In his lead role in the 1979 Vietnam War psychological war epic Apocalypse Now, Marlon Brando haunted a whole generation of moviegoers. More than four decades on and amid today’s modern geopolitical reality, the Francis Ford Coppola film is now seen as a cultural relic of a previous era. Thanks to former US President Donald Trump’s trade war with China, Vietnam has reinvented itself in American consciousness as the beneficiary of the shift of manufacturing production.
Closer to our times, a friend who read last week’s column reminded me that this coming week is the 25th anniversary of the Asian Financial Crisis. It started with a wobble of the Thai baht on July 2, 1997, which quickly cascaded into a crisis of confidence fuelled by the rising cost of US dollar-denominated debt. Currencies across the region — the rupiah, the won and the peso — came under pressure. The debt-to-GDP ratio of some Asean economies, still somewhat bearable at 100% in 1993, shot up to 180% in merely five years.
If there’s a single infamous image that encapsulates that era, it would be that of the then international Monetary Fund managing director Michael Camdessus, arms folded, sternly standing over Indonesia’s then-President Suharto as he signed the IMF bail-out package. As part of IMF’s “rescue”, the rupiah was to float freely. The widespread rioting that followed was the catalyst for Suharto’s downfall. Malaysia, then under Dr Mahathir Mohamad, retreated into economic self-isolation. He rammed through the peg of the ringgit to the dollar, and he hung international investors out to dry by spiking the Clob trading system in Singapore.
Singapore, Taiwan and Japan managed to remain relatively unscathed, although not without suffering a few initial jolts. From the Super Bull Run of the mid-1990s which pushed the Straits Times Index (STI) to a then-high of 2,200 points, the market became the Super Bargain of 800 points by August 1998. Along the way, markets were further roiled by Long Term Capital Management (LTCM) — a quantitative hedge fund taken down after Russian bonds defaulted for the first time in a post-glasnost era. Evidently, the Nobel laureates who ran this fund did not take into full account liquidity shocks in their much-vaunted models. Yet, by 1999, the STI had staged a V-shaped recovery back to its mid-1990s peak, almost tripling the return for those brave enough to saunter into the abyss of bargains.
Groundhog Day
Why is 25 important? For both technical chartists and metaphysical believers who chart the stars (as well as CLSA’s Feng Shui Almanac — more about that later), markets have a nasty habit of crashing every decade or so. Like a broken clock that is right twice a day, doomsday predictors too will eventually get it right.
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It matters not that the 1970s oil shocks took roughly 15 years and not 10 before Wall Street’s 1987 crash; likewise that 1997 was an Asian phenomenon, and not until LTCM happened in 1998, did it spread a bit more globally before the dotcom bubble floated everything up to the next peak. Right on the clock, the 2008 Global Financial Crisis hit, thanks to the mix of sub-prime on steroids, excesses of the onetime Fed chairman Alan Greenspan’s put, and an unintended contagion effect on intertwined financial systems merrily whirring without sufficient oversight and capital buffers.
Sure, 2018 has come and gone with nary a blimp, as quantitative easing kept global markets merry despite pockets of turbulence such as the long-forgotten euro debt crisis of 2010, or the literal tsunami hitting Japan and the figurative one hitting Nikkei 225 in 2011. The closest thing we had to a wobble was former chairman Ben Bernanke’s taper tantrum of 2018, when horror of horrors, the Fed indicated its stance of scaling back a decade of bond-buying.
Then again, I would argue that we already had our decade-old crisis (albeit 12 years after 2008). In March 2020, when the pandemic spread, global demand and financial markets seized up. For a few weeks, the correlation of stocks, bonds, commodities and even crypto was 1. There was no benefit from diversification in a panic. Everything froze. A classic sign.
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In response, global policymakers held hands and threw liquidity into the markets. Not only did markets regain their footing, as meme stocks and the “crypto bros” led to flights of digital fancy. In hindsight, 2021 is best noted for pricing “growth at all cost”, with analysts conjuring up valuation models such as “price to gross merchandise volume”. The frenzy almost harks back to the 2000 dotcom bubble burst (which also did not happen at the 10-year-cycle anniversary).
