The origins for this expression “Beauty is in the eye of the beholder” came from the 1878 novel Molly Brown by Irish writer Margaret Wolfe Hungerford. Today, the phrase is taken to mean what one person finds beautiful or admirable may not appeal to another. The reality, which is always somewhere in between, is being reinterpreted through things like our artistic sense and belief systems.
For true believers, denying their beliefs with facts and logic will shake their sense of self to the core. This explains why it is easier to often stay convinced of the fantasy world rather than leave the coven. Watching the Netflix series In the Name of God: A Holy Betrayal about Korean cults, it is disconcerting to see those closer to the top of the pyramid having less true faith than objective goals of material gratification.
To the moon
That is also the conviction of crypto bros who trumpeted TTM (to the moon) last week, coupled with emojis of rocket ships first embedded in their tweets when Bitcoin had its epic run from US$1,000 in 2017 to US$20,000 before correcting in 2018 and 2019, and then hitting a crescendo of US$69,000 in 2021. Back then, new coins like Bored Apes were minted daily while NFTs (non-fungible tokens) went “lunar” — but so too did Do Kwon’s Luna before it came crashing back to earth and he was arrested on fraud charges.
As Bitcoin reclaimed its 2021 high by crossing US$70,000 ($93,752) on the weekend of March 11, Richard Teng, Singaporean CEO of Binance, the world’s largest crypto exchange, marked the milestone by posting a video of himself on LinkedIn doing seven chin-ups and quipping: “Don’t ask me to do 12 when it hits US$120,000.”
The attention and enthusiasm that followed must have converted new retail buyers, including those through exchange-traded funds (ETF) recently approved by the US Securities and Exchange Commission to join the party. This is on top of some institutions that have started to include Bitcoins as a small part of their alternative asset allocation. As highlighted in last week’s column, Bitcoin may have similar characteristics to our Midas metal and could become a form of digital gold.
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However, a good friend of mine pointed out that digital gold can never replace the “in case of” insurance value of physical gold. In an Armageddon situation, one can sew gold wafers into your clothes and flee but the digital version could not be used if there was no energy. Drawing on his own experience living through the riots in Indonesia during the Asian Financial Crisis, canned food was the most precious commodity.
Other folks declared they were lucky to have hung on to their Bitcoins when the price crashed to US$15,000, only to sell them for a profit in the latest rally. Given how some of us have dealt with penny stock bets gone sour, another friend who had already written off her paper loss in Bitcoins, is now trying to find her account and password to sell now that crypto, NFTs and ICOs (initial coin offerings) are heating up again.
Still, Bitcoin and Ethereum corrected by 10% and 15% respectively after setting a new record last week. That the change in direction took place the day last week’s Chew On This was published online is entirely coincidental. It might still go TTM or follow Jules Vernes’ Journey to the Centre of the Earth. Only time will tell.
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But the parallels with gold, silver and physical commodities are all there for the crypto believers to tout. Ethereum has real tech applications, just like how silver has industrial use. Silver has twice the volatility of gold and is favoured by speculators. Other precious metals and precious stones such as palladium, diamonds and Tanzanites are more volatile, with even wider bid-ask spreads.
As long as there is a believer, there will be resale value — much like meme coins and NFTs. However, jewellery can be worn as accessories and flaunted physically but digital displays can only be seen in the metaverse. For now, I prefer to keep my eyes on the real world.
Not losing my religion
Some will point out that stock investing has many elements requiring cult-like behaviour, especially in the murkier corners of pink-sheet OTC (over-the-counter) markets and even on regulated exchanges, where pump-and-dump or outright frauds take place. We recall accounting scandals from blue chips like Enron in the US, Toshiba in Japan and Hanenergy in Hong Kong. At the other end of the spectrum are our very own penny stock crash 10 years ago and US meme stocks in 2021, some of which have made a comeback on the back of the AI story.
