The “Psychomachia” (Battle of Spirits or Soul War) is a poem by the late Roman Christian poet Prudentius in the early fifth century. It is considered to be the first and most influential pure medieval allegory in a long tradition including more famous works like “Romance of the Rose” or “Piers Plowman”.
In the “Psychomachia”, seven heavenly virtues combat the evils and temptations lurking in the seductive shadows of the soul. Imagine the cartoon angel and devil which pop up on Homer Simpson’s shoulder, before the devil inevitably wins as baser human instincts take over, oblivious to the angelic voices of Reason and Patience!
After all, what will markets be without the greed and the associated Fomo that underpins bubble markets, or the fear and the volatility spikes in the CBOE Volatility Index (VIX) when everyone heads for the door or nearest window to get down at the same time.
This is a rhetorical question, of course — and the answer for the mischievous may be Singapore’s STI. Ever steady, unexciting, and following the September Surprise that this column had predicted, the first two weeks of October’s meandering down ever so slightly was exactly that — boring after the run-up in recent weeks.
To be or not to be…
The Singapore market now is too high for some to chase the index further from its relatively modest (by regional and global standards) 15% run breaching 2007’s high; not low enough for liquidity waiting on the wings, having sold on the way up to buy back in. Whether blue chips or REITs, the market appears to be in a pregnant pause after first the STI then the REIT Index made nice gains (unexpected by most). The spike in Securities Daily Average Value (SDAV) traded on the SGX last month that reached a multi-year high has also dribbled back down.
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There is ample resting liquidity on the bid, whilst the offers are stacked above the recent highs made in late September and early October. Volatility has compressed and normal service in Singapore’s stock market has resumed. For those who sold and are in cash, the temptation to get back in is high.
Especially for those with my former trading background, the lack of volatility is frustrating, and the laments of Singapore being illiquid are surfacing again. It is not illiquid. You just need to cross the bid-offer spread and move the price and you will get your liquidity. But with the US election less than a month away, folks in cash prefer to buy the dip. Those who are long prefer to sit on the offer or stay on the sidelines.
They have good reason to think staying invested long term in Singapore is safe. After all, Singapore’s famous resilience was on full display as China stocks rocketed up through the Golden Week holiday 5%–10% up per day only to fall by up to 14% in single days thereafter. There was ample liquidity when the market was terrifyingly volatile for the allegedly three million new brokerage accounts set up during the holiday period to buy on Oct 8 after the holiday.
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There were also stories of up to 30,000 accounts with a minimum RMB500,000 ($92,335) margin trading lines opened within six frantic days. Sadly, RMB3 trillion of retail buying tracked by Wind, a data provider, would have rushed in only to see the Chinese market tank as Hong Kong traders and hedge funds, who ran it up during the onshore holiday, sold on news or the lack thereof after expectations had overshot market near-term fundamentals significantly.
Chew On This was lucky as we had suggested that it was Time for A Pit Stop (issue 1157), that the Lightness of my portfolios having sold along the way up was not that Unbearable (issue 1158). Or that Chinese Market Fireworks from late September were just the start of a Long March (issue 1159) which was at risk of reversals. Sadly, in the case of China, we have been proven right for now. Whilst the Chinese authorities, shocked at the speed of the reversal of the markets on Oct 8–9, tried to jawbone it up again by making a big Saturday Oct 12 announcement, by the time Hong Kong markets took a break on Oct 11 for the Chung Yeung Grave Sweeping Autumn Festival and long weekend, any rebounds were but dead cat bounces.
As it turned out, the Chinese authorities, having overhyped expectations (which included speculation run amuck for up to RMB2–3 trillion of fiscal boost spending), made cursory noises about the need to do more and whatever it takes again — without giving much detail.
A “damp squib” was what most international analysts called it. And Chew On This’ speculative hunches on how things could play out have unwittingly materialised. The Long March back for Chinese equities will have many acts, and the end of this act one will be a reversal — not to revisit pre-rally lows in August which were horrendously undervalued, but to give back half to two-thirds of the overshot market recent highs.
