Market Comments by Economist Dr CY Chan

I have extracted an article, written in chinese and translated to english, by Dr CY Chan, a program director in City University of Hong Kong. He is a well known figure as an advisor to many enterprises and a frequent public speaker about world economics:

3 March 2011

"Dear Friends
The stock market fell heavily for the first two months in 2011. Many small punters did not believe the the market would fall andwent in, hoping the market would rebound. Indeed there was no logical reason why the market should fall. Singapore economy is doing well and the government in its budget is paying out financial goodies to the people. US stocks keep rising to two years’ new high. There is no reason for Singapore stock market to fall. In my opinion, the only reason for the market to fall because too many people think there is no reason for it to fall.
Thus, many individual short term punters gamble on market’s rebound, gamble on derivative instruments in particular, hoping to have good returns with small capital outlay. But we cannot deny the big punters with their financial backing are able to
press the stocks until the small punters to surrender and give up. I believe in fundamental analysis. The fundamentals did not turn sour during the past two months. I cannot guess and do not want to guess the market’s short term fluctuations. Now is best to patiently wait for the corporate results which support the stock prices. Listed companies are going to announce their corporate results; those companies with good improved profits would make their stock prices look cheap as PE ratio would be much lower to attract investment interest. The Jasmine Revolution that started in Tunisia has spread like wild fire, engulfing North Africa and all the Arab countries in the Middle East. Tunisia is still in turmoil since the president stepped down. Egypt is under the control of military junta. Oil producing Libya is out of control. German and British oil companies have begun to evacuate their staff. In other word, oil production has stopped. Peoples of Iran, Bahrain, Yemem and Jordan demonstrate to overthrow the governments. Midde East and North Africa countries can be grouped into oil and non oil producing ones. US only concerns with who is who governing the oil producing countries. North Africa and Middle East cooutries can also be grouped into pro US and anti US. US, under the internal pressure of own people will oppose pro US governments to use force to surpress the demonstrations; therefore chances of these pro US regimes being overthrown are greater. Anti US groups will surely use force to clamp down the demonstrations; these regimes will not collapse without bloodshed. Many years ago the fanatic Gaddafi openly financed and supported Muslim extremists. Then one day US fighters flew over Lybian sky and started bombing with intent to kill him. Gaddafi, escaped and his life spared, became tamer since. Later when US invaded Iraq, Gaddafi got scared, and began to communicate with Western countries. There are US and European oil companies exploring Lybian oil fields today.
The unrests in Middle East and North Africa give US headaches. The locality is the largest global oil export region. Rising oil price will lead to price hike in other commodities. US is now in the wake of economic recovery and can ill afford continuous rising oil price that may lead to what the economists termed stagnation.
What is stagnation? It is where vicious inflation and recession happen at the same time. It happened in the 70s of the last century once due to certain rise in oll price. A price rise is either due to demands increase or supplies decrease, a simple economic concept. If the price rise is due to increase in demands, the issue is not so crittcal as it signifies economic prosperity; people have more money to spend
(though it may be due to printing of currency notes). People do not grumble that much if inflation is due to booming economy. In this case, only the less competitive and weaker group needs to be taken care of. If the price rise is the result of short supplies, then except for a few hoarders, most people whose income remains static will suffer as income lags behind rising prices. Consumption and expenditure will be cut, and economic recession follows. Should US economic recovery is hindered by rising oil price, global stock markets will be adversely affected. More frequent turbulences they are in Middle East the better it is for China. The 911 attack in 2001 was the watershed for China. President Bush’s all out efforts to counter terrorism altered his foreign policy. China became the world factory during Bush’s 8 years tenure. In order to have China against terrorism, Bush supported China’s entry to World Trade Organisation, thus opened up US market to China. As a result not a single US factory that originally rolled out cowboy jeans remaind in business. When Obama was elected, US foreign policy changed again. US is trying to woo Muslin countries, getting ready to pulll out from Iraq, liken China as an adversary. Nontheless, America had to ceremoniously welcome China’s Hu Jing Tao on his visit to US in return for financial aids. Inspite of this, the US foreign strategy to contain China has been formulated. Should the dictatorship Middle East regimes collapse one after another and these regimes ruled by Muslim fundamentalists, US foreign policy may yet change again. Obama is now trying to find a suitable pro US candidate to govern Egypt. Obama has no more energy to trade waring with China. The 20 nation finance minister forum on global inbalnce is over. It is conspicuously a meeting of tussle between Western fully developed nations and newly developing nations. Western fully developed nations have gathered some evidences to accuse the newly developing nations for causing the economic inbalance to prosperity at the expense of the fully developed nations. In other word the fullty developed nations are using all kinds of pretexts to blame the newly developing nations for their economic woes. Will the developing nations keep quiet? Not so. Yet to ignore the accusations means each goes its own way. Fully developed nations will exercise protectionism. As a compromise, Chinese finance minister suggested using trade accounts in lieu of exchange rates and foreign reserves as the benchmark. The G20 meeting was an important meeting that would have far reaching consequences to China’s government policy to avoild being accused as the chief culprit of economic inbalance. In short, China will have to increase imports by lowering import tariff to counter her strong exports. The moment when the G20 meeting ended, rumours had it that China would be lowering the import tariff for cometics and milk powder. Take a note of it."

