This last couple of weeks, I decided to test a few theories about the markets, and also about myself. I wrote this piece in Zanzibar. To save you the trouble of looking up Google Maps, it is off the coast of Tanzania in East Africa.
As part of the awareness-building I am obliged to do as the newly appointed chairman of Community Chest, our mascot elephant, Sharity, got to the top of Mount Kilimanjaro, which stands 5,895m above sea level. Besides bringing Sharity up the mountain, I introduced it to its African cousins too.
Through the week and a half where I was off the grid with limited or no connectivity, the pink elephant on the travails on my pack practically blended in after it turned almost grey — so much so that a close encounter with some African elephants in the Serengeti actually resulted in one of them charging towards us to take a closer look at the captive little one. I was glad that the car did not stall. We managed to speed off, with hardly any time to reflect on the near-miss.
To be sure, after the challenges of high-altitude treks and living out of a tent with no hot showers, I wrote this piece in relative luxury — in the resort owned by Singapore-listed Bonvest Holdings on the beautiful Zanzibar coast, which I have just come to for a much-deserved rest.
At least here, I have enough WiFi signal strength (not the occasional 4G at 4,200m off the edge of a cliff) to be told that the US Federal Reserve raised rates by 75bps on July 28. I remain sufficiently “insulated” to be not disturbed by the squeals and crunches all night on the safari outside my tent — of predators devouring their prey. A profound experience indeed.
Survival of the fittest
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Out in the bushes, where the underlying rule is to kill or get killed, the ecosystem is mostly self-sustaining once you remove the biggest predator, Man, by converting his shooting from using guns to using cameras.
In a way, it is much like the markets, especially if as amateurs we try to trade too often, and don’t let winning investments run, or cut losses quick enough. Or we read yesterday’s news (it’s always yesterday’s news when the wires and the print media raise their alarming stories) because the market has already moved. Awareness, anticipation and some ability to be fleet-footed if trading and not investing are key.
As the saying goes, across market cycles, the bull makes money, the bear makes money, while the sheep gets eaten. If you are not aware and you swing with the Fomo (fear of missing out) or Foho (fear of holding on) crowd (as this column has waxed lyrical about), you can get caught up in the carnage. Blame not the likes of George Soros and other hedge-fund sharks, but the emotional roller-coaster that causes the up- and down-swings of individual stocks and indices.
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Each time another such bubble bursts, the irrational exuberance collapses deep into despair. There is a growing list of 2021 darlings fitting this mould in 2022: Ark Innovation ETF, as well as pandemic stocks from Netflix to Peloton Interactive. Or, there’s the chilling Second Crypto Winter that is still freezing out many dubious players and models.
Fomo and Foho aside, the first test I had to withstand these couple of weeks was to see if I could survive being disconnected. For 25 years, my Friday-evening “relaxation” was to watch the ticker tape on CNBC or Bloomberg from, say, 10pm after dinner to the close of US markets at 4am on Saturday morning. I was a news and markets junkie, and I could not get enough of it. Sure, I can claim it was part of my job, whether as a prop trader, a broker, or at the Singapore Exchange. But it sure was unhealthy.
The digital sensory deprivation — where I could only feel the pain of the trek or look at the Milky Way — was so clear high up on the mountain. Up there, it was too cold to enjoy for long, and the conditions were hard, but I mostly survived. Up there, I had to stick to the theories that I espoused in these columns in June and July about how markets could play out in the second half of the year. Which is that it is okay, if you are investing in sustainable businesses, and know why you are invested in them, to take time out in the thin-liquidity summer months and pack up for a holiday. That it is okay to collect the dividends and worry less about the mark-to-market day to day, minute to minute, provided that you have appropriately diversified and are not invested in fluff. That markets are likely to meander with a negative bias in the West and a positive bias in Singapore and Southeast Asia, as news headlines change quickly, with Ukraine sadly joining Myanmar on the middle and back pages.
For the growth-at-all-cost business models, the rate rise cycle is not over — and valuations in the West are still being compressed. For the fighting fit with steady income streams and cash flows, the market continues to discover relative value with the potential and occasional privatisation, as with Frasers Hospitality Trust and Hwa Hong Corp recently, or the M&A-type jackpots. With good cash flows, boring businesses are fitter for growth in this part of the cycle, provided they have exhibited good anticipation and termed out their debt at lower rates which many REITs have, or strengthened their balance sheet to pick up the pieces of the platform stock darlings falling out.
So what if the Fed acts?
I was probably lucky again in my forecasts, and luck is often better than smart in markets. However, one can improve on his or her own luck by not hanging by the water-hole at night without checking if there are lions in the bush, or simply planning your route through the savannah better.
As technical charts signalled weaknesses before I left two weeks back, many pundits were calling for a slump into August with the Fed likely to be aggressive given the how the toxic cocktail of recession and inflation is now being mentioned more and more. Yet markets do climb a wall of worry, including the now spreading (ugly but not deadly) monkeypox. The Straits Times Index held its ground and continued to stay positive for the year, starting the first day of August with some aplomb. Stocks like Sembcorp Industries continue to benefit from the structural transformation and are up 50% YTD.
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True, the Nasdaq and the S&P500 in the West bounced off lows in July, but at 22% and 14% lower respectively, they are still in the throes of a bear. Chinese economic data (when it is bad) is now trusted more by Western analysts who wrote more doomsday reports over how real estate overhang and zeroCovid are going to strangle the economy. Yet with the pull-backs, the Hang Seng Index and CSI 300, and even the Hang Seng Tech Index, kept their lows above the second-quarter bottoms, with Alibaba Group Holdings potentially allowed to convert its Hong Kong secondary listing to a primary one — another sign of China tech stabilisation.
Vindicated, I am staying the course while on intermittent digital fasting now for another week. But I will continue my optimism in overweight Singapore as I return for National Day, with a long call on China for the second half of this year. The silence of the mountains and the vastness of nature have somehow helped me move further away from my old addiction. Sometimes, it’s okay to just do nothing.
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