Good news on the meltdown
Monday, March 5, 2007
WHAT goes up must come down. And global bourses, including Singapore's, are no exception as this week's dramatic events showed all too well.
Over four trading days, the benchmark Straits Times Index (STI) - led by a selldown in China - fell 231.7 points or seven per cent, to 3,078.74 on Friday.
It was the largest weekly fall in percentage terms since the 2001 terrorist attacks in the United States.
Before the rude awakening, the STI had risen sharply, up 321 points or 11 per cent since the start of the year, to touch a high of 3,310.44 on Feb 23. And that was on top of a 27.2 per cent increase last year.
The local rout was part of a global meltdown, but it should not have come as that big a surprise. After all, history shows that when stocks enjoy spectacular runs, a fall is imminent.
For some investment experts and cautious investors, the plunge was not entirely a surprise given the sharp run-up in equities over the past four years.
Experts branded it a "healthy correction", one widely anticipated after the record-breaking bull run.
The Shanghai market hit a record high on Monday, for example, just before the Tuesday plunge, and Asian markets, including Singapore, Malaysia and Indonesia, had surged to dizzy heights.
Still, investors were so gripped with fear on Wednesday that a frenzied selldown on the Singapore Exchange triggered an unprecedented jam on the bourse's computers.
The global collapse was sparked by an 8.8 per cent fall in China's main index, the Shanghai Composite, on Tuesday, amid fears that the authorities would crack down on rampant stock market speculation. To put things in perspective, note that investors might also have been prompted to take profits as the index had risen over 100 per cent last year.
The collapse led to a stunning 416-point fall on Wall Street — its largest single-day fall since September 11.
Though China's downturn was the trigger, other factors played a part, including an overbought stock market, oil prices that jumped 32 US cents a barrel past US$61, and concerns over a possible recession in the US later this year.
Selldown is a correction, not start of a bear market
THE good news is that most experts, such as online unit trust distributor Fundsupermart, feel the correction is likely to be "short term and is healthy".
Merrill Lynch and Credit Suisse told their clients they saw it as a correction and not the start of a bear market.
This is because concerns about higher oil prices and fears of a US recession are outweighed by positive factors such as reasonable inflation levels, low interest rates, strong valuations, and high levels of merger and acquisition activity.
Fund manager Fidelity International sees the fall as "relatively small" given the strength of the US market over the past four years.
From late 2002 to the end of last year, the Dow Jones index expanded nearly 50 per cent, so the market has retreated only a small amount when compared with the gains made.
As for Asia, DBS Asset Management (DBSAM) senior research manager Phillip Yeo remained optimistic about the region's overall economic fundamentals, although equity market returns this year are unlikely to reach the highs recorded last year.
"Nevertheless, we think equity markets can still offer attractive opportunities in select growth industries, such as banking and finance, infrastructure and real estate," said Mr Yeo.
Experts expect the volatility to continue over the next few weeks.
Fundsupermart research manager Mah Ching Cheng says such movements are the norm rather than the exception.
"We find that such volatilities are not uncommon when markets are going up. And this may be particularly so for Asia, which historically has shown greater volatility," said Ms Mah.
"However, despite short-term volatility, we think generally for Asia ex-Japan, fundamentals remain sound and valuations are at either reasonable or attractive levels."
Advice for investors:
Don't panic
THE resounding advice from experts is "don't panic".
For those invested in China funds, the chief executive of wealth management firm dollarDex, Mr Chris Firth, noted that most China funds are not in A-shares, the worst-hit on Tuesday.
"Rather, they are in Hong Kong-listed firms or companies that do business in China but are listed elsewhere. Analysts still expect good results from Chinese companies" he said.
He also noted that China's equity market is still at an early stage of development, and the growth of the country's economy is providing credible support for stock market levels.
Phillip Capital Management's investment analyst, Mr James Chua, recommends "hunkering down and holding on" to China funds, as the market outlook for one to three years still looks good. But investors who cannot stomach volatility should sell half their holdings as they are still likely to be sitting on good profits.
China is still attractive to Fundsupermart over a three-year investment period. To reduce the overall volatility of a client's portfolio, Ms Mah proposed buying into funds invested in Greater China - China, Hong Kong and Taiwan - rather than solely China.
Given the recent surge in equity markets, investors who are sitting on gains might consider locking in some profits.
It might also be timely to rebalance holdings in overweight markets that have rallied considerably over the past few years and to switch partially into regional funds.
Thus, an investor with a balanced portfolio comprising 65 per cent equities and 35 per cent fixed-income investments should check if the equity portion has gone up to 70 per cent or above and rebalance back to 65 per cent, suggested Ms Mah.
Mr Chua suggests a 'wait and see' approach while parking cash in money market funds as the best strategy.
"For risk-averse investors, holding cash and investing in money market funds are also great strategies," he said.
However, DBSAM's Mr Yeo cautioned that timing the market might lead to investors missing out when shares recover.
"It is always advantageous to have safe instruments in one's investment portfolio. But time in the market is more important than timing the market,' he said.
