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Heading for inflation or deflation?
Senior correspondent Teh Hooi Ling says that specialists and experts on these topics are divided and are most likely unsure which notion will take place in the future, therefore it is sensible for investors to hedge their bets. She goes on to say that those in the deflation camp are befuddled by reports of Singaporeans queuing and rushing to snap up new properties. The enthusiasm is lifting the prices of resale properties off recent low. Leaning more towards the deflation camp, her basis is that demand is too weak to fuel inflation, in addition the horrible unemployment rate in the US with a staggering 9.5% in the month of june, suggests that inflation and unemployment are inversely related (when inflation is up , unemployment is down and vice-verse).

However she adds that as of May 2009, deposites of non-bank customers with domestic banking units and finance companies amounted to $374billion, with another $158.6billion with CPF board, in total, the sum of these three cash hoards is equivalent to the total market capitalization of all the stocks listed on the Singapore exchange. To some fund managers , a high cash holding relative to stock market capitalization is an indication of market UNDER-VALUATION.
The rally of the past few mths has brought the ratio back to levels seen at the end of 2003, when Singapore then was emerging from the slowdown caused by SARs. But now despite relatively high cash holdings, investors are not rushing into the stock market and rightly so, given the uncertain economic outlook.
Things are also never crystal clear at ths part of the recovery because by the time they are, markets would have moved even higher, leaving those on the side lines to either hope for another retracement in prices or regret not having to act fast.

Ms Teh then advice the sensible thing to do is hedge your bets, positioning your portfolio to cater to an inflationary environment and some to deflationary.
Gold commodities and inflation-linked bonds and real estates (Reits too) are natural inflation hedges.
Good Reits to consider are CapitalMall Trust/Ascendas Reits/ Frasers Centre point Trust/ and CapitalCommerical Trust are expected to be the most resilient against external shock.
But in a deflationary environment , cash and cash equivalents are king.

News information was collect from Business Times as of 04 july 2008, writers by Teh Hooi Ling/Wong Sui Jau and S&P data

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