Tag Archives: stock market

Starting 2018 positively

Despite closing the year 2017 with an 18% upside in the Straits Times Index (STI), we saw another 90 points increase in the STI to end at 3489.45 in the first week of 2018. For myself, I am happy to have seen many days of advances last year. In the week that just passed us, like many investors out there, I have enjoyed a 5-digit figures climb a day in the three out of the four trading days. In a market like this, it is probably difficult to lose money. Maybe everybody has become an expert in their own rights. But going forward, it is unlikely that things would be repeating at this rate. Complacency may have already started to build in the minds of investors. The advances in the Dow Jones Industrial Index (DJII) has become such a norm that any retreat is seen as an abnormality. Given that DJII has some bearing on the STI, the advance in STI is also becoming more and more of an expectation.

While I am personally enjoying the ride on this wave, I beg to be now more on guard than I had been last year. From the past experience, market crashes came when we were least expected of them. The global financial crisis struck when many Americans were chasing the American Dream. The Nikkei-225 fell when property prices in Tokyo had to be paid by three generations. The Asian financial crisis hit when property prices were around their highest level in the 90s. The DOT-COM bubble burst when there was extensive euphoric belief that any company registered as a DOT-COM was a pot of gold in the making. The list goes on.

In line with the rapid advancement of the STI, many would have agreed that it is getting more and more difficult to find gems that would potentially bring 30%-40% upside to their stock portfolio. On the whole, Mr Market has been quite generous in rewarding the true blue investors due to the extremely low interest rates after the global financial crisis. Going forward, the low-lying apples are no longer there for cherry-picking. In fact, the climb in the recent months has been quite confined to the banks, perhaps manufacturing and possibly some REIT counters that generally offer higher yield. Many of the STI constituents in transports, properties and conglomerates did not really move the STI very much, further weighed down by their lower weightage compare to the banks.

 

As a matter of opinion, the STI should still remain buoyant due to the spill-over effect of last year and playing catch-up with other financial markets, and very importantly, the economic performance of the local economy. But, whether this year is going to be as good as that of last year remains to be seen, particularly in the second half.

Happy investing!

Brennen has been investing in the stock market for 28 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

 

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.

Brexit: My take on the sterling pound

Even though the sterling pound was bashed badly on Friday, 24 June to as much as 10% against the US dollars, my take is that it could be in for more bashing. While I cannot profess myself to be an expert in the forex market, I am of the view that England’s decision to leave the EU may cause disunity among the GB countries. England’s huge voters by proportion had overwhelmed the stand of the other economies such Scotland, Wales and Northern Ireland. A post examination of the poll results showed that Scotland, next biggest economy after England has a voting population of only 2.6 million voters compare to England’s 28.4 million, let alone that of Wales and Northern Ireland of 1.6 million and 0.8million respectively. In other words, the English’s votes on Brexit may not be representative of the other three economies. In fact, the post examination results showed that Scotland and Northern Ireland had more than 50% on the ‘remain’ camp. This could further surface the disunity of the Great Britain (GB) leading to holding more independent referendums. Needless to say, it is to likely to further affect the value of the sterling pounds.  

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.

Brexit: The days after the pounding

The final verdict is out and Britain is now out of EU. The result has taken the financial market by surprise. Even until the 22nd of June, financial markets all over the world were predicting that Britain would stay within EU. Most of the stock markets, whether it is Nikkei or the Dow Jones, were up from Monday till Thursday, but ended up in the negative territory after the Friday plunge. Even the European markets such as FTSE, DAX and CAC were exhibiting the same upward trend only to crash down significantly on Friday. So, the Brexit had indeed caught the financial markets by surprise. Those in the wrong side of the bet in the forex market would have lost a lot of money. Going forward, the only certainty is more UNCERTAINTY!

Despite a small difference of less than 4% between the ‘remain’ and ‘leave’ camp, there are significant divides between different age groups and different counties. The older ones tend to go for autonomy, while the younger ones go for the union with EU. Also, the Londoners were generally in the ‘remain’ camp while those outside London tend to be in the ‘leave’ camp. Even between the 4 economies that use the sterling pound, England and Wales have more ‘leave’ voters while Scotland and Northern Ireland have more ‘remain’ voters. As 85% of the voters came from England, which chose to leave the EU, it completely overwhelmed the voices of the other economies on their stand towards the EU. It is likely to trigger the next biggest economy, Scotland who has EU leaning, to hold independent referendum, thus weakening the unity of Britain further. Even Northern Ireland, which has more ‘remain’ camp by proportion, but significantly less populated may seek to break away from Britain and join the Irish Republic, which is in the EU.

