The US markets defied gravity to squeeze out another record for the second Friday in a row, ending the last week of January at a high. However, the market breadth remains narrowly confined to the seven AI stocks taking turns to drive the gains. This time, Microsoft Corp secured its membership in the US$3 trillion ($4 trillion) club.
To put this number into perspective, that is three times the total market value of all companies listed on the London Stock Exchange and over six times the corresponding figure of the Singapore Exchange S68 Group (SGX). Indeed, when one compares relative measures, they are often a function of both variables and tell two stories, not one.
For instance, after surrendering the fight for the second-largest global economy to China almost 15 years ago, Japan suddenly has Germany to contend with for the second-runner place on the podium.
Even if German economic growth, like the Eurozone, is somewhat anaemic, the steep fall in the Japanese yen (JPY) last year marked down its relative economic size. It may yet hold its own this year if the expectation of strengthening the yen is realised.
The size of the Indian stock market recently also overtook Hong Kong’s — a random piece of statistics that had investment bankers and brokers in Hong Kong lament that their “days of being wild” seemed so far away. Following the political protests of 2019 and the pandemic, Hong Kong is much closer in step with China, whose stock market is still yearning for massive government intervention — beyond just rumours of authorities telling fund managers not to sell.
With the Hang Seng Index stuck in its doldrums, the Straits Times Index’s unexciting and largely dividend-driven returns of 4% to 6% a year almost seem like a godsend. It is no wonder that Food Empire Holdings F03 ’ proposed dual listing in Hong Kong did not move the stock needle this time, although the company cited this development as a possible reason when addressing an unusual trading query from SGX on Jan 24.
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How the mighty have fallen — taking our breath away. The first trillion-dollar company before Saudi Aramco and Apple Inc was Alibaba Group Holding – which was the primary target when the regulatory hammer fell hard across China’s tech sector.
Following the news that founder Jack Ma had bought US$50 million shares, Alibaba enjoyed a US$14 billion fillip. Even so, its market value at US$188 billion remains modest and a far cry from its heydays, much less its US peers.
The tough realities of the market hit home last week as well. In the earlier editions of this column, I had been rather circumspect about China, as I was expecting it to go nowhere fast. I did not expect it to spire down so quickly earlier this month, either.
I was therefore saddened when Asia Genesis, led by industry veteran Chua Soon Hock, announced it was folding. As recently as 2022, it was ranked among the top-performing hedge funds. However, the fund was on the wrong side of a long China, short Japan bet, which probably precipitated a drawdown of 18% by clients in mid-January.
His letter to investors was filled with remarkable candour. Chua says he is bowing out “with a heavy heart and utmost regret”, that “my confidence as a trader is lost”, and “my past experience is no longer valid and instead, is working against me”.
Nonetheless, a salute to one of our local heroes is in order. Throwing stones from an armchair is easier but harder to be out there. We hope his investors who signed up for what is a “buyer beware” high-octane fund own their choices and are kind.
Up in the Air
Making my way on SQ378 to Spain, on my second “work trip” for the year, I was chuffed to watch evergreen Tom Cruise’s Mission Impossible — Dead Reckoning Part One, which has a storyline involving a sentient AI turning rogue. Whilst we all wait for part two to see how Ethan Hunt will inevitably save the world yet again, I marvel at how the scriptwriters have incorporated current issues of our times.
Yet, some universal market themes have not changed — including our primaeval greed and fear, illustrated by many examples over the years. The likes of Gordon Gecko, of 1987’s Wall Street fame, stay seared in our collective memories, as do the also real-life swashbucklers ranging from the junk bond kings of the 1980s to the macro hedge funds of Soros and before Long Term Capital Management blew up in the Russian crisis of the 1990s.
When former US Fed chairman Alan Greenspan held rates at ultra-low levels to overcome first the April 2000 tech crash and then 9/11, equities ruled the world, opening the way for exotic mortgage-backed securities and credit-structured products, which led to the Lehman moment and Global Financial Crisis (GFC) in 2008.
In the wake of the crisis, bankers were sober enough to maintain a lower profile and accepted a smaller paycheck, lest they incur the further wrath of regulators and demand that taxpayers’ money used to bail out the banks require even tighter compliance standards and deeper bonus clawbacks.
As the noose tightened, proprietary trading talent and money flowed out to unregulated hedge funds. An extra decade of ultra-loose monetary policy helped fuel the rise of private equity with cheap leverage, enabling the virtuous cycle of privatisations followed by IPOs over and over. Indeed, publicly-listed PE firm Blackstone is now valued more than Goldman Sachs and Morgan Stanley.
