own an oil company to be exposed to oil. The exposure may sit inside an airline, a logistics company, a REIT, a consumer business or a portfolio of US growth shares.

There is also a currency dimension. US shares are priced in US dollars, commodities are generally traded in US dollars and changes in global interest-rate expectations can move exchange rates. The return shown on a US brokerage statement may not be the same as the return in Singapore dollars.

More importantly, diversification should be based on economic drivers rather than the number of counters in a portfolio. Owning an airline, a retailer, a logistics group and a high-valued technology company may look diversified. Yet all four can be hurt by the same combination of expensive energy, weaker consumer spending and higher bond yields.

Conversely, owning several energy companies is not a complete hedge if they all depend on the same commodity price. A portfolio should be tested against the underlying risks, not merely counted by sector labels.

What I would watch next

Whether oil remains high

A brief move above US$100 is different from several months of expensive oil. Shipping routes, production volumes and the durability of the Middle East disruption matter more than one closing price.

Whether higher costs reach consumers

Petrol prices, airfares, freight rates and company guidance will show whether the shock is being passed on or absorbed through margins.

Whether bond yields stay elevated

If the 10-year Treasury yield remains high, expensive growth shares and leveraged assets may continue to face a tougher valuation environment even if oil falls.

Whether artificial intelligence spending produces cash flow

The market rewarded Amazon and Microsoft when investors could see evidence that spending was supporting growth and profit. Tesla and Alphabet received a harsher response where the cost or timing of the payoff looked less comfortable.

The conclusion is not ‘buy oil and sell technology’

Markets are not equations with one input and one output. Oil can fall while bond yields remain high. A technology company can rise despite expensive energy if its earnings are strong enough. An energy company can fall even when crude rises if its own costs, debt or operations disappoint.

The useful lesson from July is not to trade the first headline. It is to trace the shock through the cash flows. Ask who pays more, who can pass the cost on, whose customers have less money to spend and whose valuation depends most heavily on distant profits.

Once we do that, a violent market move becomes less mysterious. It may still be uncomfortable, but at least we are analysing the business rather than reacting to the noise. It just takes a little more effort to break things down to understand what is going on.

Yours sincerely,

Daryl

The post When oil jumps and Big Tech falls appeared first on Daryl Lum's Blog.

It is tempting to read both moves as the start of a broader easing cycle for Singapore property. However, we should pause and take a step back to understand what is really going on.

In my view, both changes reduce friction. But they operate in different markets, address different problems and retain important safeguards.

So then, is Singapore loosening its property rules? Yes, in two narrow places.

Is the Government trying to restart a property boom? The evidence does not support that conclusion.

What actually changed?

Let us begin with the HDB resale market.

From 28 July 2026, current and former private residential property owners no longer have to wait 15 months before buying a non-subsidised HDB resale flat without an HDB housing loan. This applies regardless of flat size.

Current private property owners must still dispose of all their private residential property interests in Singapore and overseas within six months after completing the HDB resale purchase.

The 30-month wait-out period also remains if they want to buy a subsidised flat, use HDB housing grants, buy a new executive condominium directly from a developer or obtain an HDB housing loan.

In other words, the Government has restored access to the open HDB resale market, while keeping the 30-month restriction for subsidised housing benefits.

The en-bloc change is different.

For collective-sale sites that will be redeveloped into 700 to 1,399 homes, developers now have six years to complete the project and sell all the units. For sites yielding at least 1,400 homes, they have seven years, although at least half the units must be sold by the end of the sixth year.

The 40 per cent ABSD on residential development land remains. Five per cent is non-remittable. The remaining 35 per cent is at risk if the developer misses the prescribed commencement, completion or sales conditions.

This is not an ABSD rate cut. In my view, it recognises that a very large project carries different execution and sales risks from a much smaller development. Selling all or even most of the units in a very large project is naturally more difficult.

The Singapore government is calibrating. Not stimulating.

So why make these changes now?

HDB resale prices fell by 0.1 per cent in the first quarter of 2026 and another 0.3 per cent in the second. At the same time, more flats are expected to reach their Minimum Occupation Period over the next few years and become eligible for resale.

That gives the Government room to remove a temporary restriction introduced in September 2022, after construction delays, a low-interest-rate environment and higher housing demand contributed to an imbalance in the HDB resale market.

The two quarterly declines amount to a cumulative fall of 0.4 per cent. That does not suddenly make resale flats cheap. What has changed is the direction and pace of the market, together with the supply outlook.

The supply figures are important. About 13,500 flats are expected to reach their Minimum Occupation Period in 2026, up from around 8,000 in 2025. The number is expected to rise further to 15,000 in 2027 and 19,500 in 2028.

At the same time, HDB plans to launch about 55,000 BTO flats between 2025 and 2027. More resale choices are therefore coming onto the market, while a strong BTO pipeline gives eligible buyers an alternative to paying ever-higher resale prices.

The Government says the en-bloc revision is meant to support large-scale redevelopment, rejuvenate sites and make additional housing supply available. In my view, the earlier framework did not sufficiently account for the longer construction programme, larger capital commitment and sales risk that come with a very large site.

If the rules discourage developers from bidding for those sites at all, the policy defeats the urban-renewal objective it was meant to support.

That is why I see both announcements as policy maintenance. One temporary restriction had served its purpose. One developer deadline was insufficiently proportionate to project size.

Neither conclusion requires us to believe that the whole property market needs rescuing.

The original rule was designed to shield HDB from excess liquidity

When the 15-month wait-out period was introduced in September 2022 as a temporary measure to moderate demand for resale flats, it served a clear purpose.

When the measure was introduced, construction delays, higher housing demand and a low-interest-rate environment had contributed to an imbalance in the HDB resale market. In my view, private property sellers with substantial sale proceeds represented additional purchasing power that risked pushing prices even higher.

The Government’s stated purpose for the wait-out period was to moderate demand for resale flats. My reading is that it also shielded the HDB resale market from excess liquidity at a particularly unsettled moment.

That context has now changed.

The resale price index fell in the first two quarters of 2026, while the MOP pipeline is expanding and HDB plans about 55,000 BTO flats between 2025 and 2027. In my view, this makes the removal timely. A rule that was useful during a period of excess demand need not remain indefinitely after the balance of the market has shifted.

In my view, removing it allows this group of buyers to return and provide a measure of support to the resale market as it cools.

The effect, however, will not be evenly distributed.

I expect a private home owner who is right-sizing to enter the HDB market with different priorities from a typical first-time buyer. After selling a private property, this buyer may place a higher value on space, location, lease balance and the ability to move in quickly. That could direct more purchasing power towards five-room flats, executive flats and higher-quantum units in mature or well-connected estates.

Does that mean the overall HDB resale index will surge? Not necessarily.

The returning buyer pool is only one part of a large market. More resale supply is coming as the number of flats reaching MOP rises. The 30-month restriction on subsidised purchases remains. The Government has also cautioned that the global economic outlook remains uncertain, which can make households more cautious.

But averages may conceal what happens at the top end. The overall resale index can remain stable while selected flats attract more offers and set new price records.

This is the part of the policy change I would watch most closely. Not whether every HDB flat rises, but whether the premium for scarce, large and well-located flats widens.

There may also be a secondary effect on rentals. Households without alternative accommodation may previously have needed to rent during the 15-month gap. Allowing them to move directly into a resale flat could remove some of that temporary rental demand.

Removing the wait-out period is reasonable, but not costless

My view is that the wait-out rule had become too blunt.

The Government acknowledged that the wait-out period caused inconvenience and disruption to some private home owners with genuine housing needs. A family could be trying to reduce its mortgage, free up retirement funds, move closer to children or shift from a condominium to a larger HDB flat that better suits its needs. In such cases, forcing the family to rent for 15 months imposed a real cost without creating a new home.