The situation is no better in continental Europe where almost all the EU member countries sit. Losing about 15% of the total GDP is like losing an arm or a leg for the EU. Britain is the 2nd largest economy after Germany and, this could weaken the EU as an economic bloc.

Predictably the sterling pound was the 1st currency to get the bashing dropping as much as 10% against the USD on Friday, 24 June. The already weak Euro, after the ECB’s initiation of the bond purchase program (Europe’s version of QE), also fell about 3-4%. Going forward, if the GB breaks up due to the above-mentioned differences, the sterling pound is likely to get further bashing. Also, true enough, as mentioned in the earlier post, the USD and Japanese Yens were the ‘beneficiaries’ of this currency exodus, even though both the US and Japan are not the willing parties to have this honour given the state of their economy.

To foreigners, the UK is always seen as a gateway to Europe due to its language similarity to American as well as its colonial influence amongst the commonwealth countries across the globe. As an endorsement to this observation, UK had just recently received prominent guests like President Xi JinPing of China and President Barack Obama respectively during October last year and April this year respectively. With the Brexit already a reality, this position may get relegated, and perhaps, even put its status as a financial centre at risk.

On the stock market, only a handful of Singapore listed companies are directly exposed to UK and the Eurozone market. But still, the repercussion of the foreign exchange market on the local stock market can be significant. On Friday was a sea of red across the board driven by sentiment. The general market mentality was ‘sell first and then decide later.’ In such sentiment-driven drama, pocket of opportunities can surface as a consequence. The share price of unexposed good companies to the European saga can be driven down without any change in their fundamentals. And when the market becomes rational again, the share prices of these companies are likely to be the first to go up.

It’s all about positive thinking.

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.

Brexit – The impact on us

In a few hours’ time, we should know the results of the referendum as to whether Britain is out or is to remain as a member of the European Union (EU). Ranked as the world 5th largest economy behind US, China, Japan, Germany, and with a GDP of nearly US$3.0 trillion, the results of the polls will have significant impact on the financial markets directly or indirectly. Although I am of the view that final results is for Britain to remain in the EU, there could be unpleasant surprises in view of how divided the parliament is on this issue. Furthermore, Britain, which is part of United Kingdom, in many ways are ‘more different’ than most countries in continental Europe. They continue to use the sterling pounds and, historically, they have been driving on the right side (I mean to say ‘correct’ side of the road as we have adopted the British’s traffic system here.), just to name one or two examples.

As one of the world’s largest economy and with London being one of the most important financial centres in the world, this referendum is closely watched by many countries on both sides of the Atlantic.

What really can be the impact on us? First and foremost, it is the world currency. If Britain chooses to leave EU, then the first direct hit is the British pounds. Being one of the major currencies in the world, its depreciation would mean appreciation in other major currencies such as US Dollars and the Japanese Yens. While, the past several months had seen the British pounds depreciated against many major currencies, the current state may not have priced in a full-scale BREXIT because the Brits were still quite divided over this major decision. Certainly, with a rather stagnated global economy, no country would want their currency to appreciate significantly. In fact, the Brexit had been quoted as a key reason for the chair of FED, Janet Yellen, to delay the decision to hike up the interest rate as it may result in a huge appreciation of the USD. In a similar way, an appreciation of Japanese Yens could negate years of effort by the Japanese government to export its way out of recession.

The other impact is the contagion effect.  It may become a precedent for other EU economies, in particular the weaker ones such as PIGS (Portugal, Italy, Greece and Spain), to call for referendum to choose between ‘ín’ or ‘out’. Even within the United Kingdom (UK), Brexit could cause disarray between the countries in UK. Ireland belongs to the EU but depends on Britain to enable labour and goods movement in the enlarged market. With the high-growth rate in the recent years, Brexit will certainly have impact on the economic growth on this much smaller economy.

