Singapore stays steady and boring as investors climb a wall of worry

It has since dropped to about US$60 billion, or 1.5x that of either Ford or General Motors. Nonetheless, with a free float of just 1%, it will be difficult to short this stock easily despite the obvious bubbles in its valuation.

Investors should be wary of such extraordinary gains post-IPO. Last year’s loss-making AMTD Digital, whose parent company AMTD Group is secondary-listed in Singapore, made its debut in New York. Its market cap exploded by 21,000% to hit more than US$300 billion. It is now valued at US$1 billion — a figure not to be sniffed at nonetheless.

Some investors may have gotten hurt on the way down. In the wild markets of the West, there are no trade-with-caution mechanisms or free-float requirements. This ensures that it is purely “caveat emptor” for investors. Those who truly love volatility should not complain when they lose their shirts and sometimes pants to folks on the other side of the trade.

Who let the bulls out?

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That said, the summer has drawn to a close. European and US fund managers who spent their holidays in exotic beach resorts instead of clinging on to their investments desperately, now have capital to deploy before the year ends.

These fund managers might be willing to take some risks on new IPOs or run with the bulls in the Spanish city of Pamplona in the annual ritual every mid-July, having missed out on the AI bonanza that has driven not just the “Magnificent Seven” US mega tech stocks and carried that optimism into some meme stock activity. This suggests retail speculation is rife but not frothy yet.

Meanwhile, institutional investors who have made their money at the top end of the market seemed to be moving into the industrial and consumer sectors on relative valuation, even if most spac investors in the US are still redeeming their cash instead of jumping aboard new ones.

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After all, this summer’s news flow is improving to support a benign equities environment. From June to August, the war in Ukraine is still at an impasse, nothing much has happened on the macro front, and the US Federal Reserve Board kept to their promise of raising rates by a notch and explaining yet again that they will remain data-focused.

In this regard, Jerome Powell’s Jackson Hole comments in late August were interpreted as positive by a market looking for silver linings. The correction in August reversed just as investors returned to the fold and this momentum may just carry to the quarter’s end if IPO markets for these couple of months should unfreeze.

If the Fed decides on data as promised, global investors have much to cheer. When the US labour market cooled in August, futures markets cut the probability to below 50% of a rate rise in November after discounting any rise in September. With unemployment hitting 3.8% and lower-than-expected wage growth, the Goldilocks scenario of not too hot or cold has arrived.

President Joe Biden immediately claimed his administration’s success in bringing down inflation while adding jobs and growing wages. He also lambasted “experts” (including this column’s belief) who were more convinced that a deeper recession may result from continuously raising interest rates per se. I may gradually suspend scepticism that AI deserves the hype which, in turn, is reflected in the price of stocks like Nvidia.

The US market may be more stable than my first-half prognosis without an expected correction. It may well continue on an even keel through early 2024 as the rest of the market catches up with profits recycled from the market leaders — if the economy does not tank. This scenario is what is being touted by investment bankers. Their collective prayers appear to be getting heard just as Biden’s as he gets into the US Presidential Election year.

The relentless China-bashing last month also seemed to have abated. Country Garden and Evergrande continue to hog the headlines with debt deferrals and bankruptcy respectively. However, there were also reports that banks were told to relax lending rules to the property sector and that Western market mechanisms such as the reduction of stamp duty have been adopted. Fund managers have also been told not to sell more than they buy, which put a dampener on the initial 5% pop on Aug 28 when reduced stamp duty kicked in. However, foreign investors continued to be net sellers, as domestic investors regained their mojo gradually.

However, a minor rebound may be building up on the CSI 300 below 3,700 points. At the start of September, the market is only down 2.5% year to date following the pre-Lunar New Year rally that fizzled out like China’s economic reopening thus far. Likewise, the Hang Seng China Enterprises Index hit a year-low of 6,000 points before starting September down 7.4%, still a tad better than Hong Kong’s Hang Seng Index which is down 8.8% for the year. For the foreign investor, the negative equity performance was compounded by the renminbi’s 8% depreciation.

