NORMALLY at this time of the year market talk would focus on the possibility of a year-end rally. Not so this year - talk is instead on how bad trading has become, yesterday's 31.92-point or 1.03 per cent drop in the Straits Times Index to 3,081.72 only adding to the sense of gloom. It has now fallen 2.7 per cent so far this year.
Prices were weak from the start and showed no sign of improvement as the session wore on. A soft close in Hong Kong and a weak opening for Europe did little to lift spirits, already in the doldrums following more than two months of poor liquidity and falling prices.
Today ST lost another 20.98 point or 0.68% to 3060.74. We are about 2 weeks more to 2014.
THE better the United States economy appears to get, the worse it is for the local stock market. This is the simple equation confronting Singapore equities investors who this week watched the Straits Times Index fall four out of five days because the release of strong US economic data has led to worries that the US Federal Reserve might cut back its money printing sooner rather than later.
Of course the logic of this argument may be questioned - if the US really is recovering, then it should take the global economy with it, in which case export-oriented economies like Singapore's should benefit. And if so, there's no good reason why the STI should have fallen as it has - yesterday's short-covering 6.98- point rise helping to limit the weekly loss to 48 points or 1.5 per cent at 3,066.02. It is now about 100 points or 3.2 per cent in the red for the year.
The million dollars questions as a result of tapering are:
1. What are the consequence of tapering?
2. Which are the stocks which may be badly affected by tapering?
3. Which are the stocks which may benefit from tapering?
The above 3 questions may help us in our investments for the coming year. There may be other issues, feel free to contribute.
Tapering is a scapegoat for a long overdued correction and is the noise in the market. There are 3 impacts of tapering.
1) looming interest hike following tapering
2) outflow of funds causing some currency pressures
3) premature tapering killing the recovery
Of the three, I think only reason 3 is going to affect the value investor as it might affect the economy adversely.
We have talk about shunting reits and trusts or companies with high gearing, but reits have seem normalize rate of 4% days. Did they go to the dodo, there might be some short term fall in prices , as distribution get affected by interest rate, but some reits have good capital management plans, they should be good buys when market shun them. Also there is no guaranteed that market or reits will fall when tapering does happen. What will kill reits is poor occupancy rate, but if interest rate is higher due to economic strength, will occupancy or renewal of rents be a issue?
The same about Indonesia plays, much talk about currency affecting LMir and other Indonesia play, I will be more interested in the operating numbers such as occupancy rates. U have to ask yourself if currency weaknesses will kill consumerism in Indonesia
I am not saying the price of reits or Indonesia plays will not fall, I am saying if they fall, they might present value. Also if everyone is waiting for the price of fall to come, it might already have happen. U might get it cheaper, u might also miss it. A bottom up approach might be better than worrying about tapering.
The market is drive by QE3 - liqudity drive, inflow of funds & low interest rate.There is no escape from tapering, it just a matter of times. The sooner the better because market dislike uncertainties. So how to prepare for the coming tapering.
Consequence of taping:
* Outflow of funds
* Increase in interest rate
* Fall in inflation
With regard to the soon to end of QE3 and begining of tapering I will avoid high leverage stocks.
REIT maybe affected by increase in interest rate. Greenrookie have highlighted some REIT's have good capital management plans, they should be good buys when market shun them which may presenct good buying opportunity.
Growth stocks with low debt or no debt will also present good buy opportunity.
Cash-rich stocks may bennefit from increase in interest rate & buying opportunity into other bussiness and assets.
In regard to the soon to begin of tapering I had maintain high cash holding.