Stock investing can be a bit of a religion. Some denominations include analysts from the dotcom bubble 24 years ago who prioritise eyeballs over revenue to forecast stock prices. Jeffrey Skilling of Enron allegedly planned to borrow money to buy treasuries even at negative carry as it would guarantee ebitda growth. The meme stock bros in 2021 saw themselves as Robin Hood squeezing short-sellers out of positions, even if the stocks they were punting eventually went out of business.
Followers of this column would know that I too have a religion: My belief in our domestic market and its opportunities, without having to look West or search for Nirvana in China and India. A lack of belief in growth-at-all-cost business models and fluffy valuations and stories of 2021 saved me the agonies of 2022 and 2023. Seeking some diversification in China was a lesson for me although I have become a long-term investor in Chinese ETFs but not converted to the point of dollar-cost averaging down to hell.
As we allocate precious capital earned through labour in other overseas capital markets or risky asset classes, it is often a puzzle why we tend to pay attention to our own only when foreigners start to circle. I recall the excitement in the early 2000s when our global champions in contract manufacturing NatSteel Electronics and Omni Industries were taken out by the Americans one by one.
Today, even the mid- and small-cap homegrown companies are being bought out while we ascribe Venture Corp — our last blue-chip tech hero — a modest 15 times P/E. True, it may not be Nvidia Corp, which is now trading at a multiple of 80 times after its more recent pullback from 100 times, or Microsoft Corp, which has transformed itself from a mature value stock to growth on the back of AI in recent years. The issue was with what previous global investor darling Apple Inc is grappling with now: Being labelled a value stock and paying dividends.
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Gems hidden in plain sight
This beholder is probably getting old as I see no evil in collecting a decent dividend which is above 4% on average across the Straits Times Index including non-REIT index component stocks. Take Singapore Telecommunications Z74 (Singtel) for example. At just over 11 times P/E and with almost a 4.5% dividend yield, it recently saw a 5% uplift in stock price from a report by the Australian Financial Review that North American asset manager Brookfield was buying over its subsidiary Optus for A$16 billion ($14.07 billion). The report has since been quashed but Singtel’s share price did not drop back to what it was before. With analysts’ price targets ranging from $2.88–$3.27 and a stock price trading at least 20% below this range, what do they see as beautiful Singtel’s assets that investors may not even have priced in yet?
Likewise, as we saw a run of privatisations by major shareholders or insiders, it is ironic for us to lament that the exit offers were too cheap when we could easily have bought and hit the jackpot on the offer. There are gems, both big and small in our market. Take for example City Developments. As its stock price corrected 10% from $6.18 just before announcing its FY2023 ended December 2023 earnings, the company started buying back its shares all the way to $5.90. Even then, it is trading at less than 60% of book value. There is a beauty in there that is perhaps lost on local investors who may be catching the wrong turn in US markets now. When the Fed does finally start to ease, US stocks may face selling pressure on news given that many investors expect that to happen sooner rather than later this year.
Meanwhile, Singapore Airline’s business turnaround is continuing but hit some headwinds of perception. Its most recent February load factor was down 0.3% y-o-y but has to be seen against the more than 20% increase in capacity. With its dividend yield at 6%, P/E at seven times and a struggle for me to get my preferred SQ flight, I am inclined to stay invested.
We have seen Sembcorp Industries U96 and Keppel power ahead in their transformations following the pandemic and rewarding shareholders with multi-bagger returns in the last few years albeit from oversold positions. Even if not TTM, they may still have room to grow as their well-articulated strategies are executed with undemanding single-digit P/Es.
Perhaps, crypto bros, who do not need real-world profits, should look at Sats and Seatrium, both of which are in the midst of their transformation and reversing from their losses. As they say what they do and start to do what they say, and if their operating numbers indicate that they are in the correct trend, they might very well be the next Sembcorp and Keppel. And if they deliver, they will become converts to the religion of balance sheets and profits and sell for a tidy profit. I am keeping an eye out for that.
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 multiasset exchange, and he was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore
