Tag Archives: Stock indices

Are we over yet?

Just two days ago, the FED raised the interest rate by 25 basis points to 2.5%. Going into year 2019, it is expected that there will be another two more hikes. In a scenario when global stock markets have already been battered for some time in the last few months, this certainly drove the final nail into the coffin. Stock markets all over the world tanked further. Even the apparently strong Dow Jones (DJ) also succumbed to selling pressure. For the week, from 17 December and 21 December, the DJ fell more than 1600 points or close to 7%.

As of today, it appears that there are more uncertainties compared to, say, 6 months ago. Most of the major economic blocks are, in one way or another, entangled in some kind of political and economic tussles. Amidst the impending interest rate hikes, there are at 5 issues that are still in a limbo and they appeared to have higher propensity of tilting the balance negatively than it would positively.

The growth of the US economy

Although the US economy is still showing signs of growth and low employment figures that are enough to trigger FED to increase the interest rate, and even signalling another two further hikes in 2019 to achieve its long-term sustainable target, there are concerns that the accelerated pace may tip the US economy into a recession. This can happen very quickly. The Dow Jones stock market reacted just that, declining more than 1,600 points for the week. Perhaps, the low experienced this week may not be the lowest for now. The sentiment can remain weak for some time.

The trade war between the US and China

Many of us probably have under-estimated the impact of this trade war when it first started. When two largest economies are at logger-heads, the other smaller economies suffer. The initial tit-for-tat tariff war imposed by the US and China seemed to have gone a step further, involving the detention of important key personnel and the race to attain 5G network capability. As the trade war starts to widen in its extensiveness and depth, an easy resolution is not going to be come by so easily. On paper, or at least in the short term, US appears to be at the upper-hand due to the significant trade imbalance between the two countries. But this may not be so in the longer term. For one, the next administration may not hold the same view as the current one, but the Xi-administration in China may be a long eternal one. In the meantime, perhaps China is adopting a ‘buy-time strategy’, awaiting an internal implosion to happen. In fact, it appears to be so, given the number of departures in the Trump administration. In the meantime, China is extending its reach to fill up the voids left out by the US in the Trans-Pacific Partnership (TPP) and the ‘one-belt-one-road’ initiative. These have longer impact for putting China to become the centre of influence in years to come. But, of course, in the short term, it is still a question of who will enter the ‘threshold of pain’ first. Still, whether the balance is going to tilt towards China or US, it would not be favourable for the trade-dependent economies and the global stock markets. In all likelihood, most of the smaller economies have direct exposures to the two economies. 

The Brit-exit

Comparatively, our exposure with UK is relatively small, but still it is one of the major economies in the world. The more worrisome situation would be the contagion effect that can trigger any one of the 27 countries to move out of the EU. In fact, there was a precedent in 2011. Greece was literally bankrupt and, in a way, appeared to almost bring other economies, such as Portugal, Italy, Ireland and Spain along with it. The STI at that time retreated around 15%.  

Denuclearisation in North Korea

While some efforts are being carried out, the full nuclearization at the Korean peninsula appears to be still a far-off reality. In fact, just recently North Korea threatened to re-start the nuclear programme unless US lifts off the sanctions (ST 4 November 2018). While US wanted a full nuclearization before lifting the sanctions, North Korean insisted the lifting be in lock-steps with the denuclearisation effort.  It could be a deadlock situation that takes a long time to resolve. Although we have practically no exposure to the North Korea economy, we cannot fully eliminate the fact that other surrounding countries such as Japan, China and South Korea may get involved in this long-drawn tussle as well.

The recent spat between Singapore and Malaysia

While most of the people on both sides of the causeway wanted issues to be resolved amicably, there will always be some discomfort among investors whenever border issues were brought up. So long as there are these teething problems remaining unresolved, it would not be good for the stock market, whether it is SGX or Bursa Malaysia.

In fact, there are more, such as the on-going tension in the middle east and the over-lapping claims among many countries around the South-China Sea.  In the midst of climbing interest rates, liquidity can evaporate very quickly, and that is when we start to experience huge falls in the stock indices as seen in the Asian financial crisis and the global financial crisis.

While I may have unconsciously painted a dark picture for the stock markets, I personally believe we should not completely extricate ourselves from the stocks. I am not saying that sentiment would turn for the better soon. In fact, I believe it will possibly continue to get worse going into the next year (please take this as a personal opinion) or, at best, remains the same. Right now, there are no apparent catalysts to trigger huge purchases. The tough investing market, in the last few months, have elbowed out many marginal players out from the world stock markets, leading to an approximate fall of 20% fall from their respective peak positions.    