Being the second largest economy in Europe, Britain would be a more than welcome to join EU as a member. In similar way, Britain is also very dependent on continental Europe for trade and services as an enlarged market. Brexit could weaken the EU as an economic bloc, and possibly, on its own, sabotage its cutting edge areas such as banking, finances and trade services in serving the common market in the EU. In summary, Britain needs the EU just as the EU needs Britain.

At business level, the impact of Brexit is less apparent. It is likely that those companies who are exposed to the British pounds are more at risk. City Development, which operates hospitality services, and Comfort Delgro, which operates the bus services in England are more likely to be affected due to the currency movement. There are perhaps several more companies affected, but the situation should be relatively contained. However, the negative sentiments will still prevail if Brexit becomes a reality at least for the start. If Brexit degenerates into more referendums being held by member countries in the EU, then it is likely to throw more uncertainties for the stock market.

Keep our fingers crossed, guys!

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.

Making sense out of this market

The interest in the stock market returned with a vengeance over the last 6 trading days. By Friday yesterday, it had ended at 2837, an increase of 234 points from the closing at 2603.40 on 25 February. This represented an increase of 9% on the ST index. Imagine if one were to continue to wait in hope that index tanked further, then he would have missed this rally. It may be the best rally for this year.  Thanks to this changing global sentiment, I managed to pick up some battered blue-chip stocks after the Chinese new year to add to my portfolio. This is in anticipation of additional liquidity that will come April and May when companies distribute out their year-end dividend.

The fact that stock markets all over the world were retreating in the last two months was that people were generally fearful about the world economy – the retreat of commodity prices, the collapse of crude oil prices and that the Chinese economy growth rate slowed to 6.9% was the worst in the last 25 years. Similarly, the European as well as the Japanese economies were only trudging along even with huge stimulation packages. Naturally there is a lot of pessimism over the local economy that led to a huge retreat in the ST index over the last two months in January and February.

As pointed in my book “Building Wealth Together Through Stocks”, markets tend to undershoot the pessimistic outlook (and of course it also tends to overshoot during massive optimism at the other extreme). Consequently, windows of opportunity will present themselves time and again. Take DBS for example. Six months ago, it was trading at around $20 per share, but it fell to $13 per share just recently, a drop of about 35%. In between, there were only two quarterly of reporting. Were the results that bad for the share to tank so much? I am not saying that DBS share cannot drop to $13 if it really did badly. What I am saying is that the market tends to anticipate too much before it really happens. And when things were not as bad or when there were some signs of good news, it would start to leap forward. That was exactly what I mentioned in my earlier post (Market rout: A test of our mental fortitude.) that the market is likely to roar with ferocity because the market had already dropped too much.

 

Let us examine the stock market index. About 20 years ago, if the ST Index were to reach 2500, we can safely say that it had reached its high. But today, if ST index 2600 level, it would be have been considered it as a historical low. There were only two occasions since global finance crisis in 2008/2009 that had hit below 2600, namely the euro-zone crisis in 2011 as well as after the collapse of oil prices recently. Again, it is of course possible that the ST index can go lower than 2600 and even 2500 and below, but it is important to note that stock indices represent the value of a sample of selected companies. As stock indices retreat, values of companies will emerge because market is “under-pricing” the value of companies more and more. Stock prices are driven by sentiments, and very often, the market may become so pessimistic that it starts to price themselves grossly below companies’ intrinsic value thus causing big price differences between stock values and stock prices. Consequently, when the sentiment changes, the bounce back becomes forceful. Now that this force had already pushed up the stock index significantly, perhaps the strength to push up the index further may start to weaken or even collapse going forward.

Invest carefully now.

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.

Market rout : A test of our mental fortitude

The last few days of market routs in both China as well as stock markets over the world had seen trillions of dollars evaporated in air. This is a type of market situation in which big investors and fund managers fear most. Good and bad stocks were all bundled together and offered as a discount package. Fundamentals were thrown out of the window. There were no escape routes and everybody ran for the exit door.

While significant damage has already been done, it bags a further question – shall we sell out our stocks in anticipation of further slides or shall we hold on to our stocks and ride through the storm? It is a crucial question that requires a time-critical action amidst the volatile market. It is not a question of how good is our stock picks a few months ago or how lucky we were in selling a few weeks ago. It is really a test of our mental fortitude – whether to sell out or to hang on.