Market Outlook for 2011

We went through a topsy turvy year of 2010. The first half of the year appeared to continue the gloom of 2009 where there was much speculation of a double dip recession happening in US. There was sudden news about Dubai economy nearly falling apart. Europe was not spared the rod either with Portugal, Ireland, Greece and Spain dragging the Eurozone into credit crisis. In the second part of the year, things appeared to look better with better employment figures and improving home prices in the US. What's more, the Barrack Obama administration, inspired by its first stimulus package during the global depression in 2008, decided to further boost its slow moving economy by injecting another US$900 billion (dubbed QE2), to buy up treasury bonds. The immediate reaction to that was the euphoria felt by stock markets in the world. On the other side of the world, is China, still enjoying an ever red hot economy. The whole of East Asia was enjoying the spillover effects from China. Global investors, attracted by the turbocharged economy of Asia, started pouring hot money from the US into the region.

In Singapore for 2010, we have seen phenomenal economic growth of 14.7%, a figure not seen since for the last 20 years. We have also seen an unstoppable rise in property prices, passed the last peak in 2007. So what lies ahead for us in 2011?

If you have been following news and analysts' forcasts, most are still bullish about the world economy. The IMF forecasts that the world economy would grow at 4.3% for 2011 compared to 4.2% for 2010. Although most are painting a brighter picture, they are putting words of caution with the Eurozone crisis still hovering and US still struggling to pull itself out of its stagnating economy.

Inflation will be the hottest topic for the year while crude prices are expected to reach the high of US$100 per barrel, a record breached in 2007. Signs of these have already shown up before 2010 came to a closure. China, has already taken measures to increase interest rates to curb rising prices of its commodities. My Hong Kong friend cited that in recent months, mainland chinese are swarming into the territories to buy up daily necessities like fruits, vegetables and diapers with their appreciating Yuan against HK dollars. For those car owners in Singapore, you would have experienced at least 3 times of petrol price hike in the last 2 months.

How about the red hot property in Singapore? It has surpassed the previous peak in 2007. The Singapore goverment has already put in several measures to weed out speculations. With still gravity defying property prices, the government is expected to come in soon again to further dampen the speculation mood. Latest index has shown that HDB prices are still on the rise, while mass market condos are easing. Landed houses and high-end apartments have just started its rise. The government has reiterated that it wants an affordable home to all Singaporeans. It has the utmost duty to moderate home prices and while allowing them to beat inflation.

As an investor, I update myself with news, check on stock market behaviour and network with industry players to be aware of what is going on around.




Let us take a simple view of the Straits Times Index (STI) performance over 2010 in order to forecast a 2011 behaviour. Refer to the topmost chart seen above. This is the STI performance between June and Dec 2010. If we draw 2 parallel blue lines to coincide with most highs and lows, they look clearly in an ascending pattern. This is what Chartists call an uptrend. If you refer to the end of the line (highlighted by the blue eclipse) which shows a downward direction, it is still not at a dangerous low. A dangerous low will be when it is crossing the lower parallel line. A 2011 market will be expected to be choppy. If the STI line remains within the window of the parallel lines, it would then be a healthy uptrend sign.

Chartists believe that market is always the first to digest information and reacts immediately to it. Chart patterns do not behave randomly but to some specific patterns that can be plotted out. However, as retail investors like us, although it can help us to forecast the future, we should not be too engrossed in only one camp of thought. We should open our eyes and ears to look for other indicators.

In my point of view, the 2011 will await signals on how US will help itself recover from recession and how the Eurozone crisis will unfold. The market will continue its 2010 behaviour when it was very sensitive to any grim news. China economy will also be closely tracked for any changes from impact of its policy change.

As for the Singapore property outlook, it is rather certain that the government is coming in with more measures to cool down the sector, as it has mentioned in its previous move. However, it certainly does not intend to kill the market. It has to moderate the growth to beat inflation and yet cannot allow speculations to create a property bubble, like what happened in the US during the sub-prime crisis. Too much hot money has been pouring into Asia from new found wealth around the region. With new immigrants also swarming into Singapore, the government is certainly right to regulate on property as it is one of the core investment engines for investors. But do remember that the General Elections is drawing near and the government cannot do absurd measures to its voters' ire. It has to ensure the economy grows healthily and at a moderate pace, get a mandate from its election win and then go back to work as usual.

In my view, the property, although has formed a new high, is not going down anytime soon. Rather the government is putting in measures to prevent it from spiking further up. If you look at the previous troughs in 1997, 2003 and 2008, they coincided with global economic downturns. If the world economy does not meet its nemesis in the few years ahead, the Singapore property is unlikely to see another slum. In fact, we will meet more new highs before we see the next global recession. This phenomenom will be attributed to the ongoing new money and new immigrants we are witnessing today.

Singapore Entrepreneur - Start of Correction?

With the recent correction of the stock market brings about many speculations if we are finally bursting the bubble of the bear rally. Some analysts are commenting that this is a healthy correction in view that many counters have ramped over value since the May rally. This may bring an awakening call to some pundits who have been wanting to make a killing in the stock market. June's performance should see a flater curve as most investors have already fully valued the market since May. The momentum of the rally is unlikely to last as there is no new data to support any recovery of the world economy. On the other hand, it does not mean you can't dip your hands into the market during this period. For me, the last stock market crash in Oct 2008 had in fact brought me a small fortune from a simple and effective method of buying. Ever since then, I have adopted this strategy for as long as the economy is still seeing no sign of turnaround.