Removing the rule restores mobility across the housing ladder. It may also bring more private resale homes onto the market when right-sizers dispose of their existing properties.

However, restoring mobility and preserving HDB affordability are not automatically the same thing.

My concern is that private property owners are returning to a public housing resale market where affordability remains sensitive. Although these buyers cannot immediately access grants or an HDB housing loan, additional purchasing power can still affect the price paid for a resale flat.

The safeguard is therefore not the absence of an impact. The safeguard is that the impact should be limited by supply and concentrated in a narrower segment.

If premium-flat prices accelerate sharply while the broader index stays calm, policymakers should not hide behind the island-wide average. They should examine the segment that the rule was originally designed to influence.

That would not mean the removal was a mistake. It would mean a targeted policy deserves targeted monitoring.

Longer en-bloc timelines help, but price still decides the deal

My reading of the en-bloc change is similarly measured.

The Government said the longer timelines are intended to support large-scale redevelopment, rejuvenate sites and make additional housing supply available. In my view, a developer should not be forced to launch 1,500 units too aggressively merely because the tax clock is running. Giving such projects more time is logical.

But the revision does not fundamentally change project economics.

Developers remain subject to a 40 per cent ABSD, including a 5 per cent non-remittable component, and must meet commencement, completion and sales conditions to retain remission of the remaining 35 per cent. In assessing the project economics, I would still account for the land purchase, construction costs and the uncertainty of the future sales market.

Above all, the reserve price still has to make sense.

The extra time has value. The danger is that owners treat that value as a reason to raise—or refuse to reduce—their asking price. If every dollar of risk relief is capitalised into the land price, the developer is no better off and the sale still does not happen.

The longer deadline can reopen the conversation, but realistic pricing will determine whether a deal closes.

The policy is necessary for some mega sites. It is not sufficient.

Buyers should not assume the concession will make new homes cheaper

There is another leap in logic worth avoiding.

If developers face less ABSD timing risk, will the eventual homes be cheaper?

Not automatically.

In my view, part of the benefit may be passed back to the existing owners through a higher land bid. I would still expect developers to account for construction and financing costs, competing projects and what buyers are willing to pay when pricing the new units.

The public benefit is more indirect. The Government says the framework is intended to facilitate site rejuvenation and make additional housing supply available. Over time, a more diverse land supply can also reduce dependence on Government Land Sales sites alone.

That is worthwhile. It is simply not the same as promising lower launch prices.

My view

I do not read these changes as a U-turn on cooling measures.

The HDB announcement removed one temporary eligibility restriction, while the en-bloc announcement adjusted one developer ABSD timeline. In my view, these targeted changes do not amount to a general relaxation of Singapore’s cooling, credit and housing-supply framework.

For the HDB market, the benefit is greater flexibility and a broader pool of demand at a time when substantially more flats are becoming eligible for resale. The risk, in my view, is renewed price pressure in larger and premium resale flats.

For the en-bloc market, the benefit is lower execution risk. The obstacle remains the gap between what owners hope to receive and what developers can prudently pay.

In my view, there is no benefit to Singapore in engineering a steep correction in home prices. A disorderly fall would damage confidence, household balance sheets and the broader economy. The more sensible objective is a market that cools without collapsing.

To those who have property agents telling them to hurry buy HDB properties as prices will rise due to an increase in buyers should then ask the same property agents whether by the same logic, the rule takes away buyers from the private property market and hence private property prices should fall.

I cannot know whether this was the Government’s explicit intention. But against the rising housing-supply pipeline and the Government’s warning of an uncertain global outlook, I read the removal of the wait-out period as consistent with a softer-landing approach: allow enough demand to support an easing market, while keeping the main cooling, credit and supply controls in place.

Both changes are defensible. Neither is a reason for buyers, sellers or en-bloc owners to become less realistic.

The rules may have changed. The price still has to make sense.

Yours sincerely,

Daryl Lum

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The headline number is 0.5 per cent. Singapore private home prices rose again in the second quarter of 2026. If you are selling a property, that is probably the number you will repeat. If you are buying, it is the number someone will repeat to you.

But what exactly rose?

According to the final figures from the Urban Redevelopment Authority (URA), landed property prices rose by 2.5 per cent in the second quarter. Non-landed property prices fell by 0.1 per cent.

That is a 2.6 percentage point difference between the two segments. Put them together and the overall index increased by 0.5 per cent.

Sounds like the whole private property market went up? Well, not quite.

The headline is correct. It is also incomplete.

Let us be clear. The URA did not get the number wrong. The overall private residential price index increased from 218.3 in the first quarter to 219.4 in the second quarter. That works out to a 0.5 per cent increase. The pace was slower than the 0.9 per cent rise in the previous quarter.

The problem comes when we take an island-wide index and use it to describe every property as though the market moved in one direction.

It did not.

Landed prices had fallen by 0.4 per cent in the first quarter. They then rose by 2.5 per cent in the second quarter. Non-landed prices did almost the reverse. They rose by 1.3 per cent in the first quarter and slipped by 0.1 per cent in the second.

So then, if you own a condominium and someone tells you that private home prices rose by 0.5 per cent, does that automatically mean your unit became 0.5 per cent more valuable? No. The non-landed index actually moved slightly lower. Even that non-landed number is too broad to price a particular unit.

URA itself states that private residential prices are not uniform and vary from project to project. That may sound obvious, but it is often forgotten when a headline number is convenient.

The non-landed market was split as well

Now look at the regional numbers for non-landed properties.

Prices in the Core Central Region, or CCR, increased by 1.8 per cent. Prices in the Rest of Central Region, or RCR, fell by 1.2 per cent. Prices in the Outside Central Region, or OCR, fell by 0.1 per cent.

The difference between the CCR and RCR was 3 percentage points in one quarter.

This is why I do not think buyers should keep repeating the line that the CCR is weak while the mass-market regions are always the safer bet. That may be the popular narrative for a period of time. It is not something that we should focus when we are investing in property.

In this quarter, the CCR rose while the RCR and OCR fell. In another quarter the positions may reverse. The point is not to declare that the CCR has permanently returned or that the RCR and OCR are now poor investments. The point is that the market is segmented. Your conclusion should depend on what you are actually looking at.

A one-bedroom unit in the CCR, a family condominium in the RCR and a landed home do not have the same buyer pool. They do not face the same supply. They do not even move according to the same sub-index. Why then should one headline be used as the answer for all three?

What does the URA index actually measure?

The URA property price index is not a simple average where all transacted prices are added together and divided by the number of sales.

URA uses what is called a stratified hedonic regression methodology. In plain English, it tries to control for differences in the properties sold, including attributes such as age and unit size. The price movements are then aggregated using fixed weights covering five quarters.

This is sensible. Imagine one quarter with many small new units sold and another quarter with more large resale units. A simple average price could move merely because the mix of homes changed. The methodology tries to reduce that problem.

However, the index is still meant to show a broad trend. It is not a valuation report for your property.

If you want to know whether a particular unit has risen in value, you should look at transactions in the same project, then compare similar unit sizes, floors, facing, condition, tenure and transaction dates. If there are few comparable transactions, accept that the answer will be less certain. Do not fill the gap with an island-wide headline just because it is available.

A busy market can still have softer prices

There is another interesting point in the second-quarter data. The market recorded more transactions.

Resale transactions increased from 3,225 units in the first quarter to 3,813 units in the second quarter. That is an increase of about 18.2 per cent. Total transactions, excluding executive condominiums, rose from 5,413 to 6,148 units, or about 13.6 per cent.

Yet the non-landed price index fell by 0.1 per cent.

