The 1985 hit song That’s What Friends Are For by Dionne Warwick, supported by a star-studded lineup including Elton John, Gladys Knight and Stevie Wonder, rocked the US charts that year. Besides picking up two Grammy awards, the song achieved bigger purposes: it touched millions and became an anthem for compassion; it stretched across creeds, colour and geography, encouraged solidarity and raised US$3 million ($4 million) to help fund research to cure Aids, the global epidemic then.
We are now in the Season of Giving, which brings everyone much cheer. A seasonal highlight has to be the annual Christmas light-up of Orchard Road by the Community Chest and the Orchard Road Business Association. Hitachi, sponsoring the light-up again for the 34th year, is a consistent and steadfast friend, even as Singapore’s prime shopping road has faced its share of ups and downs over the years. A friend in need is a friend indeed.
As the December school holidays kick off, the ski slopes of Japan and the supermarket aisles of Johor Bahru are again crowded with Singaporeans. As the stock markets start slowing down (and not down), it may be time to determine which market friends to journey with into the new year and position for that.
The return of Tina
Tina Fey, the former Saturday Night Live comedian, has been overshadowed by the market Tina (or there is no alternative). This Tina was last seen in her full splendour in 2021, as US markets bubbled back from the initial Covid-19-induced shock. Back then, all things fluffy, such as Doge coins, skyrocketed, while the likes of Roaring Kitty talked up Gamestop and other meme stocks.
In contrast, non-US markets, especially China, were heading in the opposite direction. Many investors — both institutional and retail — were thus compelled to believe that there was no escape from the power of the giant US market and allocated their money accordingly.
See also: Indonesia bourse mulls IPO proceeds criteria for listing
One could make excuses that the street was perhaps a little constrained to do real due diligence because of travel curbs imposed as a result of the pandemic. It was then also the apex of the spac boom that saw Singapore-based Grab Holdings combine into an initial US$40 billion market capitalisation entity on the Nasdaq — a number long forgotten except for those who averaged down and down.
When the Crypto Winter of 2022 hit, Tina took a break and went into hibernation in sympathy. After the Nasdaq corrected and some bellwether stocks collapsed by 70% from their peak, Tina rejoined the run from mid-2023, this time with a new beau, AI, or artificial intelligence.
Together with the Magnificent Seven, which got a little tired by mid-2024, a full summer continued to blossom as the breath of the US stock rally held up markets whilst the rest of the world tried to catch up. Even our own boring Straits Times Index (STI) broke out of its tight range of between 3,100 to 3,400 points and now, at 3,747.96 as of Nov 25, is within striking distance of its all-time-high last reached in October 2007.
Doubters who expected the slowing US economy and an easing US Fed to send capital out of the US to other lower-valued markets, including the FTSE and non-US assets, saw the green shoots of that trend in the autumn of this year as Tina took a back seat.
However, as described by Chew on This in issue 1164, the post-Trump rally, especially of the private and public assets of his “bro” Elon Musk, plus the virtuous cycle of capital and liquidity begetting bigger upside in the bigger US markets has made it almost impossible for large investors to deploy anywhere else.
Trump’s policies are likely to cause inflation, no thanks to the scale of the US printing presses. Yet, its ability to pull growth out from the rest of the world by imposing tariffs or other radical Trump policies makes it a hard market to ignore if a professional asset manager or wealth manager does not want to underperform. Forced to buy, so to speak.
Hapless former UK prime minister Liz Truss was criticised for proposing policies that could tank her country’s economy. Yet, it makes absolutely no sense that Trump could enact similar policies.
Perhaps there is, indeed, no alternative if you are a large money manager accountable to clients, performing against benchmarks that are linked to the US. Or if you are an economically rational money manager whose performance bonus is tied to the biggest absolute return. For this coming 2025, you may have to stay invested at least at a benchmark for the US. If so, I wish you all good luck. I was reminded by two separate readers of this column and friends this week that I do not miss a chap called Fomo or suffer from him. For 2025, like 2021, I will not have Tina by my side.
Veblen and Griffin
The ongoing election of the Chancellor of Oxford University is being held for the first time using an electronic voting system — the first time this 1,000-year-old alma mater of mine is using it. However, just a tenth of the eligible alumni, or 31,000, had voted and are doing so amid allegations of “dirty tricks” and issues of transparency and direct marketing, specifically by one of the contenders, Lord Peter Mandelson, better known as Tony Blair’s spin doctor.
