2 major news happened this week: 1. TPG wins bid to become the 4th Telco and 2. US has increased interest rates!
TPG is 4th Official Telco
TPG has won the bid to become the 4th telco, ousting out competition such as Circles.life and MyRepublic. A new entrant in the oligopolistic market for telecommunications, might just shake up the market share for the Big 3 telcos of Singapore.
However, the question is now to what extent is TPG going to shake up the market share?
To have a simple answer, we can infer from the stock. TPG is a listed stock in Australia. The price has tanked more than 40% since September. From the looks of the exponential dive, TPG might be having its own problems. Furthermore, after the official announcement, it has not shown any signs of recovery.
We wonder if TPG really poses a serious threat to the Big 3. On the bright side as consumers, we should rejoice as a new competitor should shake up the incumbents, regardless of market share. We hope phone plan prices will fall. Significantly.
Federal Reserve raises Interest Rates (again)
On 15 December, US Federal Reserve raised the interest rate by 25 basis points from 0.25% to 0.5%. The previous raise was in also in December last year and 25 basis points.
So what’s going to happen to the markets now?
For currencies, USD will strengthened even more after Trump was elected to be president. It has already increased to $1.44 from $1.38 last month!
For markets, SG stock market will likely to take a dip. This is based on the data when rates were raised last year.
How about bank stocks?
Typically, when interest rates are raised, banks will also their interest rates. This would mean more interest can be earned by banks. However, from the data of local bank stock prices last year, all three local banks DBS, UOB and OCBC had their stock prices tanking in January after the hike.
Why? This is because when banks increase their interest rates, they will see an increase in non-performing loans (NPL). This essentially means borrowers find it increasingly difficult to pay their debts due to interest rate increase. As a result, more bad debts occur. NPL has already been on the rise since May.
For a further breakdown, check out this post.
There’s more bad news. For the entire year of 2016, there has only been 1 rate hike so far. Fed Chair, Yellen has said that there will not only be more rate hikes in 2017, but also at a faster pace.
As investors ourselves, we feel that a rate hike will not be good for the local market in general. It will also weaken the Sing dollar. It means that our purchasing power will be reduced.
As consumers, introducing a 4th telco implies more competition which could shake up the oligopoly with cheaper phone plans. However, we have to see the extent of ‘damage’ TPG can do to the Big 3, because it seems a fairly feeble competitor.
That’s all from us. We’d like to know what are your thoughts?