More sales do not automatically mean prices must rise. It can mean buyers and sellers were more willing to meet. It can also reflect the mix of projects and regions transacted. The official data gives us the result. It does not give us permission to invent one neat cause for every movement.

This is where property commentary often becomes too convenient. When prices and volumes rise together, people say demand is strong. When volumes rise but a segment softens, the same people may simply ignore the volume or switch to another explanation.

My stand is simpler. Read the numbers together and be honest about what they do not prove.

The supply story is not a one-line answer either

URA reported 42,472 private residential units, including executive condominiums, in the supply pipeline with planning approval at the end of the second quarter. Of these, 15,810 units remained unsold. There were another 18,153 unsold units without planning approval, including the 4,745 units on the confirmed list of the Government Land Sales programme for the second half of 2026.

URA expects about 60,600 private residential units, including executive condominiums, to be completed in the coming years. About 25,900 are expected by 2028 and about 34,700 from 2029 onwards.

Does this mean prices must fall? No.

Pipeline supply is not the same as keys being handed to buyers tomorrow. Sites need to be sold, planned, launched and built. Demand and the type of homes supplied will matter as well.

But it also means we should be careful when someone says property prices must keep rising because Singapore simply has no supply. The Government has been releasing a high and steady supply of private housing. The full-year 2026 confirmed-list supply is 9,320 units, more than 50 per cent above the annual average over the past decade.

Scarcity can be true for a specific product or location. It is less useful as a blanket explanation for the entire market.

So what should a buyer do with the 0.5 per cent number?

Use it as the start of the question, not the answer.

1. Identify the correct segment. Are you looking at landed or non-landed property?
2. If it is non-landed, identify the region. CCR, RCR and OCR moved in different directions in the quarter.
3. Look at the project and comparable transactions. The broad index cannot price your unit.
4. Separate market activity from price direction. More transactions do not guarantee broad price increases.
5. Consider upcoming supply, but be realistic about when that supply will actually reach the market.
6. Work out whether the property makes sense for your finances and holding period without assuming that a quarterly index will repeat itself.

The last point is the most important. If the investment only works because you assume the overall index will keep rising every quarter, then the investment case is weak. A property has to make sense based on the price paid, the financing cost, the holding period, the realistic rental or own-use value, and the pool of future buyers.

My view is that the 2Q2026 data is not a crash signal. It is also not a clean bull-market signal. It is a picture of a divided market where landed homes and the non-landed CCR moved up while the RCR and OCR softened.

The 0.5 per cent headline is accurate. Just do not mistake the headline when pricing your property. Or even when offering on a property.

Yours sincerely,

Daryl Lum

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However, a revolutionary technology does not automatically make every company associated with it a good investment. More importantly, a good company does not automatically become a good investment at any price.

This is where I think many investors are getting carried away.

They hear the words artificial intelligence, robotaxi, humanoid robot, satellite internet or Grok and assume that the share price can only go higher. It is a little like buying a good condominium but refusing to ask how much the seller wants. The development may be excellent. The location may be excellent. However, if you pay far too much, your eventual return may still be poor.

I have written previously that nothing in investing travels in a singular direction. Tesla and the newly listed SpaceX are timely examples of why investors should not concentrate too heavily in one popular investment theme.

Tesla’s topline looked strong. Its operating profit did not.

Let us start with Tesla.

At first glance, Tesla’s second-quarter 2026 results looked good. Tesla’s official Q2 2026 shareholder update filed with the United States Securities and Exchange Commission showed that revenue increased by 26 per cent year-on-year to US$28.236 billion. Tesla also delivered 480,126 vehicles during the quarter, an increase of 25 per cent from a year earlier.

Those are impressive topline numbers.

However, when we move down the income statement, the picture becomes far less impressive. Operating expenses increased by 47 per cent to US$4.353 billion. Operating income fell by 57 per cent to just US$398 million. Tesla’s operating margin fell from 4.1 per cent to 1.4 per cent.

Free cash flow was negative US$1.092 billion, compared with positive US$146 million in the same quarter a year earlier. Research and development expenses increased from US$1.589 billion to US$2.371 billion.

Tesla itself said that the decline in operating income was partly caused by higher expenses from artificial intelligence and other research projects, stock-based compensation and selling, general and administrative expenses. Lower regulatory credit revenue and lower average vehicle selling prices also weighed on profitability.

So then, the problem was not that Tesla could not sell more vehicles. It did. The problem was that the additional revenue did not translate into stronger operating profit.

The market reacted accordingly. Tesla shares fell by about 14.5 per cent on 23 July, erasing roughly US$203 billion of market value in one trading session. The shares closed at US$313.03 on 24 July.

Does that mean Tesla is a bad company? No.

Tesla has a strong brand, a large installed base, a growing energy storage business and genuine expertise in manufacturing, software and autonomous driving. I am not dismissing these strengths. I am also not saying that Tesla’s artificial intelligence investments will never pay off.

What I am saying is that investors are paying today for many things that may only become profitable in the future. Robotaxis, Optimus humanoid robots, autonomous driving software and Tesla’s artificial intelligence infrastructure all require large amounts of capital. The eventual size and timing of the profits remain uncertain.

This was also the concern I raised in my earlier article on why Tesla’s share price was falling. The story surrounding the company had become much larger than its present-day earnings.

When a company is valued on perfection, even a good quarter can disappoint if the bottom line does not keep pace with the narrative.

SpaceX is an excellent business story. That does not settle the valuation question.

Now let us look at SpaceX.

SpaceX listed its shares in June 2026. Its official pricing announcement shows that the company sold 555,555,555 Class A shares at US$135 each. The shares began trading under the symbol SPCX and opened at US$150.

Yet the share price closed at US$115.07 on 24 July. That is about 15 per cent below the IPO price and about 23 per cent below the opening trade.

Again, this does not mean that SpaceX is a poor company. It has achieved things that many governments and aerospace companies could not. Its reusable rockets changed the economics of space launches. Starlink has also built a satellite broadband network at a scale that is difficult for competitors to replicate.

However, investors are not buying a private SpaceX that consists only of profitable rockets and Starlink. The listed group also includes the artificial intelligence and social media businesses acquired through xAI, including Grok and X.

The numbers are important.

SpaceX’s approved European prospectus shows that the group generated US$4.694 billion of revenue in the first quarter of 2026. However, it recorded an operating loss of US$1.943 billion and a net loss of US$4.276 billion.

The segment figures tell us where the strength and weakness lie.

• Connectivity, which includes Starlink, produced operating income of US$1.188 billion in the first quarter of 2026.
• The Space segment recorded an operating loss of US$662 million.
• The AI segment, which includes Grok and X, recorded an operating loss of US$2.469 billion.

In essence, Starlink is currently carrying a very large portion of the group’s economic weight.

The artificial intelligence segment generated US$818 million of quarterly revenue, up from US$727 million a year earlier. However, its operating loss widened dramatically from US$936 million to US$2.469 billion. SpaceX also spent US$7.723 billion on capital expenditure for the AI segment in the quarter alone.

There is nothing wrong with investing heavily to build a long-term business. The problem arises when investors price the future benefits as though they are already certain, while treating the present costs as though they do not matter.

Is X profitable, and is its user base leaving?

I initially thought that X might already be profitable even though some users were leaving the platform. After checking the company’s disclosures, I do not think we can state either point so confidently.

SpaceX does not provide a separately audited profit figure for X. What it does disclose is that the combined AI segment, which contains both X and Grok, is deeply loss-making.

The prospectus says that AI segment subscription revenue increased by US$177 million and data licensing revenue increased by US$12 million year-on-year in the first quarter. However, advertising revenue fell by US$100 million. This shows that subscriptions are growing, but it does not prove that X itself is profitable.

