First released as a single in 1983, Cruel Summer became a global hit for UK all-female pop group Bananarama a year later, reaching number nine on the US Billboard Hot 100 after being included in the 1984 film The Karate Kid.
While schoolboys of my generation struggled to catch flies with chopsticks, a skill Mr Miyagi taught Daniel LaRusso in The Karate Kid as a life lesson in finding personal balance and training the spirit as well as the body, those of this generation will know the modern Taylor Swift version: a summer romance layered with “these feelings of … yearning for something that you don’t quite have”. “It’s just right there and you just like can’t reach it,” she croons.
Unfortunately, the summer is in full swing just as the Olympics kicked off in the August heat. With heads of trading desks and fund managers traditionally trying to find a mid-year respite on a beach somewhere, liquidity ebbs from markets as juniors man the forts. This is similar to LaRusso in The Karate Kid when he moved into the new town; they may neither have the mental fortitude (nor access to bigger risk limits) to commit to big trades to hold up the markets when the hot air that had been bubbling under rising indices dressed up as the AI story explodes in the summer heat.
During this time, market moves are exacerbated by thin liquidity as punters and investors head for the exit doors when technical trades reverse, calls are made on margins and speculators liquidate their positions. Markets, after climbing walls of worry, often take the elevator down when they reverse. This sharp U-turn is happening as we enter August with post-fact headlines explaining the big trade reversals from US Big Tech to Japan. Even gold bugs were not spared in this “profit-taking frenzy”.
Running on empty
The market mayhem coincided with an Olympics of unsportsmanlike politics where sore losers in swimming and tennis have complained about Chinese doping and locker room antics. Even the traditional medal tally, which typically ranks countries by the number of gold medals won, is now ranked by total medals won to put the US on top. Unfortunately, after being the best-performing market the last couple of years, the Nasdaq, while still up 13.6% ytd at 16,700, is now in correction territory (more than 10% off from mid-July’s 18,671.07 peak). Worryingly, it is still sitting above October 2021’s last bubble peak of just above 16,000.
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In late October that year, Chew On This labelled the Covid rally of meme stocks, crypto and US markets “fluffy”. The Covid Winter descended, meme stocks collapsed and Roaring Kitty of GameStock fame disappeared. In sympathy, an almost 40% correction took the Nasdaq a long way down to 10,700 a year later before a 20-month rally, which brought back both crypto bugs and meme stocks by May. However, they may have packed their bags for the summer after a final buying spree from unsuspecting retail investors.
After all, in last week’s The Edge Singapore, the headline of Moomoo read: “Investors bullish on the US, allocate 75% of equities portfolio to the US market”. These investors might have been inspired by financial news in mid-July that Temasek was looking to prioritise US deals and stay cautious on China without digesting the details, which were a bit more subtle. Hopefully, retail investors bought put options instead of selling them outright or through risky structured products like accumulators.
As volatility expands, private banking customers may be entering another season of being delivered the “worst-off” stock at maturity. If they were also similarly encouraged to leverage by borrowing cheap loans with yen in this short season of risk-off, which some blame on a small uptick in the Japanese interest rates, their cross-currency loans would have inflicted additional pain from an almost 10% strengthening of USD/Yen from 161.5 to 146.6 in a very short time too. Having seen this movie many times over, I wonder why investors continue to star in it. I wonder if they are still trying to catch flies with chopsticks.
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Summer sales have only just started
Chew On This had been warning of the potential risks where concentrated conventionally successful trades of the last 18 months start to unravel — with increasing alarm in my columns from June to July. Among others, a few Nvidia bros had also complained that I was just plain sore about missing out on the upside. For those who have invested in tech since August 2019 at the start of this lift-off, it has been rewarding although it came with huge roller-coaster waves of volatility. The Nasdaq index is still more than double its 8,000 level then, even if it has collectively shed US$2 trillion in its market cap in this recent setback over a couple of days.
For the tech bulls, these massive gyrations are opportunities to average down. After all, it has been trained into recent muscle memory that a new high will be formed. Unfortunately, when everyone is on one side of the trade in the market jungle, it is every punter for himself when momentum turns — especially after an excessive run-up when analyst valuation models have to change to justify ever-increasing price targets.
The end of July moving into August saw Nvidia fall 7% in a day only to rebound 13% and then 7% down again the next day. Noticeably, the rebound failed around US$117 ($154.74), the neckline of the double-top chart pattern Chew On This had flagged twice in July. Still, Nvidia is holding up well with a 122% rise since the start of this year with improving earnings reducing its P/E ratio to “only” 65 times after its 25% correction from July highs.
