In a 2017 article in The Guardian, UK historian and journalist Andy Beckett described how graduates holding Oxford University degrees in PPE or philosophy, politics and economics have pervaded British politics and establishment since 1920.
Otherwise dubbed the modern “Greats”, PPE graduates have covered the whole spectrum from the right to the left in politics, across the centre and also at the fringes too. They included analysts and protagonists, consensus seekers and ultra-capitalists, statists and libertarians, elitists and populists. They thrive as bureaucrats and are adept as spin doctors too, so goes Beckett, commenting at arm’s length given how his own Oxford degree was in modern history and not PPE.
Notable Labour PPEs include Edward Heath, Harold Wilson and Tony Benn, who left UK’s welfare state as their legacies. They were succeeded by the likes of Peter Mandelson, Ed Miliband and Ed Balls, who call themselves New Labour so as to put some distance between the socialist-laced ideology of their older alumnus. PPEs dot the right too with Nigel Lawson, William Hague and David Cameron as some recent past prime ministers and chancellors.
Not to be outdone, PPEs from outside the UK include Bill Clinton (who didn’t finish), Benazir Bhutto, Aung San Suu Kyi and two former Australian prime ministers, Bob Hawke and Malcolm Fraser.
Back in the day, I too was privileged to have read PPE, supported by a DBS scholarship. Part of the experience at Oxford was to debate all manner of issues at the Oxford Union or mock model UN as we seriously pretend we actually had solutions for world peace.
As a citizen of the Commonwealth with the right to vote, I had my first taste of democratic elections. I was right when it came to economics, but left when it came to social issues, and hence I identified with the Liberal Democrats. A president of the Oxford Lib Dem society then was Elizabeth Truss, who matriculated in 1993 — the same year I did.
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Being sensibly Singaporean and with an eye on a future career in finance, I stuck to economics and I ran the Oxford University Investment Society. We did have policy debates even if the future UK prime minister was (and still apparently is) a fan of karaoke.
Trickle-down hope, immediate selldown
Truss, as the third female prime minister of the UK, modelled herself after the first, Margaret Thatcher, who ran the country and wowed the world as the “Iron Lady” between 1979 and 1990. Barely a month on the job, Truss and her chancellor Kwasi Kwarteng, described by some as ideological soulmates, unwittingly triggered a UK currency and government bond crisis.
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By doing so, this new UK government has not only threatened to knock out its own economy, adding fuel to an already nervous global market that has been bruised by the supply chain crisis from the pandemic, the prolonged war between Russia and Ukraine, and the impending coronation of Xi Jinping with an uncertain Chinese policy on business and markets.
On Sept 23, 30 minutes into Kwarteng’s delivery of his GBP45 billion “mini-budget” that features an astonishing tax cut for the wealthiest bracket, the sterling started its drop, and the market for Gilts (the equivalent of US Treasuries) seized up as investors lost all appetite for debt issued by the UK government. There were there no bids in this market, which did not happen even during the Global Financial Crisis. As interest rates spiked, a Gilt auction was delayed and pension funds halted redemptions as banks stopped mortgage offers.
To add insult to injury, the UK earned itself a controversial rebuke from the Washington-based but European-led International Monetary Fund (IMF) on its fiscal policy — something which the global lender of the last resort traditionally reserved for profligate borrowing and spending (into its own pockets of that of cronies) by Third World despots and their banana republics.
As expected, the wave of criticisms mounted. Tabloids decry Kwarteng’s “schoolboy economics” even though he holds a doctorate in economic history from Cambridge. Mark Carney, a well-regarded former Bank of England governor described the tax cuts undercut the inflation fight that is now being waged by the institution he used to run. “It’s important to have (the budget) subject to independent and dare I say expert scrutiny,” Carney told the BBC.
Truss, who was riding on a crescendo when her party chose her to replace Boris Johnson, managed to mine new lows in approval ratings that even her predecessor could not muster. She chose to respond by digging in, clinging to her ideology of growth at all costs.
As some of my friends in London flagged, Truss, by doubling down, risks potential civil unrest. Truss is not a business leader executing a corporate restructuring; she is a leader of a government in the midst of carrying out the dismantling of the welfare state while trying to reinject growth. Back in the 1980s, Thatcher’s playbook was to break the unions. Circumstances were much different then.