As for usage, SpaceX’s SEC-filed IPO materials state that X had approximately 550 million monthly active users and around 350 million daily posts as at March 2026. External estimates differ because social media companies do not all define or disclose usage in the same way.

Hence, I would not base an investment decision on the broad claim that everyone is leaving X. The more defensible point is that X is not the dominant global social media platform and that its combined business with Grok is consuming a great deal of capital.

Are Starlink satellites failing at a higher rate?

This is another claim that I wanted to verify. The evidence I found does not support it.

The United States Federal Communications Commission’s January 2026 order noted that SpaceX had made substantial reliability improvements between its first- and second-generation Starlink satellites. In the first reporting year, the first generation had six disposal failures, while the second generation had two.

The deployment rate is also not slowing. SpaceX’s prospectus records 96 Falcon launches in 2023, 134 in 2024 and 165 in 2025. Internal SpaceX launches, many of which deploy Starlink satellites, increased from 63 in 2023 to 89 in 2024 and 122 in 2025. Starlink had about 9,600 satellites in orbit and 10.3 million subscribers as at 31 March 2026.

Therefore, Starlink satellite reliability and deployment are not the weak points in this investment case. In fact, Starlink is arguably SpaceX’s strongest present-day business.

The real risk is concentration and the price you pay

Artificial intelligence may be one of the most important technologies of our lifetime. I use it, I see its value and I expect it to become more capable.

But I would separate four very different questions:

1. Is the technology useful?
2. Is the company well managed?
3. Will the company eventually earn attractive profits from it?
4. Is today’s share price low enough to give investors a satisfactory return?

A “yes” to the first question does not guarantee a “yes” to the other three.

This is why I would be careful about holding too much Tesla, SpaceX or any group of shares whose valuations depend on the same artificial intelligence narrative. They may look like different companies, but their share prices can fall together when investors become less willing to fund distant profits.

In property terms, owning three condominiums in the same development is not genuine diversification. In the same way, owning several high-valued artificial intelligence shares may still be one concentrated bet.

I am not asking investors to avoid artificial intelligence entirely. I am asking them to pay attention to position size, valuation, cash flow and the difference between a compelling product and a compelling share price.

What I would watch from here

For Tesla, I would watch whether operating margin recovers, whether free cash flow turns positive and whether its AI-related spending begins to produce recurring profits rather than only promises.

For SpaceX, I would watch whether Starlink can continue funding the rest of the group, whether the Space segment returns to operating profit and whether the Grok and X businesses can narrow their losses without requiring ever-larger amounts of capital.

Most importantly, I would not chase either share simply because it has fallen. A lower price is not automatically a cheap price.

Investing is not about finding the most exciting story. It is about paying a sensible price for the cash flows that the business can realistically produce.

Yours sincerely,

Daryl

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So what is this new 3-million-baht Investment Visa?

It is an extension of stay granted one year at a time and is renewable annually. As this is an extension of stay based on investment, it is designed strictly for the holder to reside in Thailand. It does not grant the holder the right to cork or conduct commercial activities in Thailand.

What law provides for this visa?

Two statutes/ orders provide for this visa. Namely:

a. the Immigration Bureau Order No. 237/2568; and

b. the Immigration Bureau Order No. 238/2568.

The latter order provides for the 12-month extension and lays out the eligibility criteria, the required 3-million-baht investment threshold and the document requirements.

When did this visa start?

The immigration orders came into force on 1 October 2025.

Are there any ambiguities?

To date, the freehold condominium purchase route is well understood and in force. However, as of the time of writing, the authorities are still clarifying the requirements for leasehold and rental pathways for the visa.

Do you need an agent to apply for this visa?

No. You do not need an agent to apply for this visa. There are many companies online who tout their services as “agents” for the visa. However, anyone is permitted to apply for this on their own. The possible benefit of engaging such an “agent” would be that they would be more familiar with the process and perhaps some documents may be better understood in Thai. Hence if you do not understand Thai, you may benefit from such a service.

The market is currently flooded with “agents” charging high “membership” or “service” fees. These fees may come with some additional perks like airport pickups. However, there is no requirement to use an agency to apply for this visa. The process primarily requires you to obtain a Certification Letter verifying your investment, which is administered through Thailand Longstay Service Co., Ltd. under the Ministry of Tourism and Sports. Once you have this Certification Letter, together with the relevant bank and property documents (like the Foreign Exchange Transaction (FET) Form showing funds came from overseas, and the property title deed in your name), you can process the paperwork independently.

Some Thai property agencies or developers may assist their buyers in applying for the 3-million-baht Investment Visa. If you are buying or bought a property through a Thai property agency or Thai developer, you may check with your sales agent if they do provide such a service.

A word of caution when you see “agents” promising guaranteed immediate results or trying to sell you fast track packages using loopholes. These are not advised and to date, I cannot find any “agent” who can fast track the application process. The fastest way to apply would be to have all documents ready and respond promptly when the authorities reach out to you for clarification. There are also “agents” who can claim to be able to obtain an FET Form without the need for funds to come from overseas. This is not legal. Moreover, you would not want to jeopardise your application by submitting something an untruth.

The application procedure

Please note that there may be some changes in the future. This is accurate as of the day of posting. The application is

Step 1: Property purchase and Thai ownership compliance

Finalise the purchase of your freehold condominium worth at least THB 3,000,000. The funds must be transferred from overseas. You will also need to verify that your ownership of the property is compliant (i.e. within the foreign quota limits).

Step 2: Obtain Certification Letter from Ministry of Tourism and Sports

This is done by submitting the property documents, bank forms and a copy of your passport to Thailand Longstay Service Co., Ltd (TLS). There is a one-time membership fee of THB 4,000 and an annual service fee of THB 27,000. They will obtain the Certification Letter from the Ministry of Tourism and Sports on your behalf.

Step 3: Obtain the 90-day visa

With the Certification Letter, you can obtain an initial 90-day Non-Immigrant ‘B’ (Investment) permit from the designated immigration office.

Step 4: Obtain the 12-month extension

Before the expiry of the 90-day permit, you will need to return to immigration to file for the full 12-month extension (this will be facilitated by TLS). This extension is renewable as long as the property is maintained under your name.

Documents required

Personal Documents:

Completed TLS operator application and visa support forms.

Full passport scan (every single page, including blanks). The passport must have at least 6 months of validity remaining.

Passport-format photos.

If applying for dependents later: Marriage and/or birth certificates (must be translated into Thai and legalised or certified by the Ministry of Foreign Affairs or your embassy).

Property and Financial Documents:

Foreign Exchange Transaction Form (FET Form): Issued by a Thai bank, proving the THB 3,000,000 was transferred from a foreign source in a foreign currency specifically for purchasing real estate.

Sale and Purchase Agreement

Chanote Title Deed: Must be registered in your name at the Land Office. (For Bangkok properties, the transfer must have been registered on or after October 1, 2020).

House Registration (Tabien Baan): The yellow or blue residency book for the property.

Land Office Transfer Receipt: The official government receipt showing property transfer fees were paid.

Occupancy Verification Photos: Three specific photos of you at the property:

Standing in front of the building façade (with the building name clearly visible).

Standing at the unit entrance (with the room number legible).

Standing inside the living area of the unit.

Seller’s Documents:

If buying from a Thai individual: A copy of their Thai ID card and their house registration.

If buying from a developer or company: Current company registration documents and the shareholder list (BOJ5 form) proving the company is majority Thai-owned (over 50%).

Timelines to take note of:

TLS Verification Processing (Step 2): Takes approximately 7 to 10 business days.

The “15-21 Day Rule”: When you go to Immigration for your initial 90-day permit (Step 3), you must have at least 15 to 21 days of permitted stay remaining on your current tourist visa or visa exemption. If you have less than that, Immigration will likely reject the application and force you to do a border run to get a fresh entry stamp.