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Will the low liquidity in August and record-high temperatures and floods in China, coincide with this year’s bottom? Will it be like the turning point last October around China’s 20th Party Congress after the country was declared “uninvestible” and investors threw in the towel? If hopes of a Goldilocks economic stabilisation in the West hold, these levels in China may also be a start of base building for long-term investors, short of any geopolitical shocks.

Surprising Singapore

In tandem with waxing and waning summer liquidity, The Straits Times Index (STI) hovered between 3,100 points and 3,400 points again, a typically boring 6%–8% range in steady-as-it-goes Singapore. The current rebound momentum comes off the lows of 3,100 after the reversal in late July. At 3,223, which is an increase of 0.5% year to date, the STI looks poised for another test of this year’s highs in January and July, maybe in September itself. We shall see if it breaks through this time. Fortunately, I did follow the advice of my column and towards the August lows, bought back some STI ETFs sold in July using my CPF. It has already beaten the CPF OA 2.5% interest rate return on this turn.

The September calendar in Singapore is always packed and glamorous as movers and shakers of various stripes converge here for annual events. These include the Super Return Conference for private equity sharks, billionaires at Forbes Asia, crypto bros at Token 2049, and the name list that reads like a who’s who at Milken Institute’s Asia Summit, Wealth Management Institute’s Family Office Summit, Temasek Trusts’ Philanthropy Asia and, of course, the Singapore Grand Prix.

Each of these events carries its own crowd and fringe activities and parties. Some are a little more high-brow and serious while others are arguably more millennial and “exciting”. Still, the retail, F&B and hospitality players will all receive a nice boost.

In a way, this is representative of our marketplace: A haven to park assets for a reasonable long-term return, a place to do business, a spot of stability amid geopolitical contests at the global level as well as uncertain political truces forming in Malaysia, Thailand and possibly Indonesia.

However, we do need the market to shake off the moniker of being just safe and boring. We have made big bold bets before — just look at how the two controversial integrated resorts put Singapore on the map, despite their tightly regulated casino operations.

There is life and action in the Lion City — and its stock market — if only we bother to look. For those who contend that notwithstanding the negative performance of the Hang Seng Index versus the STI, the northern market is more exciting with daily opportunities to trade and profit, it’s worth another look.

One of this column’s favourites, Sembcorp Industries, has proven to be an 8.5x bagger from the pandemic low of 80 cents. For most of the way up, it was hidden below the top-volume tables. With its recent inclusion in the MSCI Singapore Index on Sept 1, this counter is all too visible now but offers trading opportunities for those who have been paying closer attention. Just a day before the inclusion, it opened at $5.43 and moved to $5.64 midday, before succumbing to close at $5.35, which is a 6% intraday range. That was enough for me to sell what I bought the week earlier at $5.62 around 1pm and when it dropped back to $5.47 after lunch, I promptly brought it back for a nice contra gain.

Venture Corp was another SGX-listed blue chip offering similar trading opportunities. After it went ex-dividend on Sept 1, the stock opened the day 20 cents lower — a tad below its payout of 25 cents. I was mildly annoyed it dropped another 20 cents lower to hit a 52-week-low of $12.60. As I mulled whether to average down the cost a tad, it rallied to close at $13.11 — a 4% intraday range.

The STI’s August bottom was a 7% drop from the end of July. During this period, bellwethers such as Oversea-Chinese Banking Corp eased from $13.30 to $12.10 before rebounding in line with the index.

For me, the search for index laggards and alpha continues this month. Should this rebound be supported by a more benign macro environment, there may be a time in 4Q to look at the second-liners and underpriced growth stocks. If the Fed stays its hand and moves to cut next year, even REITs will find new life. Is the darkest hour before dawn upon us for the market or have we already left it behind in the bright hot summer?

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