The English phrase “as mad as a hatter” refers to the use of mercury in the 19th century in the manufacture of fine hats. With prolonged use and exposure, hatters would develop symptoms of mercury poisoning, including mood swings and tremors — making them look mad to others.
Those of us who remember Alice in Wonderland may recall that along with the March Hare, these three characters are the only individuals to appear in both Lewis Caroll’s books, including Through the Looking Glass. In the 2010 Tim Burton movie, Johnny Depp made the character come alive: An eccentric man who was always asking unanswerable riddles, reciting nonsensical poetry trapped in a never-ending tea party, sentenced for attempting to murder time, and rushing from pillar to post.
To be sure, there is nothing new about eccentric Englishmen — many of whom in a similar vein sailed the seven seas of discovery, ran in the midday tropical sun, and set up the rule of law, education, bureaucracy and industry and left as quickly. These are the positive remnants of a colonial empire where the legacy survives in various forms from Africa and South Asia to Hong Kong and Singapore in the Far East. However, inevitably during the process, some of the cast of characters and practices of colonial masters’ past continue to horrify when viewed in the light of the present day.
A few of these Englishmen became notable for founding commercial enterprises. These include the Hong Kongbased hongs like the Swires, Dent & Co or Dent’s, and Jardines (ok, fine, the Keswicks are Scots). Nearly two centuries on, these business empires remain entrenched across Asia. They own landmark buildings and hotels and operate businesses from airlines to supermarkets. The present generation of these taipans has managed to keep up with the times by embracing ESG, undertaking corporate actions to increase transparency and create shareholder value, and future-proofing more traditional (but essential businesses for the Asian consumer).
For one, value has been created in different parts of the Jardines’ stable through the pandemic, not only from the secondary-listed Jardine Matheson Holdings but also Southeast Asia-focused, Singapore primary-listed Jardine Cycle and Carriage (Jardine C&C), whose crown jewel is its majority stake in Indonesia’s Astra. The shares of Jardine C&C have doubled off their pandemic lows right here on the Singapore market. For the better part of last year, the Straits Times Index (STI) held firm because the three local banks constituted nearly half the weight. If JP Morgan’s prognosis comes true, the banks will see lower earnings on reduced interest margins. Yet, the index looks set to break up later this year, which means other index heavyweights, such as these two Jardines, have to rotate to lead the rise.
Following the 1842 Treaty of Nanking, China was forced to open its ports and cede Hong Kong to Britain as part of the repatriations for the First Opium War. That triggered the rapid growth of Hong Kong as the commerce and financial hub known today. Might China’s Great Reopening of 2023, following nearly three full years of pandemic-related restrictions, result in a similar pickup in earnings linked to Hong Kong and China? After all, does Hongkong Land with its prime assets, for example, continue to deserve a valuation of a mere one-third of its book value?
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Wine from Essex?
Last weekend, I was again graciously invited to the Upper Bukit Timah home of an eminent private banker to ultra-high-net-worth clients. I was told I was in for a dinner treat. I was also told I would meet a Singaporean Master of Wine (MW), and also a winemaker from England — another English mad hatter, perhaps? The company that evening was a mini-United Nations. There’s a global portfolio manager and his fashion maven wife, a Frenchman, a Korean-American, Japanese and an extraordinary Thai home chef.
The most interesting takeaway for me that evening was to learn how global warming was creating the optimal conditions for wine growing in Essex, better known for the county where Britain’s oldest recorded town was sited. With each vintage further improved from the last, the limited but growing production is being offered by Michelin-starred French restaurants (in England).
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Having listened to this good sales pitch, of course I had to sample the wares. The whites are indeed surprisingly good and received positive technical comments from the MW. I was further cheered that they have found a distributor in Singapore and may get stocked at a wine club on Orchard Road where I am a member.
It was even more remarkable that Jancis Robinson, the doyen of wine who writes regular weekend pieces for The Financial Times, would write the next morning: “Love California? Try Essex”. Robinson, who has been writing about wines and people dealing with wines since 1975, told the story of how Mike Bunker, who retired from running GAM Investments in Hong Kong in 2003, was determined to make England’s finest wines.
Needless to say, as an old Asian equities investor in the swashbuckling 80s and 90s, his stories of convincing Thai-listed companies to move out their factories from prime Bangkok waterfront sites next to the royal palace and converting the land higher value real estate, were legends in themselves. Perhaps there remain present-day parallels in Vietnam, or for the more adventurous, Cambodia or Laos and Papua New Guinea. A few choice single-country ETFs for Indonesia and Vietnam found their way back into my watchlist after.