When to Start the Process: Because TLS takes up to two weeks to issue the Ministry Certification, applicants should initiate the TLS submission at least 30 to 45 days before their current Thai visa expires.

Visa Issuance: The 90-day permit is usually issued on the same day as your Immigration appointment. The 12-month extension processing time varies by the specific immigration office but is finalised within the initial 90-day window.

Summary of the 3-million-baht Investment Visa

The target audience is foreigners looking for a long-term, renewable residency option by purchasing a condominium worth at least THB 3,000,000. The condominium must be a freehold condominium and the money must be transferred from overseas in a foreign currency. The Thai bank must issue a FET Form. The condominium must be completed as only when a condominium is completed, will you obtain a title deed with your name on it. Before a condominium is completed in Thailand, the buyer will only have a beneficial interest in the future unit. There is no title deed with the buyer’s name on it. As this is one of the documents required for the application of this visa, the condominium you are using for the application needs to be a completed condominium.

The advanced option would be…

The Long Term Resident Visa under the Wealthy Global Individual option. Please see my previous article for details.

In a nutshell, to qualify as a Wealthy Global Individual, you must:

• Have assets of at least USD 1 million
• Have an annual income of at least USD 80,000 for the past 2 years
• Make an investment of at least USD 500,000 in Thai government bonds or Thai property or a combination of both

The main benefits of this Long Term Resident Visa over the 3-million-baht Investment Visa are:

1. 10 year validity
2. Reduced reporting (annual reporting vs 90-day reporting)
3. Tax benefits in the form of exemption on foreign-sourced income

Please note that these procedures and guidelines may change. It is important to check with the relevant authorities at the point of application for the latest procedures and guidelines.

Yours sincerely,

Daryl

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So what is the COE system?

It is a way of restricting car ownership. It is a mandatory permit that grants the holder of the COE to register, own and use a vehicle in Singapore for a period of 10 years. The COE system was implemented in 1990 to control the number of vehicles on the road. The purpose is to manage traffic congestion.

We do not want Singapore traffic to become something like the traffic in Bangkok…

Yes that is my friends and I walking. It can be faster to walk to some location in Bangkok as compared to taking a taxi.

Not let us move back to the discussion about the COE system in Singapore.

Essentially, the COE is a form of tax on the car owner. Let me explain how taxes work.

Taxes are monies that the government collects and it goes into its coffers. The government would then use this money to improve Singapore in general. For example, public services like street lighting and the police force require monies for them to be running efficiently. As this is a free good, there will not be any private individual or entity that is willing to fund these services. Therefore, the government will have to fund them. The government needs money to do so and taxes provide them with the money to do so. In some cases, taxes are in place to discourage individuals or entities from partaking in certain activities. For example, the Singapore government taxes cigarettes very heavily. This is to discourage people from smoking or probably if they need to smoke, to smoke less. The thing that the Singapore government is trying to prevent people getting illnesses like cancer. Or at least reduce the number of people. In the case of smoking, lung cancer specifically as it has been proven that smokers have a higher chance of developing lung cancer. In the case of road behaviour, the government is trying to reduce congestion. In economics, we call this a negative externality.

Negative externalities can be prevented or reduced with carefully targeted taxes. Taxes on cigarettes are one such example. You want to reduce smoking rates and therefore you tax cigarettes. Through taxes, you change behaviour. People may find it too expensive to smoke and may either smoke less or not smoke at all. In this case, the taxes on cigarettes are targeted. According to the Ministry of Health, smoking prevalence in the Singapore population dropped from 13.9% in 2010 to 10.1% in 2020. In that same time, taxes on cigarettes have been steadily increasing.

Applying this same concept of targeted taxes, we can actually understand why the COE system is flawed.

The negative externality that the Singapore government was trying to reduce is traffic congestion. In this case, the tax should be on the usage of vehicles as the negative externality is due to excess usage. However, the COE is a tax on the ownership of the vehicle. My personal take is that the policy of the COE was something that seemed to be haphazardly put together as the consensus of the day is that if someone owns a vehicle, he will use the vehicle. This is a very flawed way of thinking. I am sure there are many things that all of us own but we do not use. If that is the case, then the government can ensure that every Singaporean owns a pair of running shoes and all of us will be running very often. That neatly brings me to my next point. The way you obtain ownership also determines how you will use that item. If the Singapore government gifts every Singaporean a pair of running shoes, it is unlikely to be a very effective encouragement for many to pick up running because they did not pay for the pair of running shoes. However, if someone pays for a very expensive pair of running shoes, he or she is likely to think that because of the large expense, they should use the pair of running shoes more often to extract as much value as possible. This is the same thinking when someone pays a very high price for a vehicle. If you pay $250,000 or more for a vehicle in Singapore and you can only use the vehicle for 10 years, will you consider leaving your vehicle at home and taking public transport? Highly unlikely. You will want to use the vehicle as often as possible to extract as much value as possible.

Consider car rental companies that purchase vehicles to lease these vehicles for individuals who want to work as private hire drivers. The rental rates will go up if the acquisition cost of the vehicle goes up. This would mean that the driver will have to drive longer hours to make money from his rental vehicle.

Take a look at the traffic congestion that happens so very frequently on our roads. It is a result of many road users wanting to extract as much value as possible from their expensive vehicles.

So then, what is the solution?

We have a solution sitting right in front of us. It is to tax road users based on how much they use their vehicles. We have the ERP 2.0 system that can track vehicle usage on public roads. We have gantries in our central business districts that are lying idle. We are able to tax road users high rates in areas like the central business district and perhaps a lot less on roads that are far away from the city centre. We do not have to do away with the COE system. Yes we can have a hybrid system that taxes both ownership and usage. However, with carefully calibrated taxes, we can increase vehicle growth without increasing traffic congestion. Imagine a scenario where COE is say SGD$30,000 and you purchase an entry level vehicle for maybe SGD$120,000. Yes you are paying maybe $10,000 per annum for your vehicle. However, if the road usage tax that you have to pay to drive to your office in Raffles Place is $30 a day, it is likely that you will consider taking the MRT if that is going to cost you less than 5% of the cost to use the road. Add in parking fees and the savings are even greater. Remember, we never had an issue where we had an insufficient number of carpark lots. The issue was that the roads in certain parts of Singapore, namely the central business districts, were getting increasingly congested.

There are always those who need a vehicle. Some families may have handicapped or elderly family members. Getting them to always take public transport during family outings is not ideal. Yes they can call for a taxi or a private hire vehicle but then some of them have a large amount of things to carry along with them. They may also require vehicles with ramps or vehicle boots that can accommodate items like wheelchairs. If we have progressed truly as a nation, should a vehicle not be something that a family should be able to afford? We can implement highly prohibitive usage taxes on weekdays especially to discourage usage. We can then lower or reduce the usage taxes on weekends and do away with them altogether in certain areas to encourage those with vehicles to visit certain parts of the island.

There are also those who need a vehicle for work. For example, a company that does aircon servicing will need a vehicle. They cannot be carrying all their tools and taking public transport. High COE prices will invariably lead to them having to pass on at least some of this cost to the everyday consumer. Hence while we say that COE is a tax on the wealthy, there are certain costs that are also passed on to the middle and even lower class in Singapore.

One interesting point to note is that while car prices are included in the Consumer Price Index (CPI) calculation under the private transport category, when the MAS monitors core inflation, they exclude car prices from their calculation.

Anyway, my proposed solution may not be the most elegant but at least I am trying to target the behaviour that is causing the externality.

So should we scrap the COE system? 