For those who have relatively small exposure especially those holding good blue chips. Generally, the blue-chips will regain its position after the uncertainty is over. In fact, some may even consider to buy in (now or perhaps a bit later) as this may be one of the rare lifetime opportunities. True, the gains may not be immediate, but why bother when we do not need the money. The potential gain is worth the wait.

Certainly, there is another group (a big group in fact), who want OUT irrespective of whether they suffer losses or still in the black. They just want out, and that’s why the market tanks! In this group, there are a portion of them who will vow never to be in the stock market again after suffering massive market losses. If you are in this group, just treat it like you had suffered some business losses and get on with life. Or else, the spectre will continue to haunt you and it would not be healthy both for you and your family.  (I had come across a person who mentioned that he became a good father after this life encounter!) Then, there is also another camp in this group who seeks to get back to the stock market when the storm is over or when the situation gets better. They are always on the prow to seek opportunities to buy into the stock market. If you are in this group, remember that you have to make right decisions twice. Firstly, you must decisively get out of the market while the market is reeling down, and, more importantly, you must get back into the market very timely. I say again, very timely. The reason is that when the market starts to turn, it is really very fast and powerful. It is going to be a stampede getting back into the market with the same ferocity just like everyone wants out when the market tanks. This BUY decision is very critical especially when our sell position was not exactly high and we have to consider and re-consider when to get back into the market. Let me say this – it is really not easy to time the market. It is like driving through a thick fog when we are not able to see what is immediately ahead of the wind-screen. Many people professed that they can sell out their position when the market is high (really how high is high??) and then buy back when the market is low. But the reality is that the market can always get cheaper and how low is considered as low. Even if they know that the market is low, the question is, will one have the mental fortitude to get back into the market? Our ego is always that we want to buy low. We waited because we hope to buy something even lower than what it is now. (That also explains why governments find it more difficult to curb deflation than to curb inflation). Such procrastinations can be very costly. Perhaps, when one reviews his position after the brawl, he may even asked himself why he had sold in the first place when his buy-back price was so close to the price that he had sold, just because he is worried about missing the band-wagon. Or, perhaps, he might even suffer a marginal loss when he bought back the stocks. In fact, this happens to not just retail investors but even big fund managers as well. That explains the market tend to over-swing when the market start to turn for the better.

Then, there is also a super brave group. THEY ARE PREPARED TO RIDE THROUGH THE STORM! Generally, this group consists of people who have some market experience and likely have seen the market ups and downs. The good point of this group is that they are able to separate money matters and other life matters. Therefore any market losses, generally, do not affect their private or family lives.  Personally, I think if we want to be a stock investor, we should bear at least a bit of this characteristic. We cannot win all the time. Even famous investors lost big at one time or another. We should not let the people around us suffer with us just because we incurred losses in the stock market. The fact that we are in the stock market means that we are prepared to incur some financial losses no matter how good our investing prowess can be. The danger, of course, is when the market continues to linger downwards over a long time, generally one year or more, and such that even some people in this group started to lose hope. This is when the maximum damaged by the stock market was inflicted. They suffered so much loss to a point that they lost hope and gave up their position. This is the stage when the famous investor, Warren Buffet, termed it as MAXIMUM PESSIMISM. Even a ‘long-term believer’ sells out of his position! This is usually also the stage when extremely wise investors come in to scope the good stocks that have been badly-battered and nobody wanted them. They buy at the lowest point and hold till the market becomes positive again. This is how wise investors become extremely rich. Their gain can be several times of their investments, which Peter Lynch termed as ‘multi-baggers’.  The irony, usually is that the market U-turn is usually very fast and unstoppable. This is a stage when big funds start to come in and retail investors were left out ending up ‘missing the boat’. Frankly, if you are the type who believe in technical analysis and has been working to confirm, double confirm and triple confirm the buy signal, I am quite sure you will ‘miss the boat’. The market is not going to wait for you. It is not just going up gradually. It jumps. By the time retail investors start to get into the market in a big way, the market index might have run ahead of the fundamentals of the prevailing situations. It is a very tricky situation – to buy or not to buy?

