It is customary at the beginning of the year to be hopeful. Why not, especially following an era of low interest rates, when risky assets such as cryptos and certain tech stocks scaled to a peak in 2021, only to be followed by a steep correction?
Now, with the indigestion of 2022 behind us, equity markets have not only withstood Jerome Powell’s multiple rate hikes from the US Federal Reserve but rallied last year.
As many observers had similarly pointed out, the US rally last year was narrow, led only by the so-called “Magnificent 7” stocks of Apple, Microsoft, Alphabet, Nvidia, Amazon, Meta Platforms and Tesla.
The rest of the world was weighed down by a Phantom Menace of inflation from consumer staples and energy. The Attack of the Clones from Russia in Ukraine, now in its second year, has morphed into the Revenge of the Sith as Hamas provoked a polarising response from Israel, resulting in the continuation of the blood feuds in the Holy Land.
When the Fed was ramping up the rates under the all-powering US dollar, many investment portfolios that were heavy on fixed income or concentrated on REITs tanked. Many more economies and businesses, especially in emerging markets, came under stress.
The Christmas present of the monetary policy pivot in December, along with a 100-point drop in 10-year US Treasury yields, could not have come a moment sooner. An estimated US$1.5 trillion ($2 trillion) of debt just in the US is due by 2025. Likewise, corporate debt coming due will have a minor reprieve should the potential three rate cuts telegraphed by the market come sooner rather than later.
Notwithstanding strong employment numbers in the jobs report on Jan 5 and the 10-year Treasury yield popping back above 4%, the general direction for rates is down. If recessionary conditions in China and Europe accelerate and there is no soft landing of the economy in the US, the pace will only accelerate.
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This is after all an election year in the US. The S&P and Nasdaq may not repeat 2023’s index gains but are likely to stay mildly positive with buying on dips (each time there are fears that rates will stay higher for longer) a probable strategy. Especially with bombed-out REITs that already rallied back 15% on average since December in Singapore.
Star-crossed with Skywalker
For readers who are wondering, I have indeed been binge-watching the Star Wars expanded universe and am a fan of Disney’s Ashoka which has had mixed reviews among the fandom and is being reflected in its stock price.
Some retail therapy was in order before the GST increase as I stayed in Singapore through the “cool season” as Singaporeans de-camped to Japan and Malaysia. It is interesting to note that Abercrombie and Fitch Co was the top gainer in the S&P last year with 285% — beating Nvidia’s 250%!
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My travel plans to Uzbekistan were unfortunately disrupted by family events. But it was very unlikely that I would have come up with a Central Asian investing story anyway. After all, I wasn’t going on a 160,000km-long journey across emerging markets on a BMW motorbike like what Jim Rogers did years ago.
A quiet December gave me an opportunity to spend more family time and get lucky with some window dressing contra trading as even our steady but boring Straits Times Index (STI) rallied over a hundred points to close the year almost flat nominally but 4%-plus inclusive of dividend. Most importantly, I completed the task I set out to do in late July, which was to shave 20kg off my weight, eating a counterintuitive regular diet of Ya Kun eggs and briyani. This target I hit on Christmas Day with a gradually increasing fitness regime that was almost Return of the Jedi-like. Truth be told, it’s a big number because my base was way too high to begin with.
Physically and mentally more fighting fit, I hope to be ready when the Empire Strikes Back this year, which looks like another one where traders rather than allocators will do better. As we postulated in February last year, some kung fu was required to extract returns from a likely rotational market through stock-picking and recycling. Our post-Covid restructuring stars with ESG pivots namely Sembcorp Industries U96 and Keppel Corp rewarded investors with 60% total returns compared to a flat STI, which admittedly fell short of the 2021 fluffy boom and last year’s Western AI story.
However, behind this dull headline, the Singapore market has delivered a consistent total return of almost 20% just before Covid started, more than twice the FTSE Asia Pacific ex-Japan index. The returns were higher than cash even in high-interest “risk-free” Singapore Treasury Bills, a phenomenon in the last 12 months, which seems to be easing into 2024.