No we should not. We should control the number of new registered vehicles that come onto the road every month. This allows the government to calibrate the vehicle growth and respond to trends. Imagine if Tesla decides to slash prices of its latest Model Y to take a foothold in the Singapore market. This is likely to cause a large number of buyers of the vehicle. If this is unchecked, it could unexpectedly spike the vehicle growth. Ownership, while not directly linked to the root of the problem, is still helpful to a limited extent, in managing traffic congestion.

So why is this archaic policy that was implemented in 1990 still prevalent today? 

Well, this is one of the policies which I think need changing. There is no way any transport policy maker can say that taxing ownership is the best way to reduce a negative externality that is caused by usage. It just does not match. So while I generally agree with the government on many of its policies, this is one example of an inefficient policy that remains. Why? Maybe because there is no one who dares to stand up and question the COE system in depth.

Something for the next batch of parliamentarians to think about…

Yours sincerely,

Daryl

The post The Certificate of Entitlement. A flawed system that persists with no end in sight… appeared first on Daryl Lum's Blog.

For the past few trading sessions, the overall stock market in the US and over the world have been plunging. In essence, losing trillions of dollars in value over a matter of days.

Liberation Day was the day that Donald Trump announced his sweeping tariffs. As referenced earlier, this was on the 2nd of April 2025. What was he liberating the Americans from you might ask? Perhaps the Americans were liberated from being able to purchase goods from all over the world.

Why a stock market plunging is worrying for many Americans is multi-fold. The immediate concern are for those looking to retire. In the US, many Americans plan their retirements by using their monies in their 401(k) account to invest in stocks. Generally, the monies in this account can only be withdrawn, penalty-free, when the account holder reaches 59 1/2 years old. For those who are reaching this age, to see their stock portfolio plunge overnight is extremely worrying. This means that they will have less monies for their retirement.

The next immediate concern are rising prices. One can appreciate that Trump is trying to force manufacturing and production back to the US. However, if you tax imports like coffee, there is no way that Americans can immediately produce coffee once these tariffs kick in. What will happen is that coffee imports into the US will be hit with a tax. Hence, if you are a coffee importer in the US and you buy USD$100 worth of coffee from Vietnam, once that USD$100 worth of coffee reaching the US port, the US tax department will hand you a bill of USD$46 as the tariffs on Vietnamese products is 46%. This is an oversimplification of the process. There is usually a declaration procedure where the importer has to fill in a form before the bill comes but you get the point. To those Americans who think that prices are not going to rise, you are going to realise that what you think is not going to happen.

The tariffs are not really reciprocal

Trump mentioned that it cannot get any simpler than the US merely taxing others what others are taxing them. In fact, Trump mentioned that he is merely taxing the other party approximately half of what they impose on the US. However, this could not be further from the truth. This is what they came up with:

I will let CNBC explain this formula to you. I will not belabour the point.

The essential part of this formula is that it takes into account the trade deficit with a particular country and includes it in the tariff calculation. This is how Vietnam got hit with a tariff rate of 46%. For the record, Vietnam does not impose 92% tariffs on the US. It never has. However, Vietnam racks up large trade surpluses against the US. Hence, there is clearly a trade imbalance in favour of the Vietnamese. The US buys more goods from Vietnam as does Vietnam from the US.

Is it possible to have a perfect trade balance?

This is what Donald Trump wants. He wants there to be no trade imbalances. He equates trade imbalances with tariffs. If you sell more goods to us than we to you, you are imposing tariffs on our goods. However, it is not that simple. Trade imbalances are part and parcel of global trade. It is a principle and the bedrock of how goods and services flow around the world. Imagine a scenario where there are perfect trade balances. This is before the advent of money. Barter trade dictates that I give you what I have in exchange for what you have. Hence, in the past, before there was the concept of money, if I grew rice and my neighbour grew vegetables and I wanted vegetables and he wanted my rice, I could exchange some of my rice for his vegetables. This is only workable if both parties have what each other desire. In the case where I want his vegetables but he does not want my rice, I cannot barter trade with my neighbour. The only way to get vegetables would be to look for some other person who has vegetables and is willing to trade for my rice or I had to grow my own vegetables. This is where money comes in. Money is useful because it acts as a store of value. Therefore, I can sell my rice for money to someone who wants to buy it. The money, as a store of value, can be used to buy the vegetables that I want. What this means is that I can just focus on growing rice. If I keep growing it and trying to improve my growing practices, I will get better at growing it. I do not have to divert my resources to growing something that I am less good at. This is the basis of global trade. Every country focuses on what it is good at and we use money as a store of value to trade with each other.

What Trump wants is akin to a reversion to barter trade. You have something that I want and I am going to buy it from you. In exchange, you must buy something back from me with at least the same value of what I buy from you. Alternatively, since you have something that I want and you do not want to buy things from me or at least of the same value of what I am paying you, then I am not going to buy it from you. I am going to produce it in the US.

I have this analogy to him and his advisors. I go to my. hairdresser for a haircut every 6 weeks. I pay her money for the haircuts but she does not buy anything from me. I have a trade deficit with my hairdresser. That does not mean that I stop going to get my haircut and cut my hair by myself.

The concept of no trade imbalances against the US is impossible. This will never happen because globalisation and specialisation dictates that certain countries will buy more of certain goods and services from others and vice versa.

Can there be a way for countries like Vietnam to rectify the trade imbalances to go to a zero tariff rate with the US?

Of course Vietnam would want there to be no tariffs on the products they sell to the US. However, the reason why the US is buying products from Vietnam is because Vietnam is producing these products very cheaply or that certain produce grown in Vietnam is desirable to US consumers because of certain characteristics. For example, Nike makes its clothing in Vietnam because they are cheap. The reason why Americans buy products from Vietnam and China is because of price. They are cheap and generally of good quality. Even if the quality may not be as good as if the product was made in the US, the American consumer is ok with that because of the low price.

Can the US shift manufacturing back to the US and make the US a manufacturing superpower and yet keep prices low?

The strict answer to that is no. There is no way Trump can get factories to shift from places like Vietnam and China to the US and have these factories produce their products at the same cost as before. This is because the working conditions in Vietnam and China are so much worse compared to the conditions in the US. Running sweatshops are cheap. Workers are not unionised and hence you can work them to the ground. Long hours, low pay and little regulation may sound wrong to these workers but the truth of the matter is that consumerist countries like the US love products made in this manner because they are cheap. Look at US culture. It is a consumerist one. You look at TV shows and the rooms are filled with stuff. The US consumer loves shopping and the world loves producing goods for the US. If the US were to domicile all manufacturing, it is likely we will see products that are much higher than they are now. This is because there are proper labour laws in the US. Workers are unionised and hence if conditions are not ideal, workers go on strike or start negotiating for higher pay or better conditions. In the worst case scenario where we take the ends of the spectrum, imagine a dilapidated factory in Vietnam that employs extremely poor workers and even child labour (I am against such exploitation. I am just using this as an illustration). Now imagine a factory in the US. Do you see the same dilapidated factory with such impoverished workers or do you see the possibility that the workers in the US know their rights and are part of unions? There is no way you can produce an iPhone in the US at the same price as you once did in China. Trump is not going to be able to make American manufacturing great again because in most cases, the jobs are gone forever and will never come back.

Let us analyse the reason why the US runs so many trade deficits with so many countries around the world

One of the main factors driving the trade deficits is the strength of the US dollar. The US dollars strength causes its goods to feel relatively expensive by foreign countries. On the flip side, the people in the US holding US dollars will feel that products from outside of the US are comparatively cheap. The means that more people in the US are buying foreign products than foreign countries buying US products. The main reason why there is a constant strong demand for the US dollar is because of its role as the reserve currency in the world. The US must decide whether it can accept a scenario where the US dollar is no longer the reserve currency in the world and no longer enjoy such demand. In my personal opinion, the US will not want this to happen and it also cannot afford to do. Ceding the US dollar’s role as the reserve currency would mean that demand for its bonds and securities will not be as high as before.

