Perhaps Singapore bashing should be a banned sport but preferably not while Hong Kong bashing is still in vogue.
Hong Kong is getting the worst of it these days in the public relations contrasts with Singapore because it's so easy to see what they're doing in Singapore. They're making announcements, starting initiatives, launching campaigns, all of it good pro-active headline stuff to prove that they're standing up to their challenges.
Meanwhile there's little evidence of the same sort of talkfest in Hong Kong. People still disagree and mostly leave it up to the market to sort out which way the economy should go. What a backwards way of doing things, isn't it? The latest pundit to pronounce in favour of Singapore over Hong Kong is Nomura International's local strategist, Bill Overholt. Two key arguments he makes are worth a closer look.
'So long as Hong Kong has a pegged currency and a slow adjustment it can be expected to have extremely high interest rates,' he says. 'These in turn are deadly to a market dominated by property and bank shares.' Now look at the first accompanying chart. Which has had the higher real interest rates since the peg was adopted in 1983, Hong Kong or Singapore? Hong Kong's real interest rates are admittedly higher than Singapore's now but a 15-year record says this is the aberration, not the rule.
It should hardly be surprising. When you link your currency through a currency board to the US dollar with its consistent restraints on inflation and its efficient capital markets the normal pressure on your interest rates is down, not up.
But then occasionally people doubt that the linkage will hold and flee the currency, sending rates up from their normal level. Occasionally it also happens that your inflation drops below the US inflation rate. Put the two together, as has happened in Hong Kong, and the result is high real interest rates for a period, emphasis on period. We're not talking eternity.