As of today, stock prices have come down to a more comfortable level to nimble. Unless there is a huge dividend cut across the board going forward, especially among the blue-chip counters, dividend yield has reached a fairly attractive level. From my personal experience, stocks are one of the best inflation hedge instruments if we take a long-term view. That said, it is also not the time to go in a big-way as if there is no tomorrow. Amidst the increasing interest rates, liquidity could evaporate very quickly and stock prices can fall off the cliff in a free-fall fashion. So, the key is to take a long-term view and nimble slowly if you believe that stocks have reached a reasonable level for purchase.     

Brennen has been investing in the stock market for 30 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.

I was there 6 years ago

Today marks a little more than six years since this article was featured on The Sunday Times on 21 November 2010. The STI was 3197.3 then, and by today, it ended at 2859.33, about 10.6% down. It is time to take stock again after the span of 6 years.  The real time is the best endorsement of how our stocks perform over time.

 

ST, 21 Nov 2010
ST, 21 Nov 2010

By and large, the components in my portfolio were relatively intact. I might have added one or two stocks to replace two of my beloved stocks that were taken off my portfolio due to privatisation. The first was Cerebos Pacific which was delisted in 2012/2013. The offer was attractive at a whopping $6.60 per share. The second was OSIM which was delisted in the first half of this year. The offer was at $1.39. Both of these stocks had been multi-baggers apart from receiving the good dividends that had been distributed in all these years.  I have also parted with SPH due to its weakening fundamentals and reduced my stake in Comfort-Delgro when the share price went past $3.00 per share. I had left some stocks in my portfolio waiting for the good news for a one-off dividend announcement when it entered the asset-light regime but it never came. Perhaps, I would consider to buy back the stocks again when the time is right.

 

Meanwhile, there were people who mentioned that bank stocks, in particular, DBS did not really gained in terms of capital appreciation in all these years. I agree with that totally based on the price chart because in the last few years, DBS share price was hovering below $16, then gained momentum and went above $20, then fall below $16 for a significant amount of time. By today, it is back above $16 and ended up at $17.05 today, which is still well below $20 reached some years ago. So, if we look at the two end points, we may not see a significant capital appreciation. This means that if we apply a ‘buy-and-hold’ strategy, we may not have gained anything or could even have suffered some paper losses if we had bought it high. As mentioned in my previous post, a long-term strategy does not mean buy and don’t sell. What I meant was we should buy when it is time to buy and sell when it is time to sell, but our focus still remains on it. In fact, over the last week, the increase of $1.20 in two days gaining 8%, and then around 56 cents made within this week had made it a strong showing, following the widely belief that the FED is likely to make a hike in the interest rate by December. If not for this sharp increase, DBS share price would still be lingering below $16. That said, isn’t it important that stocks must have some degree of volatility to be able to buy low and sell high. Certainly we cannot expect a stock to be increasing all the time because at some point in time, the share price will go past its fundamentals and a crash would certainly be imminent. This indeed happened to the penny stocks in October 2013. In fact, just yesterday, the ISR Capital also crashed 55% from 28 cents to 12.7 cents. Many investors/traders had been sucked into these stocks thinking that they were the next blue chips in the making or probably to make quick profits. In a similar way, we cannot expect a stock price to remain constant all the time because it means that the only thing that we can depend on is, hopefully, a fat dividend. So, in a market place of different groups of people, we should be mentally prepared that there is bound to be volatility and we should be prepared to embrace it. Otherwise, it is difficult to take bold decisions in our stock investments. In fact, in all these years, slowly but surely I have increased my bank stock component. Perhaps, it may crash tomorrow, next month or next year especially when they have been quite exposed to the offshore and marine sector. But I would still stick my belief that bank stocks should be part of our portfolio so long as Singapore exists as a financial centre regionally.

 

But not everything is a fairy tale story in my portfolio development. There was a stock which I held for easily more than 20 years when I started off as a rookie. By today, it had lost 99% of the price which I had bought. I have decided to leave it there to decay to serve as a reminder not to believe in promises and glamorous stories painted by the management. After all, the residue value is only a few hundred dollars. Even today, it has been struggling to keep its price above 20 cents MTP after consolidation. The second was a company whose products seemed to be promising, but apparently, the management seemed to be taking a different direction thus sabotaging the share price. This again showed the misalignment of what the management claimed and what their actions are. The third was a recommendation by a ‘self-declared guru’ who aggressively coaxed investors out there to buy bombed out counters that crashed during the penny stock crash. Frankly, I did not carry out my homework for this stock. In a fit of the moment, I simply threw in some money to buy the stock. The share price has been going down and down and never return back to even near the after-crash price.  It was one of those acts of impulse that can happen from time to time but I learnt a lot of lessons from this episode. Firstly I did not do my homework, which was not my usual self. I was probably too carried away with other things back then. Secondly, I was too trusting to believe a speculator who ‘disguised’ himself as a guru. Thirdly, buying into a bombed out counter does not always mean a good buy because at end of the day, the fundamentals of the company still counts. In fact, I think many people got this basic notion wrong that when a stock crashes, it means a good buy. From past history, many counters that had tanked badly had never been able to come back up again because the stocks simply lack the fundamentals to trigger a turn-around in their stock prices.           

