Tag Archives: china market rout

Just stay on course

In the blink of our eyes, we are at the half-way mark of calendar year 2016. So, where are we now? The ST Index closed at 2882.73 on 31 Dec 2015, and today it closed at 2840.93, a difference of 41.8 points down (or a loss of about 1.5%) since the beginning of the year. After battling with the Chinese stock market rout in early part of the year, the possibility of interest hike and, very recently, the Britain exit from EU or Brexit in short, we are still more or less where we were since the beginning of the year.  So, generally speaking, the market has been quite resilient.

In fact, the bonds and perpetuals that were raised in the last few months were several times oversubscribed, and many companies actually raised more debts than originally planned. This shows that there is indeed a lot of liquidity at the sidelined waiting to pounce on opportunities that may surface from time to time.

Even in the latest happening that led to Britain, the world’s 5th largest economy, having to break away from the European Union (EU), it did not impose any real threat after one to two days of market disorientation. In a situation when central bankers are prepared to do whatever it takes to stabilise the market, it probably pays to be in the market and not to sell out prematurely. It is like playing football with the referee on our side. The outcome is slightly biased favouring those who hang on.

 So, what do we really learnt from this episode? During times when the market gyrations are expected to be significantly violent, all we need is to stay calm and rationally think through how to react (or even not to react) to the changing situation going forward. Usually, it is the calmness that helped us think rationally. Furthermore, there is ‘Hands of God’ (the central bankers) a term used by Diego Maradona in 1986 world cup to help along. Suppose when we go into a panic and sell out on Friday, 24 June, it is very certainly that one is not able to buy back the stocks that they had sold without incurring some additional costs. Today may be the end of the 1st half of the year, and there is a possibility that there was some kind of window addressing that drove the ST index up. Of course, there can be profit taking in early July. However, the way I see it, the depth of the market rise appeared to be more than just window dressing as the market anticipates that interest rate hike may take a back-seat. Also, almost certainly, there will be stock market volatility ahead as the breakaway of Britain may result in more uncertainties brewing in the EU. And, perhaps, some black-swan events can pop up unexpectedly. But these happenings are not something that we can control and there is no point to lose our sleep over it. What we really can do is to stay on course in our investing journey. Many stock market routs actually got diffused over time. As new ones come along, the old ones get blurred out of the picture.

After having gone through so many ups and downs of the stock market during all these years, I find that most of the time, we do not need to be too reactive to the market gyrations.  The market may have gone crazy momentarily, but we really do not have to go along with it. In fact, there is more to lose, not only financially but also mentally when we react too much to the market gyrations. Unless that we hold on stocks that totally lack fundamentals, the market normally heals itself after some time. Perhaps, we should treat such isolated events as if the stock market is offering some discounts, just like the supermarkets do from time to time. Once the discount period is over, we find ourselves much better off than we originally were.

To me, stay on a long-term course is the best policy.

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.