By the end of the evening, the French wines were deemed overall winners. Nonetheless, it was a remarkable performance for the English. In wine parlance, they do have legs. I was enthralled in particular by another story told by the MW about his ilk. The first certification was awarded in 1953 — the same year that Sir Edmund Hilary summited Mt Everest — and apparently, there have been no more than 420 masters of wine certified since then. In contrast, over 5,000 have followed Sir Edmund, or more correctly, the steps of his sherpa Tenzing Norgay. In this context, this MW, a banking colleague of mine from 18 years ago, was a unicorn right before my eyes and I was oblivious to that.
Hidden in plain sight
In the same way, plenty of market happenstances are hidden in plain sight.
The epiphany that evening was that passive index investing, such as following the Straits Times Index (STI), is a tried and tested way to earn from safe blue chips. Yet, I’ve been wondering, by doing so, have I missed out on the fun of the romance of equities investing, the swashbuckling mercantilism of English adventurers in the 18th century and the quirks of a Mad Hatter?
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No, this is not a siren call to follow Sir John Templeton, the pioneer of emerging markets, to wade into Venezuelan debt or cheap Russian miners. Nor is it a Fomo trend to just follow, as allocations to exotics have diminished in more recent times as capital drawn to them has lifted the market cap of the big global stocks in America, including ADRs, in the last decade. Rather, this is a recognition that while I am mildly bullish on the STI, this could really be a year for stock pickers who can navigate within the big macro themes than just enjoy returns from its defensive nature amid a potential global recession.
Not to be like moths drawn to a flame (read Chew on this, issue 1069), but if one takes a look, there are hidden gems in plain sight right here in Singapore. Often overlooked in the haste by many who just track and trade (often unsuccessfully) the big global names like Tesla, Meta Platforms or Alibaba Group Holdings, simply because there is volatility and huge liquidity. If you are a portfolio manager deploying tens of millions in each position, that is an important consideration. But seriously, if one is trading just $5,000 or even 10 times that, then perhaps you don’t need that roller coaster in markets far away.
Picking stocks is somewhat analogous to hunting for Easter Eggs, not the chocolate-sprinkled ones that kids as Easter Bunnies hop around to look for — especially in the upcoming Year of the Rabbit — but the digital definition, which refers to extra hidden keystrokes or information to advance in a video game. Many of us will recall suffering from short-term carpal tunnel syndrome trying to breach new levels of Angry Birds, the monstrous hit of the 2009 game. Modern-day gamers will know how important these extra tools are and in the metaverse of gaming, one can even trade these boosters. When found, they appear obvious, but it actually takes hard work to spot them.
When this column started in 2021, we talked about a couple of second-liners, which were on potential regional turnarounds: Samudera Shipping and Del Monte Pacific. The latter had pulled back to 33 cents, having run from 20 cents to 42 cents — but not before dishing out some generous dividends along the way. Samudera, which had a good doubling to 50 cents at the start of 2022, still sits pretty above $1. I never got to see the extra double-up, as I was contented with 5%–10% profit each time. However, practically the romantic mad hatters do get the bigger payoffs by sticking with conviction, grounded by research and fact when it comes to these gems. It may require more patience to be stuck in time for stocks trading at a discount to their book values to get their M&A payoff — but that is a reasonable option too.
This Lunar New Year, I will be scouring the longer tail of stocks in industries and sectors that have turnaround potential, relative to their prices, and for new growth stories that are a proxy for regional growth and recovery. The China reopening travel theme has already led to Genting Singapore rising 25% to $1 right after I sold at 82 cents (as I had banked the gain at 5%). The great consumption resumption has seen Thai Beverage recover 10% in a short period of time taking it above my average cost price pre-pandemic to 14x P/E. Even so, that still lagged Emperador, a purer alcohol play, which trades at 30x P/E following its secondary listing in Singapore. While I will still buy blue chips Olam Group, Wilmar International and Yangzijiang Shipbuilding (Holdings) on dips, will it be too early to get into China real estate proxies like Yanlord Land Group accessible here? Time will eventually tell, but with the Year of the Rabbit kicking off next week, a few small hops with the safety hat in place may be in order. Gong Xi Fa Cai to all!
Chew Sutat retired from the 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
