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All I want for Christmas

Chew Sutat
Chew Sutat12/21/2021 10:01 AM GMT+08  • 6 min read
All I want for Christmas
"Don't forget Mariah Carey's reminder and your loved ones this season when you party from 2021's winnings."
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Q: What’s the best investment for 2022?

A: I’ll know for certain at the end of next year

Conventional wisdom got turned on its head this year. Most of the world was in Covid-19 lockdown throughout the year while more than a billion Chinese self-excluded in Fortress China.

Cross-border travel for ordinary folk has gradually resumed in fits and starts while Branson and Bezos took joy rides to space, beating Elon Musk.

In the metaverse, the second coming of crypto saw extraordinary gains ranging from a mere few hundred per cent to quadrillions — that is if you managed to get your money out and not get scammed in the parts of the alt-online universe which is unregulated.

Bitcoin charts circa Dec 15 appear to show a breakdown in the neckline from the classic double-top above US$60,000 ($82,175), which may herald another levelling down similar to 2019 when it cracked under the initial coin offerings hot air. Speculators have already rolled on into land banking unlimited meta-estates or NFTing whisky in Metacask which one supposes will be drunk in some parallel universe.

See also: Stuck in time, the Mad Hatter lives for another day

Back in the real world, the best-performing equity market was Mongolia, which surrendered some of its September peak returns of 180% to weigh in at a more modest 120% gain by mid-December.

As Mongolia corrected, so did a host of other 2021 “winners”. They include the hot air released from the excessive US spac market in the summer, the tech correction across all things new, shiny and once touted with everlasting growth from Robinhood bro’s meme stocks to Goldman Sachs “unprofitable tech index”, which does exist and is down more than 40% from its March peak.

See also: Southeast Asia's growth to wane but still outperform

Closer to home, other such “winners” include the big Chinese tech counters pummelled by rounds of “common prosperity” policies and politics. SenseTime’s IPO was downsized in Hong Kong and then delayed, given fears of a repeat of what Didi Global suffered. Interestingly, the Hang Seng Index (HSI), which still carries the perception of a market with higher valuations and better liquidity, posted double-digit declines. This is a mirror opposite (plus some) of the Straits Times Index’s (STI) return of more than 10%.

Cassandras all around

“Markets are overvalued” and “even crazier” than the dotcom bubble, said Charlie Munger, Berkshire Hathaway’s vice-chairman, who has gone as far as to say he wished crypto-assets “had never been invented”!

Is it time to pack up and go? Omicron and possible new variants are the wildcards but perhaps as travel starts normalising, is 2022 the year to just go for an extended holiday and stay out of all markets?

The 1999 book Dow 36,000 made the almost laughable claim that the Dow Jones Industrial Average would hit 36,000 points by 2004. That indeed came true 17 years later on Nov 1 and it has hovered there since more or less. Likewise, the S&P500’s extended bull run seems intact. Only the Nasdaq looks shaky.

It is also true that lots of crowded trades involving Bitcoin and energy have reversed. The “sell-off in silliness could still prove to have been the first quiver of a coming earthquake” warns a Financial Times commentary on how the speculative investing route points to the risk of a broader downturn. It is also true that by conventional valuations, many of these crowds still look expensive from traditional equity or asset valuations. Even more so when the US markets catch a cold as there is no conscious uncoupling with the rest of the world. This means there is bound to be a sideswipe everywhere, or won’t there?

Is “peak insanity” behind us, given the steep declines in the riskiest trades of 2021 as some believe, indicating that sobriety will return to markets. Or are we set up for a round of persistent inflation creep, forcing the US Federal Reserve Board and other central bankers to reduce the Greenspan put?

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Will a taper tantrum or an untethered stable coin be the catalyst that unleashes the Greek gods of Covid and finance like gamma, delta, all the way to omega, from the real world to the fledgling metaverse? Is there no room to hide?

There are certainly enough potential booby traps all around to make investing and trading prickly in 2022. But if there is something I have observed over 30 years of being in the market, it is that consensus tends to be wrong, which means if everyone is anticipating 2022 for pigeons to come home to roost and waiting in the wings to buy, it may not pan out as planned.

A Christmas Carol

We do not need to shrivel up and be poor Ebenezer Scrooge, whose miserliness and greed only warmed up after the Ghosts of Christmas Past, Present and Future showed him the light as we reflect on these observations.

Past: Seriously inflated assets in 2021 have been deflating. There is probably some room to go for those that have little legs to stand on. But from the ashes of the first dot com bubble in the past came Alphabet (Google’s holding company) and others. There will be a time for taking the long view when the correction in risk assets and volatility presents opportunities. Do take the odd punt if you can afford the risk, but a punt, flutter, or speculation is a trade and not an investment. Knock it around the park please, but don’t get sentimental, and if you must, just buy the index or ETF. There is a survivorship bias inherently in indices, and diversification will help with this “growth” class of stocks.

Present: Just in December, we saw a 40% decline in homegrown unicorn Grab after its de-spac debut in the US, home of the largest capital market in the world. Conversely, a US sponsor, Digital Realty, listed Digital Core REIT here, which debuted with a pop from the IPO price of 88 US cents to US$1.18. It is not likely to be a 10-bagger like a growth stock but cash is finding its way to quality homes here on SGX in this little red dot. As Goldman Sachs’ Unprofitable Tech Index declined, inversely, less sexy but profitable tech stocks like locally listed AEM Holdings are finishing the year at all-time highs. If it is going to be rocky, where will the money flow? The STI’s outperformance against the HSI this year looks set for an encore.

Future: In the long run, so said Keynes, we are all dead. But until we actually kick the bucket, staying invested generally pays dividends if you are into the boring stuff. We can even do it with a purpose, with an ESG tilt into our portfolios such as the secular trend around renewables or sustainable food.

Finally, don’t forget Mariah Carey’s reminder and your loved ones this season when you party from 2021’s winnings. At least, this way you might keep your two front teeth ready for 2022. Ganbatte!

Chew Sutat retired from Singapore Exchange (SGX) in July this year. He was senior managing director of SGX and a member of SGX’s executive management team for 14 years. On his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange

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