By early this year, all these fluffy pigeons have come to roost. One by one, the modern junk-bond kings of Wall Street, spiritual descendants of Michael Milken, have been bruised. The royalty of venture capitalists such as Softbank Group’s Masayoshi Son and Sequoia Capital was not spared. In recent months, valuation of private investments has been marked down by 70% or more, and the number of public exits has slowed to an icy trickle.
Top Gun
True, 2022 has thrown some wild cards. Tom Cruise’s Top Gun: Maverick (excluding Kelly McGillis) returned after 36 years. He saved the day, as expected, and sprouted memorable lines such as, “You don’t have time to think up there. If you think, you’re dead.”
Yet, here’s a thought: death may not come right away. There’s this line from the Bible, on the final days: “Ye shall hear of wars and rumours of wars.” Of course, that passage was also supplemented with famines and pestilences, and “earthquakes in divers places”. Covid-19 certainly seemed to fit the bill of pestilences, and one hopes Monkeypox does not get more virulent.
With Russia’s “special military operation”, consumers have realised how Ukraine’s granaries have been feeding the world. When Singapore’s Minister Chan Chun Sing was busy securing supplies from far-flung sources, including Ukraine, he was much pilloried in social media then. With Malaysia now banning the export of chickens instead of walling up its capital market like back in 1997, I hope the public has come to realise how something as fundamental as grain and eggs can stoke up inflation.
So, are we in the throes of Armageddon? Is Joseph Conrad’s Heart of Darkness — the inspiration for Apocalypse Now — upon us? Where Shinzo Abe gets assassinated on a public street in Japan; where UK Prime Minister Boris Johnson finally quits but does not really leave office; or in the unfortunate failed state of Sri Lanka, the hoi polloi swim in the pool of the presidential “palace”. Or are these just the latest unfortunate events which will fade onto the back pages and no longer be reported “live”?
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While Ukraine’s Volodymyr Zelensky is doing his utmost to keep Russia’s invasion on the front pages, the world has appeared to have forgotten about the stubborn, less-reported resistance of Myanmar’s civilians against the junta. As the media commentary of inflation and the next Fed “shocking” rate rise looms on the horizon, energy prices have settled back to levels before Russia’s invasion. Amazingly, the rouble, likewise, has recovered. Other commodity prices, after the squeeze in March — no doubt accelerated by opportunistic traders — have also levelled off. There are even signs that US President Joe Biden and his Chinese counterpart Xi Jinping might have a bit of a detente over Trump-era trade war policies, even though China’s rhetoric remains supportive of Vladimir Putin, and that Russian money and boats have found safe harbour in Dubai and not Beijing or Shanghai.
If CLSA's prediction is correctly, we are heading into a 4Q rally
Almanac predictions
Interestingly, as alluded to earlier, the CLSA Almanac published earlier this year broadly predicted a February rally, followed by a sell-off in March, a recovery to a nudge above January highs in June, before a grind through the summer to the proverbial September into a bottom in October, followed by a steep 4Q Tiger rally that carries it over the January and June highs into 2023.
Maybe CLSA’s predictions have better resonance with Hong Kong and China, and less with Singapore, which is still hanging in there above water. It certainly is out of joint with the metaverse now in the throes of the Second Crypto Winter.
Now, there are some plausible grounds for this 4Q rally. First, no thanks to 1929 and 1987, October has been remembered as the most dangerous month; but once the month is over, relief returns. Coming back from their long summer breaks, Western portfolio managers, having lightened their holdings, are compelled to deploy funds and chase markets to the year-end while keeping fingers crossed that there will be no disaster. Second, sadly, investors have short memories. As supply kinks get restored and inflationary pressures moderate, we will unfortunately get de-sensitised to news of present wars and pestilences.
The world might very well end — whenever that might be. But first, one must live. Hence when there is thin summer liquidity, skittish investors and negative news flow, it makes for good shopping opportunities if you are not on a beach. But, stick to markets that are coming off from a significant bottom, like China. Or, go for those far from the madding crowd, such as a politically and economically stable and growing Asean, where plenty of good-quality businesses and stocks trade at a discount to assets or even cash value!
If it’s all a bit too much to watch the ticker tape, it’s probably time to go watch Apocalypse Now Redux — the recently edited extended version of the original. Spoiler alert: Brando was butchered; the good guy Martin Sheen won.
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 vice chairman for the Community Chest Singapore