It is because of this that the US runs trade deficits. So make no mistake that the trade deficits are not of the foreign country’s own making. The US dollar does contribute to this situation as well.

The question is whether there is any logic to this madness.

Now there could be. Trump’s advisors are likely to be steeped in economic knowledge as well. They would have made their calculations as well. They are likely to know that the tariffs would elicit a negative response in the stock market. It is unconceivable that they would not know this. So let us try to find some sense in what seems like a whole load of nonsense.

Imagine the scenario where the Vietnamese coffee exporter exports 100% of his coffee to the US. In that case, when the US government slaps a 46% tariff on the coffee, it is likely that his US importer will not want to pay an additional USD$46 on top of every USD$100 worth of coffee. In this case, if the Vietnamese coffee exporter only has one client and that is to that US importer, then the US importer not buying any coffee from him would be extremely detrimental to him. What he could do would be to lower the price he sells his coffee to the US importer. For example, instead of selling the same amount of coffee for USD$100, he could sell it for USD$70.

In this case, after the tariff, the coffee would cost:

$70 + (46% x $70) = USD$102.20

This would not make much of a difference and the US importer can leave the price relatively the same. In this case, the cost of the tax will be born solely by the Vietnamese coffee exporter. Instead of collecting USD$100 for that amount of coffee, he collects USD$70.

However, the truth is perhaps somewhere in between. The Vietnamese exporter is likely to have other parties he can sell his coffee to. In this case, he is likely to maybe reduce his price less than the USD$30 that would keep the eventual price somewhat similar to before the tariff. Say he lowers the price to $85.

In such a case, after the tariff, the coffee would cost:

$85 + (46% x $85) = USD$124.10

In such a scenario, it would be unlikely that the US coffee importer would agree to keep prices stable as he is paying approximately 24% more for the same amount of coffee post-tariff. He can then pass on the cost to the US consumer. Hence, coffee prices in the US are likely to increase.

I think there is some benefit to tariffs. Yes, free trade protagonists will argue that all tariffs are protectionist in nature and are bad for free trade. However, protectionist measures do help to shield certain local industries which otherwise would be decimated by the availability of cheap goods from countries like Vietnam and China. However, not everything needs to be produced in the US. Moreover, what industry are you trying to protect if that industry was never there in the first place?

Let us take a ridiculous example. Let’s say the US imports Mao Shan Wang durians from Malaysia. Imagine if the US sets a tariff of 24% on these durians. What is it trying to achieve? Can the US actually produce its own Mao Shan Wang durians from Malaysia? It does not have the climate and expertise to do so. Even if it did, it takes approximately 8 years for a tree to bear fruit. For these 8 years while the US is waiting for the newly planted trees to bear fruit, its consumers will have no choice but to continue buying Mao Shan Wang durians from Malaysia. This is exactly why Singapore welcomes so many products into our country. This is because we do not have the capacity to produce those products!

Trump is taking a broad brush approach. He levies a flat tariff for all goods coming into the US from a certain country. If he were concerned with the trade deficit, would it not be ideal to actually understand why there is a trade deficit? There are reasons for running one especially when there are goods from a certain country that cannot be produced in the US for legitimate reasons. Just like me not wanting to cut my own hair, Trump has to ask himself whether his US workers want certain jobs. Remember this fact: when China was producing low value products like shoes and clothes, there was a lot less clamour from the US than when China started producing its own chips that goes into smartphones. Remember the ban on Huawei? Was there ever a ban on shoes?

So what should the US have done?

When it comes to a policy that affects the global economy, the precision of a sniper is favoured over firing a bazooka. It should have identified industries it would have liked to protect and domicile. For example, it is possible and arguably ideal to domicile car production plants in the US. The same can be said for the production of computer chips. However, to levy a 46% levy on Vietnam is just pure wrong. Which of Vietnam’s industries do you desire to domicile in the US?

So why did Trump do it?

Perhaps it was to show off that big beautiful chart…

Well done Trump! It is a really well made chart.

Yours sincerely,

Daryl

The post Making sense of Trump’s tariffs appeared first on Daryl Lum's Blog.

1. Inherent risk

   I have always spoken about investment risk. This earthquake brings to mind the risk of a property facing natural disasters. I am Singaporean and in Singapore, we are not faced with the prospect of frequent earthquakes. In fact, the cause of the tremors was an earthquake in Myanmar. The particular fault line was the Sagaing Fault which stretches from Mandalay to Yangon. This is relatively far from Thailand and definitely far from Bangkok. Yet due to the low frequency tremors, it affected taller buildings. Bangkok being an extremely built up area in Thailand with so many tall buildings, the people in these tall buildings experienced the full force of the tremors.

   However, no building other than that skyscraper under construction fell. There were similarly many other buildings under construction. There were also similarly many other buildings taller than that skyscraper. The Mahanakhon, has 79 floors and is 320 meters tall to tip. The Baiyoke Sky Tower has 88 floors and is 328 meters tall to tip. Both these buildings are the tallest in Bangkok and both are unscathed from the tremors. It is arguable that if that skyscraper under construction did not topple, the tremors would be closer to a non-event then the current state of emergency.

   There are many risks. There is also the risk of war. In Singapore, we are worried about rising sea levels. In the event that sea levels rise past a certain point, it is arguable that large parts of Singapore will be underwater despite its best efforts to mitigate this risk. All investments come with risk. Properties are relatively illiquid as compared to equities. If you cannot stomach such risk, you should not be investing because once you are in and want to sell the property when something happens, the illiquid nature of properties will become extremely apparent to you.

2. Comfort level

   It should not be up to me to tell you whether you can still buy Bangkok properties. This is a very subjective decision. You should be comfortable with your investment and understand the various risk. You should not listen to someone without forming a constructive and structured reasoning as to why you decide to do things in a certain manner. If you listen to me when I tell you to invest just because I tell you to then you did not form a constructive and structured reason. Similarly, if you think that all buildings in Bangkok are damaged and you are worried that this will be an issue in the future, then you should not buy a property in Bangkok. This especially when most reputable developers have conducted checks on their buildings are found them to be safe. If you are still not reassured and believe that the developer may he hiding something or that the developer will be faced with future issues that are not manifesting currently, then you should not be buying Bangkok properties.

   In everything we do, we have to undertake some degree of risk. If there is no risk, then there is no to little reward. This risk premium is something that you should determine on your own.

3. Reputation of developer

   I have been reiterating the point that we should always buy from the large, reputable developers that are listed on the Stock Exchange of Thailand. Such developers are always keen in maintaining their business in Thailand. While investigations are still ongoing, the truth of the matter is that if the skyscraper did not collapse, there will be no state of emergency in Bangkok. Bangkok will not be a disaster zone. I am sure that the earthquake would have affected other parts of Thailand. However, there was no collapse of any building elsewhere and hence there is no state of emergency outside of Bangkok.

   If you want to know what most, if not all large Thai developers are doing, here it is.

   MQDC is one of Thailand’s largest developer. It is the developer in charge of Icon Siam. Here is what they put out on their social media platforms and in their communications with clients who purchased their properties. Buildings come with warranty on their structure. It is a norm to have such warranty. However, the warranty is only valid if the party warrantying the building is around in the event something happens. This is why I have always reiterated that the profile of the developer is extremely important. I had spoken extensively about a certain Chinese developer that was in debt building in Bangkok. I highlighted this fact to the general public on many occasions. You can see this short post I did from back in 2023.

   I am confident that there is a high probability that MQDC will be around to deal with any matters should there be a need to make a claim on the warranty.