Another of the Magnificent Seven stocks, Amazon, is still 12% ahead for the year but fell 9% in one day after reporting a 2% drop in margins and lower guidance for the 3Q than analysts hoped. It fared better than Intel, which gave up 26% in a day after declaring it would cut 15,000 jobs.
As bullish trades unwound in tandem with the start of an unwinding of the weak yen carry trade, Japan took a tumble too. The Topix fell 6% in one day and 10% in two. The Nikkei fell 12% just on Aug 5 itself. As expected, the yen strengthening did provide a cushion for investors in the Japan ETF traded on the Singapore Exchange S68 (SGX), which appears to display a lower beta for now than the Nikkei, thanks to its AI strategy, which was a drag on the upside to begin with. Nonetheless, it is outperforming the correction and the currency strength is a source of solace for an inevitable correction after its run in the last two years.
The VIX volatility index, known as Wall Street’s fear gauge, hit 65 intraday on Aug 5, more than twice the level when Silicon Valley Bank collapsed in March 2023. Crypto bros were not spared as Bitcoin, which is touted as a hedge by some, too gave back 30% for the week. Volatility on the VIX itself is rising. For the faint-hearted, it may be better to just stay on the beach.
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Rally around the flag on National Day
Our Straits Times Index (STI) has only recently broken out of its six-year-high with a largely dividend-driven 5%–7% p.a. return during that period. Readers of this column know that I prefer safe and boring in the main, hopefully with a bit of kungfu to eke out reasonable trading gains among the stable of well-run blue chips here.
When all else fails and the local market does not reward the performance of our companies, at least the companies continue to perform. And when the market does reward, stocks like Sembcorp and Keppel, perennial favourites of this column, have had multi-bagger returns. However, if you are invested in individual stocks, it does pay to know if the company is invested in Singapore or overseas.
It is early days in this summer madness. While US markets U-turn in the wake of the poor jobs report on Aug 1 and recession fears from faltering US consumers, one cannot help but chuckle that, prior to this, every poor jobs report was met with a rally in hopes that the expected interest rate cut by the Fed would finally materialise. Perhaps, Fed chair Jerome Powell’s hand will be being forced when bets are now not only that there will be a September cut of 50 basis points.
Treasury markets and bond yields have responded accordingly and even the latest T-bills in Singapore were already more than 20% off their highs of 4%. Having sold my STI ETF early into the breakout last month, I parked some of my CPF funds into one-year fixed deposits in Oversea-Chinese Banking Corp to lock in a rate higher than the 2.5% interest offered by the savings in my CPF’s Ordinary Account. I wasn’t expecting it, but I will be looking to repurchase STI ETFs at a lower price if the index corrects in some sympathy with the global selloff.
There is still the US election in November, so I hold on to the thesis that the overdue correction in the West has started and thin liquidity in summer will make market movements more extreme, which is good for the brave trader, but come September, perhaps after the first Fed rate cut, we may find some stability. Second, Singapore is running counter-cyclically to the great rotation out of fluffy growth stories and back to value and stocks with real earnings. Rate cuts are beneficial to a host of domestic REITs, which could certainly benefit them as their refinancing cycle ahead of 2025 starts.
Having sold a little into the rally, I will look to re-enter gradually. The Hungry Ghost month and global volatility may slow down more than property sales locally. The June thesis for Chew On This for 2H to take some profit on the rally leaders and scour the market for value and mid-caps will be put to the test. So far, the STI has dipped back below 3,400 after trying to reach 3,600 as predicted, but mid-caps have held up better as the “runs” on the banking leaders ease.
Some have rallied over 25% since May, like Sats and Singapore Telecommunications Z74 , which have breached the $3 mark and prompted me to take profit. Therefore, I will try to resist my Fomo and wait, even if they do not go on sale soon. ST Engineering too continues to hang well above $4 as the sector remains on the radar as the US sends a carrier group to the Middle East in anticipation of potential hot spots in Israel and Iran.
Others like Singapore Airlines C6L , where crossing $7 was too high an altitude for now, dived more than 10% after missing earnings. Perhaps, expectations got ahead of them. I am looking to re-enter as the price settles back closer to the runway at $6. We may (or may not) win any medals at the Olympics this cruel summer, but for me, it is still Majulah Singapura.
Chew Sutat retired from Singapore Exchange 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