 

Now comes the blessing part. I had managed to avoid the crash that had plaque the offshore and marine (O&M) stocks. I find most of these stock prices are too intertwine and the crash of any one stock would bring down the other stock prices as well. The survival of the companies behind these stocks hinges largely on the oil price, which we do not have control over it. This means that our fate lies in the hands of the oil producers and users. Even as a country, we are only but a price taker.

I would also consider it fortunate that I had also avoided the corporate bonds. At one time, I was considering to buy Genting bond as it was trading below par while the perpetual bonds was trading above par. However, I seemed to have an impression that the relationship manager was trying to impress upon me to buy O&M bonds offering higher coupon rates. Personally, I find that there is too much concentration of risks to support the bond-issuer even though the coupon rates were attractively priced at between 5% and 7% compare to the bank interest rate of less than 1% offered to retail clients. Furthermore, I would not have much bargaining power as an individual in case of a dispute. Thirdly, there was lack of liquidity in these investments. The bid and offer spreads were often wide and far in-between. Certainly, if we are not able to execute an exit plan at our wish, it is never a good investment. This decision paid off well and I felt extremely blessed following the default of Swiber in July this year. Now with the defaults catching fire across the industry, I felt that I learnt some good lessons without paying a price. Many who had bought bonds, particularly in the O&M sector would now been licking their wounds and would likely to be entangling with long-drawn legal tussles with the bankers, lawyers and the bond-issuers. These are unfortunate events that bankers, investors and bond-issuers would not like to be in.

Thanks god, despite the drop of about 10.6% over the 6 years, I feel lucky that portfolio had actually grown and I have avoided several major stocks setbacks that had derailed many investors and traders out there. Essentially, the best test for our stock performance is the real time.

  

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.

Some notes about Investingnote

About two years ago when my stock-broker friend introduced InvestingNote to me, I was not exactly keen initially. The reason was that I have a business to develop and a family to take care. All these will draw away all my awake hours. Where can I find the time to socialize and get into it? Nevertheless, I still register my name, perhaps, to keep myself current with new developments as well as to know some investors and traders out there. It was a good decision. Today, I have met several distinguished investors and traders via this platform and had even met them personally.

In the meantime, InvestingNote has grown by leaps and bounds, and now with members in tens of thousands. All these came about because more and more features have been incorporated in the platform to have everything that we need to know about local stocks within the platform. Not only can we find the price chart featuring real time price, we can also discuss about the potential of each stock on the SGX with fellow investors and traders. Apart from that, one can also horn his trading skills making estimate about the share price of each stock for a particular time-frame. This can help one sharpen his investing/trading skills before taking the plunge using real money to buy or sell stocks. Frankly, I have not come across another platform that offers this feature.    

With all these said, there is no cost. You need not pay anything to be a member of InvestingNote. Registration only requires an email and a password, and is extremely easy. Just register by clicking this link.

Register me at www.investingnote.com now!

It’s an additional tool for your stock investing.

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.

Big funds are moving away from stock markets

Yes, it is confirmed. Funds are moving out of emerging market and the results have not been pretty.

Slide5

After two weeks of punitive sell-out, most of the indices have either gone below the year opening level or expected to move towards that. With the exception of Nikkei 225 and DAX, most of the indices have already gone underwater. With this massive sell-out it is only a matter of time that the DAX and the Nikkei 225 go below the year opening as well. Right now, they are less than 10% shy of the their respective year-open level.

Certainly, with the trading volume and ferocity, it could not have been the act of individuals or retail investors. This is the act of institutional fund managers that are holding large quantities of index-linked blue-chips. These fund houses do not hold just 2 lots of DBS or OCBC, but in much larger quantities like 200,000 shares. The irony is that such selling often breeds more selling as investors want it out. And as redemptions accelerate, fund managers have no choice but to encash their shareholdings in anticipation of more redemptions even though they know that the price of blue-chips have gone to unpredented levels.

