The STI reached a high of 3549.85 on 16 April, only second to the all time high of 3899.29 made on 10 Oct 2007. This means that the recent high was about 350 points or 10% below its all-time high. Unfortunately, the STI seemed to be going downhill from 16 April reaching at 3295.13 the end of today’s trading day, a difference of about 255 points from its recent high. This means that between 16 April till today, the STI had dropped quite significantly by about 7.0-7.5%.
Given the drastic drop, many people seemed to be looking into buying or bottom-fishing as some may call. In investing psychology, we call this anchoring because we tend to anchor or fixate the recent high of 3549.85 as an anchor point as if the STI will hit it anytime soon. However, in reality, is STI going to go up anytime soon? Personally, I am of the opinion that it may not. In fact, it may continue to languish for a while given the uncertainty in the US interest rate hike. Economy-wise, I do not think Singapore did well to enable the local stock market to roar. Currently, we are also facing structural and labour issues that will take time to resolve. Regionally, China is also not doing well economically, and the regional currencies are also getting weaker. Hence, it is unthinkable how the STI can tun-around anytime soon. In fact, may be weakening gradually or hovering around this level at best.
Taking history as a guide, in the worst-case, the STI was at about 2370.3 on 12 May 1996 when the government slammed the brakes by increasing property downpayment from 10% to 20%. It was just shy of the all time high then of 2493.7 made on 7 Feb 1996. After 12 May 1996, the STI started to tank accelerated by the Asian financial crisis. In the following two and the half years or so, the STI tanked all the way to 805.14 on 7 September 1998. In total, the STI sunk 66% within that period.
(Brennen Pak has been a stock investor for more than 25 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.