Traditionally, the PPI has been thought to lag the stock market by 6 months. However, this is no longer the case today. Ignoring the Small Units data which generally contributes to anomalies, the PPI is observed to have peaked in Nov 2011. In comparison, the STI peaked around Aug 2011, giving it a 3-month lead against the PPI. Interestingly, subsequent data shows that the time lag has decreased further. The PPI rebounded in Feb 2012 while the STI rebounded just a month before in January. This was followed by a slight dip in both the STI and PPI in June and July respectively. Most recently, a slight dip was observed in both indexes around the end of 2012. Is the property market now so responsive that it is able to react within a month after changes are reflected in the stock market?
The alternative explanation is that the lag-time rule is no longer sufficient to explain market trends today. The PPI data is distorted by the 6 rounds of cooling measures and by changes in demographics. Buying (or selling) might be fuelled by reasons of sheer population growth. Since 2010, our population has increased by almost 300,000.
The stock market has been doing well since 2013, steadily increasing 11.4% in the past 3 months to hit 3,310 at the time of writing. Whether this will translate to a steady increase in the PPI still depend on many factors, although the low interest rates allow for further increases. As a further observation, Central Units (districts 1-4, 9-11) seems to have detached itself from the trends of the rest of the property market and continues to be lacklustre compared to the Non-central Units. Traditionally thought to be the main market for foreign investors, it is likely that it will continue its downward trend given the recent tightening of foreigner policies, further closing the price gap between the central and non-central units.
Going forward, the Population White Paper released to the public means that investors for the first time will be able to predict with sufficient certainty the forthcoming demand in terms of immigration. Previously, investors generally knew the population was increasing, but no one knew by how much or how quickly. Immigration data, read together with the upcoming supply of units (available through MND) in the coming years, means investors might look less often to the STI for a property purchase. Nonetheless, the STI still remains a good barometer of sentiment, an ingredient in the property market that cannot be underestimated.
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