   

   

   Noble Development, like MQDC, is listed on the Stock Exchange of Thailand. It is one of the largest developers in Thailand. Its major shareholders include the BTS group which runs a large proportion of the metro lines in Bangkok.

   

   Developers like Noble will undergo the process of checking the structural integrity of all its developments. This includes buildings that were built long ago. This is the list of buildings that were checked.

   

   Similarly, here are other large Thai developers that have done similar work.

   
   

So can you still buy Bangkok properties? I cannot answer that question for you. Nor can I guarantee that everything will be safe. No one can do so for any property in any part of the world. Even in Singapore, from where I come from. Bangkok has not experienced anything like this for as long as recordings have started. For Burma, the earthquake toppled structures that had been around for more than a century. Which meant that the earthquake to just about everyone in the country was unprecedented.

If you are a client of a large Thai developer. You most likely should have received a message from your developer or your juristic (management) office. You should follow the steps provided as to what to do in the event you find damage to your property. People who do not live in Bangkok but have properties in Bangkok should engage a property management company to assist them with the checks and rectification process with the developer.

Yours sincerely,

Daryl

The post Can we still buy Bangkok properties? appeared first on Daryl Lum's Blog.

When we invest in property, we have to determine the metrics that we are looking at. Once we determine this, we need to stick to it. For property, whether a property is a good investment, I will consider factors like location attributes which include proximity to city centre and the central business district, proximity to the nearest train station, proximity to amenities and the availability of a catchment area of tenants. I will also look at the price of the property in comparison with other properties in the area. This is why when the property agent tells me that the property he is selling will definitely make money because the next plot of land was sold for a higher price, I do not take that into account. Imagine how difficult things can become if every time you visit a showflat, you consider different factors. Every new launch that a buyer walks into, many buyers will feel like that new launch is a good investment. This is because the agents in the sales gallery are telling you the good things about that property. The rational investor should disregard this as noise and stick to his investment metric. Easier said than done. In sales, selling on emotion is much easier than selling on logic. This is because humans are inherently emotional creatures.

For stocks, this is actually even simpler. This is because a stock is just a ticker on a screen. Your monitor or mobile phone shows the stock as a ticker code. Imagine stock markets as traditional markets. Companies can choose to sell their goods, i.e., in this case, their stock, on a market. For example, if I were Tesla, I want to sell my stock to raise money. Buyers of my stock will give me money and I can use that money to expand the business. I can choose the market I want to list my stock for sale and for my stock to be traded on. If I want to do it in Singapore, I can do it on the SGX. In the US, there is a market called the NASDAQ. In the case of Tesla, it chose to list and have its stock traded on the NASDAQ. Therefore, it is listed on the NASDAQ as TSLA.

Imagine you looking at the ticker TSLA on your mobile phone. It is just four letters. In fact, you can just Google “Tesla stock price”. This is what you will see.

Tesla Stock Price

You do not see pictures of cars. You do not have an agent telling you all the good things about the company. In fact, the news online are people who are not connected to the company. In many cases, they see the CEO of Tesla, Elon Musk working with Donald Trump. They then see the stock price falling. They then equate the fact that the stock price is falling because of Elon Musk’s association with Donald Trump.

Let me explain the concept of causation. Just because something happens after an occurrence does not mean that that occurrence caused that something. For example, there is an increase in the rates of colon cancer among people under the age of 30. Then someone says that this is caused by the COVID-19 vaccine.

This does not actually make sense because you cannot say that but for the COVID-19 vaccine, the young people under the age of 30 would not have gotten colon cancer. There needs to be a clear link to the something that happened.

Let me move back to the metric when investing in stocks. The truth of the matter is that most investments in stocks by institutions are done by computers. Heard of the term robotrading? There are institutions that are trading on algorithms. Technical analysis allows such trading to be highly efficient. A computer is not affected by what is on YouTube or news platforms like CNBC, CNN or Bloomberg. The most logical and common metric when looking at stocks is the P/E ratio.

So what is the P/E ratio?

For this we need to go back to how stocks are priced. Just because Tesla is now trading at USD$259.16 and Google is trading at USD$156.23 does not mean that Tesla is more expensive than Google. Apple is trading at USD$222.13. It also does not mean that Apple is more expensive than Google.

Google Stock Price

Apple stock price

The prices are just prices of 1 stock. The company can split the stock. i.e., divide one stock into multiple stock. Apple can say that it would like to divide 1 stock into 222 stocks. So whoever is holding 1 stock would, after the stock, hold 222 stock. We therefore need a metric to see everything on a level playing field. This is where the P/E ratio comes in. What this does is take the current price of the stock against the earnings of that one stock. The P stands for Price and E stands for Earnings per Share. To get earnings per share, you take the earnings and divide it by the number of shares (stock) issued. In the case of Apple, the P/E ratio is 35.31. This means that for that one Apple stock that you are holding, the price is 35.31 times of the earnings of that one stock. E, being the denominator, would mean that if the E were a larger number, the P/E ratio would be lower. And of course if the E were a smaller number, then the P/E ratio would be a larger number. A lower P/E ratio would mean that the current trading price is a lower multiple of its earning and hence a cheaper stock. It is not always the case where we only look at the P/E ratio. I may decide to buy a stock with a higher P/E ratio if that stock is in an industry with more innovation and growth. For example, I may decide that Apple, being a tech company, has more growth than companies in the banking industry.

Citigroup stock price

Therefore, Citigroup is trading with a P/E ratio of 11.94 but I might be more interested in Apple at current prices because of the industry or sector that Apple is currently in. Please note that this is hypothetical. I am not saying that I am currently choosing tech over banking as a sector.

With the knowledge of P/E ratio at hand, let us look back at Tesla’s current stock price in comparison with Apple’s. Apple’s P/E ratio is 35.31. In comparison, Tesla’s P/E ratio is 127.14. On all metrics, this is a very over priced stock. Google is trading with a P/E ratio of 20.23 and Amazon is at 34.43. The reason for the sell off of Tesla stock is because their reported earnings are falling. If earnings are falling, the denominator in the P/E ratio is getting smaller. This results in a larger P/E ratio. Traders who trade through numbers will immediately see this and determine that this is a good time to stop holding the stock. In fact, they may even consider shorting the stock (i.e. “betting” that the stock will fall by selling the stock and buying it back later). Now is there any reason to still hold Tesla with a P/E ratio of 127.14? Apparently the market does not think there are many reasons to do so. The reasons are most likely that Tesla is no longer the market leader in electric vehicles (EVs). Players like BYD have broken into Tesla’s lead. In fact, Teslas are no longer the world’s leading manufacturer of EVs. Other traditional car manufacturers like Toyota, Honda, Kia, Hyundai, Mercedes, BMW are also catching up in the EV space. Also, when someone buys an EV, he most likely does not change his EV every other year. This is called the replacement cycle. I believe this replacement cycle for EVs is not as frequent as compared to the replacement cycle when it comes to replacing mobile phones. If everyone who wants a Tesla already has a Tesla, then buying activity is likely to drop.

Is there some glimmer of hope when it comes to Tesla? I do think that as crazy as it sounds, Tesla may be able to pull off the robotaxi plan. If so, that would mean that Tesla would have a monopoly over autonomous ride hailing services. Tesla is the only EV maker to execute autonomous driving. It can constantly improve its autonomous driving capabilities because every Tesla EV and subsequently robotaxi is collecting data.

Think about it. Elon Musk, the CEO of Tesla is close to the US president Donald Trump. This sentence in itself is a positive thing. In fact, Tesla’s stock did rise the moment Donald Trump won the elections. Now that there is unhappiness at what Elon Musk is doing and that Tesla stock is dropping hence it must be caused by his association with Donald Trump?

If only markets were that irrational. We would have much wider swings with more opportunities to take advantage of this irrationality.

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