Now, with the fiscal imbalance, everyone making their money in sterling would have gotten poorer with the battered pound. On top of this wobbly fiscal tightrope, populist measures such as the two-year cap on energy prices costing at least GBP100 billion would certainly add to the instability. Surely, then, something has to give. Farewell to the National Health Service it may be and potentially the independence of the Bank of England, which was forced into flooding the market with cash just when it is in the midst of tightening to fight inflation.
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Last week, a British university coursemate and I shared a recollection of a country whose government combined populist politics (energy subsidies) with tax cuts (for the top 1%, it is alleged) as its import-dependent economy tried to contain inflation. The subsequent loss of international investor confidence was reflected in how its currency moved. That country is called Sri Lanka.
Persuasion
James Carville, then US president Clinton’s adviser in the 1990s, once quipped that if he was ever to be reincarnated, he would like to come back as the bond market.
Given its position as a reserve currency and control of the Swift network, plus its influence in multilateral institutions such as the World Bank and IMF, the United States can merrily mint debt that the rest of the world will continue buying.
With London a key financial centre, this is a privileged position similarly assumed by the UK. In a series of radio interviews in the last week of September, Truss struggled to say anything coherent beyond motherhood and apple pie statements. She too stuck to her guns at the Tory party conference a few days later, notwithstanding the shocking lag of more than 20 points behind the Labour party in a poll of voting intention.
Kwarteng and Andrew Bailey, the current BOE governor, managed to barely persuade her to issue a statement that the BOE was “watching the markets” and to bring forward both an elaboration of new fiscal rules set for next year to Nov 23 as well as to allow for an independent Office of Budget Responsibility to publish in full its opinion.
Nevertheless, driven by ideology and not pragmatism, the Truss government rolled back the tax cuts on Oct 3. “We get it, and we have listened,” tweeted Kwarteng. “A little turbulence,” he added, as he addressed his party members later on. Unfortunately, much damage has been wrought, and this small u-turn has already cost Truss her credibility in order to preserve her job for now.
All this Westminister drama of the past month has highlighted the risks of investing overseas. True, nominal prices of UK property may have gone up, but taking back returns from depreciation in currency is a risk we mostly associate with emerging markets. Some Singapore stocks and REITs derive some of their underlying returns from businesses in the UK. They may temporarily yield less when the sterling is converted — no different from the yen which has fallen 30% this year. In fact, REITs like Parkway Life REIT have forward hedged their revenue in yen for a few years. It is worth checking what has been done for other REITs with assets and income in the UK.
I have exposure to a pure-play UK REIT, Elite Commercial REIT, which owns a portfolio of 155 properties, leased dominantly to the UK government. The smattering few other tenants include a pizza takeout and a sun-tanning saloon. Luckily, I have a good carry with my borrowed sterling with relatively matched exposure. The only pain point would be a higher carrying cost since Kwarteng spoke and the bond market pronounced its view.
Pride and prejudice
As the selloff in UK assets ripple on to other global markets, the volatility of September has trailed into October. There are some market participants calm enough to stay above the din. Others like me were caught up with something else last week: “Conference Week Singapore” — a jam-packed calendar of global events and conferences, attended by some 90,000 high-value visitors including thousands of C-suite executives flying in here to network and do business.
The list of events includes the Forbes Global CEO Conference; Milken Institute’s Asia Summit; SuperReturn Asia, Tech in Asia Conference; Temasek — Philanthropy Asia Summit, Time100 Leadership Forum, Token2049, One Championship events and the return of the Formula One Singapore Grand Prix. The signal sent is louder and clearer than the roar of the 1.6-litre V6 four-stroke turbocharged engines of the F1 cars: Singapore is back in business as a global business hub.
The challenging macro environment notwithstanding, Singapore remains a rare “AAA” rating by building on its past reserves. The country’s economy, businesses and people were supported through Covid artfully, without draining all our past reserves. Singapore Inc is well-poised to continue to propel forward and navigate the challenging times. The Straits Times Index continues to stay positive year to date, even with a mild pullback amid the turbulence. The new social compact, encapsulated by “Forward Singapore”, is grounded on the shared responsibility of people, public and private. The GST is to increase from 7% to 8% as planned but with targeted offsets for those who need the support.
By not being slaves to ideology, left or right, and by being pragmatic to the point of being boring, we can take pride as we open up our borders and economy. Without prejudice and by sharing responsibility with good sense and sensibility, we remain not just a safe harbour in a volatile and multipolar world, but also a very investible one for real inclusive growth.
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange and he was awarded FOW’s lifetime achievement award. He serves as chairman of the Community Chest Singapore