He advised investors to stay focused on their goals and not react too much to short-term volatility. The Straits Times
Over four trading days, the benchmark Straits Times Index (STI) - led by a selldown in China - fell 231.7 points or seven per cent, to 3,078.74 on Friday.
It was the largest weekly fall in percentage terms since the 2001 terrorist attacks in the United States.
Before the rude awakening, the STI had risen sharply, up 321 points or 11 per cent since the start of the year, to touch a high of 3,310.44 on Feb 23. And that was on top of a 27.2 per cent increase last year.
The local rout was part of a global meltdown, but it should not have come as that big a surprise. After all, history shows that when stocks enjoy spectacular runs, a fall is imminent.
For some investment experts and cautious investors, the plunge was not entirely a surprise given the sharp run-up in equities over the past four years.
Experts branded it a "healthy correction", one widely anticipated after the record-breaking bull run.
The Shanghai market hit a record high on Monday, for example, just before the Tuesday plunge, and Asian markets, including Singapore, Malaysia and Indonesia, had surged to dizzy heights.
Still, investors were so gripped with fear on Wednesday that a frenzied selldown on the Singapore Exchange triggered an unprecedented jam on the bourse's computers.
The global collapse was sparked by an 8.8 per cent fall in China's main index, the Shanghai Composite, on Tuesday, amid fears that the authorities would crack down on rampant stock market speculation. To put things in perspective, note that investors might also have been prompted to take profits as the index had risen over 100 per cent last year.
The collapse led to a stunning 416-point fall on Wall Street — its largest single-day fall since September 11.
Though China's downturn was the trigger, other factors played a part, including an overbought stock market, oil prices that jumped 32 US cents a barrel past US$61, and concerns over a possible recession in the US later this year.
Selldown is a correction, not start of a bear market
THE good news is that most experts, such as online unit trust distributor Fundsupermart, feel the correction is likely to be "short term and is healthy".
Merrill Lynch and Credit Suisse told their clients they saw it as a correction and not the start of a bear market.
This is because concerns about higher oil prices and fears of a US recession are outweighed by positive factors such as reasonable inflation levels, low interest rates, strong valuations, and high levels of merger and acquisition activity.
Fund manager Fidelity International sees the fall as "relatively small" given the strength of the US market over the past four years.
From late 2002 to the end of last year, the Dow Jones index expanded nearly 50 per cent, so the market has retreated only a small amount when compared with the gains made.
As for Asia, DBS Asset Management (DBSAM) senior research manager Phillip Yeo remained optimistic about the region's overall economic fundamentals, although equity market returns this year are unlikely to reach the highs recorded last year.
"Nevertheless, we think equity markets can still offer attractive opportunities in select growth industries, such as banking and finance, infrastructure and real estate," said Mr Yeo.
Experts expect the volatility to continue over the next few weeks.
Fundsupermart research manager Mah Ching Cheng says such movements are the norm rather than the exception.
"We find that such volatilities are not uncommon when markets are going up. And this may be particularly so for Asia, which historically has shown greater volatility," said Ms Mah.
"However, despite short-term volatility, we think generally for Asia ex-Japan, fundamentals remain sound and valuations are at either reasonable or attractive levels."
Advice for investors:
Don't panic
THE resounding advice from experts is "don't panic".
For those invested in China funds, the chief executive of wealth management firm dollarDex, Mr Chris Firth, noted that most China funds are not in A-shares, the worst-hit on Tuesday.
"Rather, they are in Hong Kong-listed firms or companies that do business in China but are listed elsewhere. Analysts still expect good results from Chinese companies" he said.
He also noted that China's equity market is still at an early stage of development, and the growth of the country's economy is providing credible support for stock market levels.
Phillip Capital Management's investment analyst, Mr James Chua, recommends "hunkering down and holding on" to China funds, as the market outlook for one to three years still looks good. But investors who cannot stomach volatility should sell half their holdings as they are still likely to be sitting on good profits.
China is still attractive to Fundsupermart over a three-year investment period. To reduce the overall volatility of a client's portfolio, Ms Mah proposed buying into funds invested in Greater China - China, Hong Kong and Taiwan - rather than solely China.
Given the recent surge in equity markets, investors who are sitting on gains might consider locking in some profits.
It might also be timely to rebalance holdings in overweight markets that have rallied considerably over the past few years and to switch partially into regional funds.
Thus, an investor with a balanced portfolio comprising 65 per cent equities and 35 per cent fixed-income investments should check if the equity portion has gone up to 70 per cent or above and rebalance back to 65 per cent, suggested Ms Mah.
Mr Chua suggests a 'wait and see' approach while parking cash in money market funds as the best strategy.
"For risk-averse investors, holding cash and investing in money market funds are also great strategies," he said.
However, DBSAM's Mr Yeo cautioned that timing the market might lead to investors missing out when shares recover.
"It is always advantageous to have safe instruments in one's investment portfolio. But time in the market is more important than timing the market,' he said.
He advised investors to stay focused on their goals and not react too much to short-term volatility. The Straits Times
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