The phrase “run on the market” occurs when consumers or investors buy more because of fears of a shortage, which leads to a further shortage, adding to the self-sustaining momentum. This phenomenon had been nicely encapsulated when crypto bros tweet “TTM” (to the moon) rocket emojis or when meme stock bros “yell” on Reddit to urge one another on.
In the same vein, Tesla, under Elon Musk, could do no wrong. For the longest time, fans fanned their own Fomo and pushed up both the stock and its options as they all pondered the future universe full of Tesla electric vehicles (EVs) together.
At US$168 ($229) at the end of April, Tesla has gained another similarly auspicious 888% in five years. However, that belies plenty of volatility of as high as US$400 in October 2021 to as low as US$100 last January. It enjoyed a surge to US$280 last July but ended up as the first among the so-called Magnificent 7 stocks to rediscover gravity exists as revenue and earnings growth slowed. Even so, Tesla still trades at a rich 43 times P/E.
Nvidia Corp, an even hotter market darling, chalked up a return of 18,000% over five years, which is double the pace of Tesla’s gain. It hit a peak of more than US$950 in March before dipping to around US$880 at the end of April as investors fork out 75 times P/E for the seemingly boundless growth potential AI supposedly brings.
As pointed out in Chew On This (Issue 1132, April 8), the Magnificent 7 stocks are taking a breather as investors rotated into the broader US market in search of value among forgotten sectors and stocks and keeping the headline index numbers steady. Those who paid attention to only the new highs of US stock indices are wondering why their darling Tesla had pulled back over 40% year to date while Nvidia is down 25% from its 2024 high before the current bounce. These are substantial losses that local investors will complain to their MPs if the counters were listed in Singapore.
Still, it is understandable why some local investors continue to gravitate towards these high jinks in the West. Liquidity begets liquidity as the whole world trades these stocks. Regardless if one were to punt US$5,000 or US$500,000, it is easy to enter and exit the market. News flow, whether it is Microsoft’s OpenAI adventures or Musk’s tweets, keeps traders excited for regular action between quarterly earnings. Who cares about temporary sell-offs when stocks, Tesla not included, have bounced back each time and scaled new highs? After all, local taxi drivers and hairdressers in the days of active Clob trading of Malaysian stocks used to exchange gossip on Renong, Idris and MBF, now talk about “ping guo” (Apple), EVs and chips. Is that our ultimate contrarian indicator?
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Raise the money and run
The returns and excitement of the US markets have tempted a continuous stream of local companies, including small micro caps, to raise capital on Nasdaq. Although the spac bubble of 2021 had burst, companies that cannot qualify for a Catalist IPO here can raise millions on Nasdaq as the US market remains big, broad and deep. Will they henceforth be on their way to world domination? Or will we see them running aground like Reboonz or privatised at a fraction of their IPO price like TDCX? Some promoters, having monetised at a higher multiple, will laugh their way to the bank when buying back their companies cheaply or selling the rump of a shell listing left behind for another pound of flesh.
It is interesting to observe that similar promoters, professionals and “anchor” investors who helped companies in Singapore list in the El Dorado of Hong Kong’s GEMs or mainboard in the mid-2010s are now very active in bringing companies to the US. Of course, this was after the listing in Hong Kong for higher valuation story has been thoroughly dispelled in recent years. A couple that went ahead, such as Centurion Corp (less than three times P/E) and LHN (just over seven times P/E), might be worth another look. For the moment, they are saddled with higher compliance costs.
Then there are the unicorns who successfully raised good monies when the respective companies in the West and North Asia were on the run. For a season, everyone remembered Razer, which was listed in Hong Kong with much fanfare, while the Singapore Exchange S68 (SGX) was criticised for being unable to support “tech” listings. This was followed by Sea’s NYSE listing and Grab Holdings’ world’s largest despac of US$40 billion on Nasdaq.
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However, do not forget Razer was privatised eventually by CVC at HK$2.82, below its once auspicious IPO price of HK$3.88. Currently, Sea has a market cap of US$35 billion, or seven times its IPO valuation, as it was able to sell multiple rounds of new shares at ever higher prices as it rode the early euphoria of Asean e-commerce. It is now a mere fifth of its November 2021 high with over 80% decline in that best-forgotten year of 2022. Grab finally made a modest 4QFY2023 ended December 2023 profit but remains deep in the red for the year as its share price languishes at 70% below its IPO high.
It is economically rational for companies and entrepreneurs to maximise valuation and funds raised, and there will always be one market or another that is on the run. Of late, I have folks asking me how to list in India and even promoters suggesting support for Thai listings. However, one often wonders: For all the criticism SGX gets for losing out on these marquee listings or making the market investible but dull, would there be a stream of complaining forum letters if things turn sour in these foreign plays, much like the penny stock and S-chip sagas of old?