So, the point is your mental fortitude in this volatile market determines the level of calmness and how you react to the market situation. A crazy market does not mean that one has to craze along with it.

Be rational. Happy investing!

Disclaimer : The above does not constitute an advice for readers to buy or sell their investments. The contents are opinion of the author who has been in the market for more than 25 years, and who have seen many ups and downs of the stock market that have affected many people. It is just means of sharing his observation of the market phenomena. The contents are purely for private consumption only as he has no interest in readers’ stock investments.    

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.

 

Japan Nikkei and China SSE

Since the post on where to put my money now on 28 Novermber 2015, the stock indices of both China and Japan, being SSE and Nikkei 225, had advanced between 16.8% and 18.4% respectively. In fact, China’s SSE had reached a high of 5023.10, which would mean that the index would have advanced 59% at that point.

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Realising the instability of the SSE, advancing at such a great speed of more 100% within a year, I decided to pull out the China related unit trusts and index funds on 19 June. Perhaps, lady’s luck was on my side, I managed to evacuate in the nick of time at the first sign of trouble to evade the stock avalanche in the last few days. In fact, I had mentioned during the invited panel discussion at Singapore Investors’ Association, Singapore (Sias) on 9 May 2015 that investors should start to be careful about China stocks. In a market swarm by margin financing and thousands of accounts opened by new investors everyday, it is time to be wary. When a market is not supported by fundamentals, it is an easy-to-come and easy-to-go situation. The speed of funds going out of the market will be as easy as funds getting into the market, leaving a lot of inexperienced players holding on to stocks bought at high prices. The sky-high individual stock prices will take many years to reach again if they ever exist several years down the road. As for me, hopefully, it can be a second time right to get back into China market when the dust has settled.

As of now, I take a different view of Nikkei 225. Whilst I read about the article on interview of Mr Daniel Chan, MD DCG Capital, that the fund is not invested in Japan http://business.asiaone.com/news/asean-shines-investor-destination, I begged to differ. Yes, it is true that Japan has high goverment debts and structural issues that caused the economy to be in the doldrums for more than 25 years, my gut feel then was that the Japanese market might have bottomed and was to be heading higher. Since September 12, 2014 when the interview was published, the Nikkei 225 index advanced from 15885 to 20539 as of yesterday, an advance of 29.3%. In fact, I think the Nikkei will either continue to advance, or in the worst case, stay just around 20,000 level for the next few months and possibly till the end of the year, barring black-swan events.

Several reasons I believe help to support the Japanese stock market are:

1.   Abe’s administration has been leaning towards cheap monetary policy. Consequently, the Japanese yen has been low against the US dollars. In fact, many Japanese companies that have been investing in China for many years are now movng back or planning to move back to Japan to take advantage of the low Japanese yen. These Japanese companies invested in China years ago was to benefit from the cheap labour and the vast consumer market. However, it looks like China’s cheap labour is no longer cheap compare to many Asean countries and there is less incentive to continue to invest in China. Of course, that being said, it does not mean that Japanese companies will move out of China in herds and droves due to its vast consumer market.

2. The Japanese economy imploded in the late 80s was due to property bubble burst at that time. With a passage of time of more than 25 years, many foreign countries, including many Singapore companies, are now buying up properties in Japan. The fact that the Nikkei stock market has been lying low during all these years was that the households are not investing. In fact, up until last year, many indivdual preferred to invest their money in low-yield instruments such as bonds. This has been the result of the deflationary mindset of the people. To me, it is households rich and government poor situation. With property price helped by foreigners, it should be a question of time that the ‘feel-good’ factor returns and this would be positive for the economy and the stock market. Certainly, there will be structural problems as Japan has been a rather ‘closed’ economy up until the 90s, but I believe it should be in biased towards a positive direction as confidence appeared to be coming back.

3.  Commodity prices, including crude oil, have been low in US$ terms. This should benefit resource-scarce economy like Japan. Of course, the weakness in Japanese yen has a negative effect, it still helps when commodity price is low.

(Brennen Pak has been a stock investor for more than 26 years. He is the Principal Trainer of BP Wealth Learning Centre LLP. He is the author of the book “Building Wealth Together Through Stocks.”) – The ebook version may be purchased via www.investingnote.com.