Sit tight for another wave of volatility

Historically speaking, June is hardly a month of reversal for financial market, but 2009 is very likely to be the year of exception, as more and more signs are showing that stock rallies worldwide are running out of steam and if local buyers were to become more sensible, even local real estate market will be the same very soon.

Whether this is a pause for another stronger rally or another wave of financial crisis remains to be seen. The looming factors that could add shocks to the already vulnerable market include H1N1 casualty rate rising dramatically, more US corporate bankrupties, and the scariest of all but probably remote in likelihood in the near term, is the unexpected slump of US dollars due to loss of investors’ confidence upon American handling of her own debts. (This one will also be the biggest black swan if it happens sooner)

While there is very little everyone can do now, it is still important to be mentally prepared for anything unexpected during this very period. Complacency is always the biggest enemy for most investment decisions. If savvy investor liked Oei Hong Leong could suffer heavy losses late last year, there are even more reasons for normal people to be extra-cautious in making major investment, be it about stocks or property. Strictly speaking, years ending with 9 are historically not good periods to buy anything for investment, instead they serve better for those who trade or speculate.

Below is the chart of Volatility Index which indicates market volatility is ticking upward again in June.

What a price and market botton is all about?

Below are some thoughts about any bottoms for prices and markets:

1) A bottom is a process, not a point or moment as most people are looking for. It may last for days, months or even years!

2) A bottom comes quietly, usually with little public notice. Indeed, a bottom comes amid widespread denial.

3) Some prices or markets may not have bottoms after all. They may be due to corporate bankruptcy, wars or natural catastrophes. More important, bottoms matter little if participants concerned pass away.

4) Some bottoms are false and temporary, especially when participants come in due to fear of prices going higher. Indeed, a real bottom will likely take place when participants give up any hope of capturing the bottom.

Hope that these thoughts will help in understanding events and developments around you these days.

looming crisis

After reading the ST article written by Andy Low dated May 30, I can’t stop to relate the problem of contract research organisation(CRO) to the whole subprime mortgage saga in the US. In fact, what Andy Low had highlighted is more severe than the current economic crisis as a result of subprime mortgage. After all, the almost unchecked drug trials conducted by CROs could lead to loss of many lives, whereas subprime mortgage saga only created big holes in pockets, or at most emotional agony of most people.

In essence, it’s all about greed and profit, which is part of human nature.  Should the pharmaceutical companies strictly abide by the trial procedures, CROs will not have existed to serve at their disposal; the profits of the pharmaceutical companies and even CROs will not be that fat, which shareholders will certainly not be happy.

So don’t be surprised in the next market bubble centered on pharmaceutcial sector, the trigger to burst the bubble will likely come from the failure of CROs to preform their tasks properly, just like what the credit rating companies had failed to fulfil their role in forewarning about the collapse of Lehmen Brothers and AIG last year.

June 2009 may look likely to be comparable to September 2008

If September 2008 is well remembered for collapse of Lehman Brothers and near collapse of AIG, there is little doubt that June 2009 will be remembered in future for its high volatility of equity markets worldwide.

As mentioned in the last post, equity markets in the past three decades had never risen for consecutively three months, and with May this year yielding the best monthly returns in many markets, we are now entering the fourth month begin with strong momentum. As at the time of writing this post, Asian markets are in generally up at least 1%.

But it is doubtful that such strong momentum can last throughout the month. If one bothers to glance price charts of indices and many individual stocks, one can easily find patterns similar to that attached below. The most recent phase of rise is almost a vertical line up, indicating a stage that anybody, whether a genius or a fool, can make profit out of it. Such phase, as history has repeatedly shown, will not last long.

Therefore, it’s really time for investors to exercise extreme caution about the market at this stage. No point leting the imminent market correction to spoil your summer holiday mood.

By the way, the attached chart is the price chart of Shimao Property listed in Hong Kong.

It’s time to be more defensive in investment

May is a special month for equity markets. It is always a month when market turns either better or worse, depending on how prices go in the preceding months. Although there is a saying that “Sell in May and go away”, May is not necessarily a month bad for stocks. Year  1999 and 2004 are some good examples.

Having said that, May this year is quite significant for market direction because it will probably be the third consecutive month of rise since the prices bottomed out early March. If history is of any good guidance, Never before in the past three decades would you see prices rise more than three months consecutively. More often than not, the following month would likely be consolidation at lower level or worse, resuming downtrend again.

Hence, it’s good to be more defensive as far as stock investment is concerned after May this year.

By the way, below is the price chart of Singtel.

Reading the mindset of investment

In last two days, market players have probably ridden on the bandwagon of “fear of missing the rallies”, which many times represent the last leg of a rally. If one can recall, that’s how the public mood looked like in early 1996 when many property buyers rushed to purchase units at exorbitantly high prices for fear of buying at even higher price later.

As mentioned in my last post, 2283 is a crucial level over which STI has to cross for the market to rise further. Unfortunately this did not happen yesterday and today, instead the loss of the index widens later this afternoon, making the chance of surpassing that level becoming slimmer.

So what to do next? If one holds blue chips, one should keep them for another two months to realize the full gain of the next rally that may take place ahead of next quarter earning season. However, if one holds second or third liners, one should contemplate selling them as the coming correction may not fare well for them.

About market strength today

The world equity markets have defied the gravity once again, with indices look set to rise for the nineth consecutive week. In the case of Singapore market, most investors will be very eager to see if tomorrow the STI can cross the 2283 mark , the crucial level to justify any further upside of local counters. 

It is interesting to observe that despite some big caps such as DBS and Capitaland managed to reach new recent highs, some liked City Dev and Jardine C & C within the 5% range of its recent high, there are still others such as UOB still have yet to approach their recent highs (For UOB, it’s 15.70).  Whether there will be some catch-up to do in next few days remains to be seen.

Chart of UOB in last five trading days

张爱玲的奶奶

也许很多人不知道，中国女文豪张爱玲的奶奶是李鸿章的长女。

有兴趣一睹张爱玲的奶奶年轻时的珍贵照片，可浏览以下网址：http://news.ifeng.com/history/vp/200905/0514_5626_1157486.shtml

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