For other long-forgotten small caps, they may have already made their pile and sold the listed company shell for one more last hurrah — if they caught the cycle right. My friends at the HKEX Listing Committee used to be alarmed that yet another Singapore construction company, which just about met the requirements, had filed for a small-cap listing there. Despite “losing” another local enterprise to the north, I was generally in two minds about whether to fight to keep them on the SGX or leave the eventual clean-up to the HKEX regulators when they bite the dust.
The shell premium in Hong Kong has disappeared with tighter regulation. Yet, despite a recent recovery, Hong Kong is still 40% below its 2021 pre-Covid peak. In comparison, our Straits Times Index (STI) is still “steady eddy”, albeit trying to break out of its 3,100–3,300 range. There may yet be room for some optimism as more global investors again seek more traditional value instead of growth at all costs.
Raise the Red Lantern
Having been convinced that investors are generally rational and will allocate across different geographies based on relative value considerations, I was proven wrong previously as there are often other factors at work overriding pure economic sense. In 2021, the disparity between the fluffy Covid boom on Nasdaq pushed valuations of tech stocks, spacs and memes to their November crescendo.
Meanwhile, the 2018–2020 fanfare of Chinese tech stocks such as Alibaba Group Holding and Tencent Holdings, which have dual-listed back into Hong Kong from New York, had evaporated. Jack Ma, who used to hang out with Donald Trump in Washington, bore the brunt of Beijing’s “common prosperity” policies. Chew On This once assumed that when things were hunky dory, overvalued US stocks would adjust down while oversold Chinese stocks would find better footing equalising over time.
That was over-optimistic. China’s crackdown on its tech sector went on for years, changing the rules of the games progressively. Each new dawn heralded was quickly snuffed by another self-inflicted policy measure. An increasingly hostile US capped a lid on overseas ventures and fundraising by Chinese companies and international investors de-weighted China and Hong Kong. Take the case of GDS, China’s largest data centre operator and 30% owned by Singapore Technologies Telemedia, which now trades at a fraction of its US peers Digi Realty Trust and Equinix.
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US stocks collapsed off their peak 4Q2021 prices as Nasdaq fell almost two-thirds in 2022. However, in China, the low can go lower. On a relative basis, investors probably saved a pile of money avoiding US tech. Unfortunately, holding China tech through, for instance, the Lion-OCBC Securities Hang Seng Tech ETF (HSTECH ETF) was no better. In fact, as the AI boom in 2023 led Nasdaq back up to new highs by 2024, “death by a thousand cuts” took Chinese indices down and down. Except for the occasional dead cat bounces, there is mainly nothing but red ink to show. The winding up of the Asia Genesis Fund earlier this year after its short-Japan and long-China bets unravelled was another cathartic movement for which there have been many in the last three years. Observers looking for signs of market capitulation to buy in have had to either cut or carry each time.
However, in late April, some people, including Kerry Goh, founder and CIO of Kamet Capital, pointed out that Tencent has outperformed the Magnificent 7 stocks this year. “Is this a sign of changing allocation from an overcrowded trade to an unloved trade?” he asked. He pointed out that in six sample sectors, Midea (consumer electronics), Tencent Music (media entertainment), Trip.com (tourism), PetroChina (oil), China Mobile (telecom) and CGN Power Co (utility), technical charts are showing breakouts, with energy stock PetroChina now the second-largest market cap in China.
China’s latest pledge to boost Hong Kong and company earnings that beat low expectations have led to a 16% rise in Hong Kong Exchanges and Clearing’s share price in just one week this month, although still 56% off its high. Even as IPOs are returning, Chinese AI company Mobvoi fell by as much as 20% on its trading debut, joining bubble tea chain Sichuan Cha Baidao and Tianjin Construction Development Group, down 27% and 39% respectively. Hang Seng Index’s performance of down 5% year to date in USD terms ranks at the bottom of Asian markets.
True, Hong Kong’s future and its stock market still look vulnerable. However, a stealth bull is gradually forming for the A shares. The Lion OCBC Securities China Leaders ETF, which replicates the HK Stock Connect 80 index, has broken out of a reverse head-and-shoulder formation base. The SGD-hedged counter is now $1.51, above its $1.27 February low. Similarly, the HSTECH ETF reached 62.7 cents, 20% above its low of 50 cents in February. Will this be another false dawn? Or has foreign and domestic selling finally been exhausted? Have we been so preoccupied with averaging out Tesla that we have missed the recovery of long-forgotten Chinese stocks, albeit from a much lower base? Time will tell but I would rather climb out of a wall of worry than slide down a fireman’s pole.
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