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When the spac boom of 2021 came about, every other billionaire grabbed the chance to sponsor one. Tech bankers who touted all manners of blockchain’s future in 2021 had reinvented themselves into AI experts by 2023. It took a decade or so for the champions of the dot com bubble era, such as Amazon.com and Google, to emerge, ditching other survivors such as Yahoo in their wake that either couldn’t monetise clicks while eyeballs burnt out.
This time, we seem to have priced our AI future fast forward. Being sceptical about the Nvidia hype in 2023 has cost an opportunity missed. But at least I will sleep easy at night when the inevitable volatility re-surfaces, perhaps after Trump’s return to the White House.
Ground Up
As an undergrad in the UK three decades ago, I frequented the Bar-celona pub. It was a great spot to have sangria followed by ice cream next door. Times were simpler and life a tad slower then — we read books and were limited to 30 minutes each time we accessed the university email — the first I ever had. I had a collegemate who lived down the hallway — always seen with a cricket bat and a pint of something in hand no matter the time of the day.
A decade after school, I bumped into the same chap at the legendary Deutsche Bank Barcelona series of conferences. By then, he ran the credit book for the bank and was spewing fancy acronyms such as the infamous “CDOs.” We all know what happened next. Following the GFC, he chalked up another successful stint at the hedge fund Citadel and retired long before I did.
The heydays of banking were egregious when one looks back via the sober lens of today, where compliance rules. Deutsche Bank could still fly buy-side clients on business class tickets and put them in the six-star Hotel Arts. As the hotel was just next to Casino Barcelona, your host may have taken you to roll some dice after the formal conference proceedings were over and the view of the Iberia Sea got boring.
The Deutsche Bank’s conferences were remembered not by the calendar year you attended but by the stars who performed at the private concerts — Rolling Stones, Duran Duran or Mariah Carey.
One of the welcome gifts was the latest tech gadget, an iPod especially filled with soft copies of the conference material when a mere thumb drive was more than adequate. And if you happen to have Cameron Diaz next to you on the treadmill in the gym, somehow, you run that bit faster! In contrast, the concert and theatre tickets accepted by former minister S Iswaran are somehow less memorable.
I expect Spanish cuisine and good hospitality for my current trip to Barcelona, but nothing quite as extreme. Hopefully, our small group from Singapore, consisting of C-suites from listed companies, private unicorns and family offices, will find a fulfilling agenda that includes visiting the Barcelona Super Computing Center, while making some friends and forging closer business links.
After all, Spain, with its historical links to Latin America, is a source of old family office funds — and a possible bridge to Singapore’s hub to access Asia. We will also visit the Madrid Stock Exchange, part of the SIX Swiss Exchange, where I hope to glean some insights to share.
Last October, I came back from Paris more optimistic about its economic prospects after witnessing President Emmanuel Macron’s reforms, and I thought Cromwell European REIT’s ability to reprice rents and transform its assets was underrated. I am glad the market is gradually noticing as CREIT continues executing plans and realising assets at or above book value.
S-REITs have gradually regained the flavour through the ebbs and flows of the Fed’s anticipated rate cuts. While most have roughly recovered 10-15% since early December, those with real assets in the UK and Europe have not gained as much. I took the opportunity to oversubscribe to Elite Commercial REIT’s recent rights issue, and I am also taking another look at IREIT Global UD1U . But beyond REITs, grounded value may still be found, especially in less understood new companies.
The RTO of 3Cenergy was finally completed on Jan 26 and renamed ProsperCap, backed by Thailand’s DTGO Corporation, which is linked to the CP conglomerate. Led by CEO Iqbal Jumabhoy, ProsperCap holds a portfolio of 17 hotels in the UK worth around $1 billion, and last reported 1HFY2023 earnings of $48 million. It closed the first trading day under the new name at 22 cents.
A local daily declared it up 15.8% on its Catalist debut — based on the last traded price of 19 cents of the shell company it took over. A nice headline, no doubt — but if our financial journalists would read the details, it closed about a third below the RTO price of 33 cents.
One does not need AI to determine that this could be a potential misprice because of an overhang from the original shareholders of 3Cenergy. True, discounts can persist over time. But even though this column is written a few miles high — way above the clouds when investing — I would rather stay grounded.
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