Sink your teeth into in-depth insights from our contributors, and dive into financial and economic trends
This saga brought me back to the classroom. Two concepts related to theories of consumption are worth examining as I look for market “friends” this coming year. First, a Veblen good was identified by Thorstein Veblen’s 19th century model. These are luxury goods purchased for conspicuous consumption. Traditional old-world luxury goods, including Rolls Royce cars or leather goods and fine wine sold by LVMH, are consumed as much for the love of the items or, even more so, to be seen to have or possess them. These goods run counter to market clearing mechanisms of supply and demand, which assumes that normal goods will see lower demand if prices go up. For Veblen goods, the higher the price, the more Fomo friends will desire it.
Conversely, Giffen goods are essential goods where demand increases due to the lack of close substitutes and poverty.
If, say, an essential good like rice goes up, a lower-income family may spend more on it and less on meat or fish. This concept was based on Scottish economist Sir Robert Giffen’s observations of the consumption of potatoes during the Irish famine in Victorian times. Just like Veblen goods, the demand goes up when the price goes up even — hence the Giffen paradox because there are no substitutes, violating the economist law of demand.
Curiously, Bitcoin and crypto may have had characteristics of Veblen goods by having little intrinsic value before — as the Crypto Winter of 2022 to 2023 told us. However, they were consumed or purchased with speculative value to offload to the next greater fool or believer in the rallying cry “to the moon”. As Bitcoin heads to US$100,000, it may start satisfying other criteria, as pointed out in The Financial Times.
Among the entourage of Trump’s new appointees, the unabashed standout is his “bro” Elon Musk, who is heading the new Department of Government Efficiency, whose acronym Doge is like the joke currency Dogecoin. Mainstream financial players no longer shun crypto — it has become a cool part of the winner’s circle of the elites. Along with Birkin bags, Patek Philippe or Tesla, 2025 might herald higher highs for crypto as it acquires Veblen status.
For those who know me, I do enjoy some luxuries, and I collect exotics like old scrips and bonds, but I don’t put on Patek Philippe or drive Ferraris even though the engineering is interesting and the designs are eye-catching. Crypto is not essential — at least not yet, as we have yet to transform into the matrix or metaverse, so it is not Giffen.
In this case, it might well get cooler and more mainstream, like the ETFs already listed in the West and Hong Kong. And maybe it is a big plan by the US to create value this way as the US dollar is ultimately debased over time with its massive US$36 trillion (and growing) debt. But as far as friends for 2025 go, I applaud my friends who have made some fortunes along the way and maybe hope to get a donation out of them (in fiat currency) for charity. However, like Tina, it will not be part of my portfolio.
Cash landing
Followers of this column will know I went into the US Election period with more cash than my normally fully invested posture in markets, including defensive positions with REITs. I now sit out and collect the dividends as the mark to markets reversed course following misguided fears about Trumpian inflation and a less benign Fed. Twice in the last year, REITs rallied and then faltered as hopes for rate cuts — which have started — were evaporated by stronger economic data first, then Trump’s win.
The REIT indices, however, by late November, have fallen back to their double bottom levels. Many REITs that rallied in the hopes for policy continuity under Kamala Harris have pulled back around 10%.
I’ve observed insiders such as Kuok Khoon Hong buying more shares of his company Wilmar International F34 and fund manager Ameriprise Financial raised its stake in Venture Corp above 7%. Such moves on these blue-chip laggards have inspired me to also deploy some of the cash, including adding some good quality REITs that are at a higher discounted level to their respective NAVs.
I’ve also bought back some China-related REITs, which I sold at higher levels earlier as they bounced up with the China run in October. I have also allocated to a logistics REIT that is primarily in Australia, giving 7% plus yields.
They may not be Giffen’s, i.e. essential. But they all contain some elements that deliver basic needs. With constant friends like this paying me dividends that can fund some of my travels and charity in 2025, I hope for enduring rewards when the season for Tina and Veblen inevitably changes again.
Chew Sutat retired from Singapore Exchange S68 Stock 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