Certainly, with the ferocity of the drop in the bid-offer prices, the victims are the investors who have dedicatedly squirreled away their hard-earned savings in these funds for the past years. It is a situation in which the fund house takes the first dollar of profit but investors bear the first risk on the money.  Frankly, I had tasted these bitter fruits years ago during Asian financial crisis when I noted that the fund units were trading at one-third the price which I originally bought even though the indices dropped only by 50%. In addition, our yearly management fees of 1-2% paid to them and the undistributed dividends that went into the pockets of the fund managers do not seem to offer much help for the helpless investors who  put their money at risks. Learning from the lessons during the Asian financial crisis. I had encashed most of my unit trust funds about 2 months ago in anticipation that the stock market scenes will not be going to be pretty.  After all, what is the 5% sales charge compare to an anticipated drop of 30%-50% in stock indices.

(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.

Market psychology – Are we at the market bottom?

Many people seemed to believe that the market is low now because we tend to anchor the stock price at where the stock price is at its maximum. Just a few months ago, it was 3500 on the STI and now we are at 3050. DBS, a good proxy for the local economy, was recently at its high around $21.50 a few months ago. Right now, it is trading at $18.70 and it appears sufficiently low  to buy. After all, the difference is a whopping $2.80 per share. But things have changed. The economic fallout in China and the falling currencies in ASEAN countries will shift the fundamentals leading to the steep fall the share price. Brace tight! The market has not bottom out yet. It should undershoot(1).

(1) See investing psychology on Building Wealth Together Through Stocks.

(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.

 

 

China’s 3rd devaluation within 3 days

China lowered in centre band once again for the 3rd day in this week to 1US$ : RMB6.401. For the past 3 days in succession, China had lowered its currency band 3 times. From RMB6.116 to RMB6.2289 to RMB6.3306 and to RMB6.401 today. So far, the devaluation is about 4.65%. It is too early to assess the over all impact although there can be some effect on the banks earnings and on companies that have exposure to the RMB.

However the impact of the stock market seemed to be more damaging causing the STI to retreat by 91.57 points (or about 2.9%) within a single day. While it is not sure if there will be further downward adjustments by the chinese central bank going forward, the timing and the speed of the controlled devaluation had made the market extremely jittery. The obvious reason that comes to our mind is that the chinese economy is doing badly and therefore she has to resort to lowering its currency band in order to maintain an econmic growth of 7% per year. By doing so, Chna is hoping to export its way out to achieve its target. Given that most of the countries have some exposure to this 2nd world largest economy, it is inevitable that all the Asian stock markets also tanked.

Objectively, short further downward adjustment by China, the overall percetage is still small, at about 4.65% compare to Japan’s 22% and Europe’s 16% against the US$.It is the timing and the speed of the adjustment that is causing fear in stock markets. Right now, many asian economies are not doing well and their currencies were also depreciating against the US$, a natural reaction to the impending US$ hike. A sudden change in the currency band would instill a lot of panic among investors.  Going forward, hopefully China’s move does not provide excuses for other smaller asian economies to react causing more jitters in the already weak market.

Refer to market psychology in my book “Building Wealth together Through Stocks“.

 (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.

 

China’s devaluation may spark another currency crises and Asian stock market fallout

China made a surprise move to devalue its chinese yuan to US dollars. The mid-point range is now RMB6.230 instead of RMB6.116, a decrease of approximately 1.8%. This would have indicated that the chinese economy is not doing as well and the chinese authority is trying to devalue the yuan to export itself out of the crisis. Certainly, it will create a round of currency war among the asian currencies, which are already very weak. The Malaysian ringgit and Indonesian rupiah are at their 17 year low since the Asian financial crisis in 1998. In fact, Malaysian ringgit had gone below the peg of US$:MYR3.80 during the Asian financial crisis. It has been trading around US$1:$3.94 recently.

Certainly, with the move to devalue the chinese yuan against the US$, it is not going to auger well for the stock markets. We use the lesson  from the Asian financial crisis as a guide. it started off from the currency crisis, of which Thailand was vigorously trying to defend its baht pegged to US$. When Thailand had deplected its foreign reserve, it had to let go of its peg resulting in a free-fall of the baht. This then spread to the other asian countries as most of them were pegged to the US$ at that time. One-by-one, indonesia began to fall and followed by South Korea and they end up seeking financial aid from IMF. Although many other asian countries, such as Philippines, Malaysia, Taiwan, Hong Kong and Singapore, did not enlist the help of IMF, their currencies were also badly battered.  At that time, China was still in the midst of economic development and its stock market was then quite insulated from the outside world. Now that China as the world’s second largest economy triggered the devaluation, it may spread to other smaller asian economies. Although all economies except China and Hong Kong were no longer pegged to the US$, they are still generally weak. So sit tight, It is not too far-fetch to expect a 30-40% drop in the Straits Times index (STI) going forward even though it has already been more than 10% down from its recent high.

Refer to market psychology in my book “Building Wealth together Through Stocks“.

 (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.