With no more Chinese ETFs, and little Chinese indirect exposure left in my portfolios, I will still be circumspect, waddling back in until the market settles down. Or when the rush of blood to thousands of Chinese new retail investors subside, or stale China Bulls around the region, who allegedly included those who averaged down their long-suffering positions during the recent rebounds and are now doubly caught, give up yet again. Only then will I start to nibble back in.
I may not have been able to time the market to exit everything at the recent tops, but the sharp correction has already reached prices where I could buy some back and reinvest at a better level. I did not convince some friends to cut their long underwater positions when markets recovered to their cost prices entirely as they were hopeful for more. But I was quite glad that I dissuaded a few others from piling in to join the party as that was topic number one for the last couple of weeks everywhere I went.
Patience may well be a virtue, especially in a complex market caught between domestic economic mismanagement and international political pressure. For a market like China, timing the market may be a safer way to play it than time in the market.
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...that is the question
The old adage of “time in the market” versus “timing the market” — mostly used by financial advisers who want to sell you products and make sure you stay invested in products that are fee-generating — does have some merit, however.
It is true that for the uninitiated, with little risk appetite and time to monitor their investments, passive long-term investing and dollar cost averaging, say in an equity index ETF — over time — does deliver returns that outstrip inflation.
Even the STI ETF including dividends gives around more than 6% over different mid- and long-term periods. Not investing — especially when interest rates are declining — is also a risk especially when T-bills here have fallen to 3% and are trending down. Safe the bank deposit may be, but the opportunity cost of not beating inflation is a risk too.
At least in Singapore, time in the market generally works if one is invested in a basket of index or REIT stocks, where the dividend yields at 3.5%–6% compensate investors in the near term as markets go about their cycles.
In that respect, unlike China, I continue to be in the market, with a basket of more REITs and yield plays, select value and index stocks that may be beneficiaries of rate cuts into 2025. Hopefully, this should be well insulated against any post-US election wobble, or overdue US stock market correction.
There is also the upcoming earnings season from 2H October on, where this column’s favourites that led the rally up include Singtel, which was up 40% in a few months, or some of the banks that may run the risk of downgrades from analysts.
With softening SGX SDAV, the run-up from around $9 in August to $11.70 may also be at risk of a post-ex-dividend correction. The capital markets committee is not in a hurry to rush out market-changing proposals in the coming months as previously telegraphed; it could be up to a year from when it is formed.
Still, I have an atypical proportion of un-invested cash in CPF and other investment accounts as I have historically always wanted to be fully invested and feel uncomfortable to be in cash. My patience was also tested when the local market continued to head past 3,600, and some blue chips I had taken profit on reached new multi-year highs.
It was hence illuminating to catch up over lunch with an old colleague from 20 years ago, who still steadfastly services clients of his local bank-backed brokerage house successfully in our local stock markets.
He was on his way to take his kids to Hong Kong Disneyland for a holiday. He, too, and his clients have taken profits in the last month. Like me, he is accustomed to constantly looking at potential opportunities of value, for M&A take-outs, for new deals and transactions. Our conclusion, however, over a liquid lunch, was that keeping some powder dry and being patient was indeed a virtue for the time being.
Perhaps we were both preaching to the converted. But come November, we will find out if “great minds think alike” as Daubridgecourt Belchier wrote in 1618. Or, as it may turn out in hindsight, “fools seldom differ”. I, too, would have taken a couple of holidays by then and hopefully stuck to the virtues, and listened to the angel on my right shoulder.
I may miss some of a potential run-up, but should keep most of my pants if markets turn tail.
The next couple of columns will thus be from Korea and Japan. I am not sure if I will learn more about Samsung chips in Seoul, but I certainly want to feel the pulse of our Japanese 2023 Dark Horse call. After all, I am still long in one overseas market via the Lion-Nomura Japan Active ETF (Powered by AI), and I am always an advocate for keeping abreast of one’s investment!
Chew Sutat retired from Singapore Exchange S68 after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange and he was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore
