Monetary Authority of Singapore Annual Report 2012/2013
Anchor of Economy

THE ECONOMY — GLOBAL, REGIONAL AND DOMESTIC

Immediate Risks in Financial Markets have Receded

Strong policy actions by central banks of key advanced economies have boosted financial markets globally. From March 2012 to March 2013, the S&P 500 rose by 11.4%, the DJ Eurostoxx rose by 7.6%, the Nikkei 225 rose by 23.0%, while the MSCI Asia ex-Japan Index rose by a more moderate 4.5%. While these policy actions have buoyed markets and eased financing conditions considerably, they could also distort credit allocation and weaken incentives to repair balance sheets. It is thus important that advanced countries maintain focus on correcting longer-term financial and economic imbalances.

Bank funding conditions in advanced economies have generally improved with policy actions to support funding markets, as well as continued progress in reforming financial systems. In Europe, there are nascent signs that credit conditions and peripheral bank funding have stabilised. However, further flare-ups in stressed sovereigns could again undermine confidence and impact financial market conditions.

The banking systems of Asian countries have generally maintained sound capital buffers and funding profiles. With potentially slower economic growth ahead, increased leverage in some segments of corporate or household sectors and the possibility of some foreign investors pulling out of Asian asset markets, there is a need to be cautious and vigilant.