One of our brave calls last year also seems to be playing out now — acquiring REIT units commission-free by subscribing for excess rights units for several local REITs in 2023 when many shareholders shied away because they were risk-averse or had cash flow reasons, resulting in a dilution of their REIT holdings. The recent REIT rally has already seen most including AIMS REIT and Keppel Infrastructure trading comfortably above their rights issue prices.
Should rates ease further and work-from-home practices normalise, the rewards will come for those who had subscribed to the rights. This as a secular trend for the next two years seems a reasonable bet, especially for REITs with reliable NAVs that are trading well within their values and have also been able to monetise asset sales at or above valuations. The likes of Cromwell European REIT, IREIT Global UD1U , CapitaLand China Trust AU8U and OUE LJ3 Commercial REIT TS0U come to mind. One of the best re-ratings so far has been Daiwa House Logistics Trust DHLU which is almost 30% up from its lows in October as Japan — our dark horse market for 2023 — especially when the yen looks to be in for a better 2024.
Still with all the macro uncertainty and almost half the world (more than 70 countries) going for elections this year — including the US, Russia (for what it is worth), Taiwan, India and Indonesia, there will be room for some fireworks in the sky in individual equity markets for the brave to venture. I prefer emerging markets over developed markets — perhaps my thirst for adventure is somehow captured in the spirit of the Star Wars Cantina.
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And within the emerging market space, I prefer Asia over Latin America and other frontiers. Notwithstanding Indian Prime Minister Narendra Modi probably getting re-elected triumphantly and how relatively cheap by all historical and valuation standards Chinese equity markets look, my view is that India is overvalued and China may stay lower for longer as a result of domestic economic management and Western containment. Even so, the market risk-reward potential is skewed in favour of Shanghai versus Mumbai.
The Force Awakens
The hope for an IPO bonanza globally and revival locally didn’t take place in the last quarter of 2023. This after dismal post-IPO performance even from Softbank’s Arm Holdings. Local spac investors in Novo Tellus Acquisition Corp and Pegasus Asia’s spacs are probably relieved to get their money back after 17Live, the combination led by Vertex-backed Vertex Technology Acquisition Corp, tanked so much that I am interested in taking a look now. To be fair, as pundits lament about its 70% fall, Grab Holdings, despite a more positive economic performance in 2023 and having a couple of years in the market, is still off by more.
When TDCX listed in October 2021 on the New York Stock Exchange with much fanfare, observers here lamented how our local bourse had lost another homegrown unicorn.
However, following a brief spike, TDCX began to trade below its IPO price of US$22 within two months. Thus, it is no surprise to see its controlling shareholder Laurent Junique make an offer of around US$6.60 — a 50% premium to where the stock was trading. Our local media, which often parrots the laments of investors moaning about major shareholders privatising their stock, likewise seemed to have only used TDCX’s listing — much like what happened to Razer in Hong Kong — to flog ourselves but ascribe not even a footnote or a mention when they too have delisted.
When Ron Tan privatised Cityneon Holdings back in 2019, it was an entity with a market value of $300 million. Despite a niche positioning and a growth story, Cityneon was unable to command much internal investor interest. Renamed Neon, the company led by Tan is now a global behemoth which counts Temasek-supported 65 Equity Partners, Qatar’s sovereign wealth fund and other notable institutional investors in its 2021 and 2022 funding rounds. Talk about an IPO in Singapore, primary or secondary, later in the year is in the air. If we as a marketplace and ecosystem can support an emerging global champion in our home market, then Neon will not be The Last Jedi.
One hopes that the handful of Catalist companies (Younglings) brought to market last quarter by the likes of Prime Partners Corporate Finance and SAC Capital and through RTOs like the acquisition of Chearavanont-controlled DTP Inter Holdings Corporation by 3Cnergy in January, will soon be followed by larger ones rumoured to be cooking by Morgan Stanley, UBS and JP Morgan as rates stabilise to enable greater certainty of pricing risk.
Irrespective of how 2024 pans out globally, we hope it heralds The Rise of Skywalker for the IPO market here when investors come to realise that our local collective Force (including local pension and institutional and sovereign wealth) has a bigger impact than being drawn to the dark side over perilous galaxies (markets) far, far away.
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
